UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Rule 13E-3 Transaction Statement under Section 13(e) of the
Securities Exchange Act of 1934 [Amendment No.__ ]
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BASE TEN SYSTEMS, INC.
(Name of the Issuer and Name of Person Filing Statement)
Class A Common Stock, par value $5.00
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(Title of Class of Securities)
069779304
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(CUSIP Number)
Class B Common Stock, par value $5.00
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(Title of Class of Securities)
069779403
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(CUSIP Number)
Kenneth W. Riley
Base Ten Systems, Inc., 535 East County Line Road, Lakewood, NJ 08701
(732) 370-6895)
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person Filing Statement)
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This Statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A (ss.ss.240.14a-1 through 240.14b-2), Regulation
14C (ss.ss.240.14c-1 through 240.14c-101) or Rule 13e-3(c)
(ss.240.13e-3(c)) under the Securities Exchange Act of 1934 (the "Act")
b. [ ] The filing of a registration statement under the Securities Act of 1933
c. [ ] A tender offer
d. [ ] None of the above
Check the following box if the soliciting materials or information statement
referred to above are preliminary copies: [x]
Check the following box if the filing is a final amendment reporting the results
of the transaction: [ ]
Calculation of Filing Fee
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Transaction valuation Amount of filing fee
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$40,000, based on estimated market
price of shares to be repurchased $200.00
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[x] Check the box if any part of the fee is offset as provided
byss.240.0-1(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. Amount
Previously Paid: 519.08; Form Schedule or Registration Statement No.: 14A
Filing Party: Issuer; Date Filed: 2/04/02.
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BASE TEN SYSTEMS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Dear Shareholders:
You are cordially invited to attend a special meeting of our
shareholders to vote on proposals to approve the sale of our clinical trials
software business, our merger with ConvergenceHealth.com, Inc. ("Convergence")
and related transactions, including a 1-for-1,000 reverse split of our common
stock and repurchase of fractional shares (the "Share Combination"). The Share
Combination will reduce our shareholder base enough to terminate our reporting
obligations as a publicly held small business company. This will save
administrative costs but could adversely affect our remaining shareholders by
eliminating any public market for our common stock. The accompanying proxy
statement describes the proposals and the reasons for their recommendation by
our board of directors. It also provides information about the reconstitution of
our board of directors upon consummation of the merger.
Special Meeting
Date: March 14, 2002 Place: Pitney, Hardin, Kipp & Szuch LLP
Time: 9:00 a.m. 200 Campus Drive, Morristown, New Jersey
Proposals to be Voted On
Item 1. Sale of Clinical Trials Software Business Item 4. Nevada Reincorporation and Name Change
Item 2. Merger with Convergence Item 5. 2002 Stock Option Plan
Item 3. Share Combination Item 6. Any other matters properly before the meeting
By order of the Board of Directors
Kenneth W. Riley,
February __, 2002 Chief Financial Officer
Contents of Proxy Statement
Item Page Item Page
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General Information About Voting.....................1 Proposal 5 - 2002 Stock Option Plan..............19
Background...........................................2 Directors and Officers...........................21
Proposal 1 - Sale of Clinical Software Business......3 Principal Shareholders...........................22
Proposal 2 - Merger with Convergence.................5 Certain Transactions.............................23
Proposal 3 - Share Combination......................16 Business of Convergence..........................23
Proposal 4 - Nevada Reincorporation and Additional Information...........................27
Name Change....................................18 Incorporation of Documents by Reference..........28
THESE TRANSACTIONS HAVE NOT BEEN APPROVED OR DISAPPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSSED UPON THEIR FAIRNESS OR
MERITS OR UPON THE ACCURACY OR ADEQQUACY OF THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNNLAWFUL.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 [Amendment No.__ ]
Filed by Registrant [x] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-12
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BASE TEN SYSTEMS, INC.
(Name of Registrant as Specified in its Charter and Name of Person
Filing Proxy Statement)
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Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Class A Common Stock
2) Aggregate number of securities to which transaction applies: 20,763
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. Set forth amount on which
filing fee is calculated and state how it was determined: $50 per
share, based on anticipated market price after reverse stock split
4) Proposed maximum aggregate value of transaction: $1,038,159
5) Total fee paid: $519.08
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
BASE TEN SYSTEMS, INC.
PRELIMINARY COPY
PROXY STATEMENT
GENERAL INFORMATION ABOUT VOTING
This proxy statement was prepared by management of Base Ten Systems,
Inc. ("Base Ten") to solicit votes on five proposals to be brought before a
special meeting of our shareholders (the "Proposals"). It was first mailed to
shareholders on February __, 2002. Your vote at the special meeting is important
to us. Please vote your shares of common stock by completing the accompanying
proxy card and returning it in the enclosed envelope. Upon request, additional
copies of the proxy materials will be furnished without cost to brokers and
other nominees for forwarding to beneficial owners of shares held in their
names. Information about voting on the matters addressed in this proxy statement
is provided in the following question and answer format.
Who can vote? You can vote your shares of common stock if our records show that
you owned your shares on the record date of February 11, 2002. On that date,
there were 5,358,812 shares of Class A common stock and 12,667 shares of Class B
common stock outstanding. Each share of either class gets one vote.
How do I vote by proxy? The enclosed proxy card has instructions for voting on
the Proposals. After marking your votes, please sign and date the proxy card.
Use the enclosed envelope for sending it back to us.
What if other matters come up at the meeting? The Proposals described in this
proxy statement are the only matters we know will be voted at the meeting. If
other matters are properly presented at the meeting, the proxyholders will vote
your shares as they see fit.
How will my card be counted? The proxyholders named on the proxy card will vote
your shares as instructed on the card. If you do not indicate your vote on a
Proposal, the proxyholders will vote in favor of the Proposal. Each Proposal
requires affirmative votes from holders of two-thirds of the shares outstanding
on the record date.
Can I change my vote after I mail my proxy card? You can change your vote any
time before the meeting by returning a new proxy card. We will honor the card
with the latest date. You can also revoke previously mailed proxy card by giving
notice of your revocation to the Company's secretary. Our address is Base Ten
Systems, Inc., 535 East County Line Road, Suite 16, Lakewood, New Jersey 08701.
Can I vote in person rather than by proxy? You can attend the special meeting
and vote your shares in person. We encourage you nevertheless to complete and
sign a proxy card to ensure your vote is counted.
How are votes counted? We will hold the special meeting on the scheduled date as
long as holders of a majority of the shares entitled to vote return signed proxy
cards or attend the meeting. We will count your shares toward this quorum
requirement as long as we receive your signed proxy card, even if you vote to
abstain on all Proposals or fail to vote.
What do I do if my broker holds my shares? If your shares are held in "street
name" by a broker, bank or other nominee, they should give you instructions for
voting the shares. Usually, they will vote the shares on your behalf and at your
direction.
What happens if my broker doesn't vote my shares? Your broker or other nominee
may refrain from voting your shares held in its street name if you do not tell
the nominee how to vote those shares. In that case, they will be treated as
broker nonvotes. Any broker nonvotes will count for the quorum requirement but
not for approval of any Proposal.
Who pays the expenses for this proxy solicitation? We do. If our employees
contact shareholders, they will not receive any extra compensation.
Do references to shares reflect the Share Combination? No. References to shares
eligible to vote reflect the shares currently outstanding.
Background of the Proposals
Contraction of Business
In the last several years, we have incurred substantial losses in
developing new software applications for the pharmaceutical and medical device
markets. After selling our defense related government technology division
("GTD") business in 1997, we focused on development of manufacturing execution
systems ("MES") for pharmaceutical markets, designed to address increasing cost
containment and compliance pressures in that sector. We later identified the
clinical trials market as an additional opportunity to apply our core
technology, ultimately developing clinical trials management software ("Clinical
Software") designed to support supplies management and compliance with
traceability requirements. To complement our Clinical Software offerings, we
acquired from Almedica International, Inc. ("Almedica") two software suites
designed to assist in managing supplies for clinical trials. The acquisition was
completed in June 1999 in exchange for 790,000 shares of our common stock.
Despite the perceived potential of our MES offerings, we encountered
unanticipated difficulties integrating our software with the wide variety of
legacy computer systems deployed in pharmaceutical manufacturing facilities. Our
inability to overcome these obstacles led to our sale of the assets associated
with our MES business to ABB Automation Inc. ("ABB") in October 2000.
The contraction of our business was reflected in declining market
prices for our common stock. Despite our completion of a 1-for-5 reverse split
of our Class A common stock in an effort to regain compliance with the Nasdaq's
$1.00 minimum bid price requirement for continuing SmallCap Market listing, we
were delisted in December 2000 when that effort proved unsuccessful. Since that
time, trading in our common stock has been limited to the OTC Bulletin Board.
Sale of Clinical Software Business
We also encountered various technological and marketing difficulties in
the introduction of our Clinical Software offerings, including the products
acquired from Almedica. Neither the internally developed nor acquired offerings
generated adequate sales to cover associated development and marketing expenses.
This contributed to our operating losses aggregating $48.5 million from 1998
through 2000. We anticipate that the Clinical Software business, if retained,
would continue to operate at a loss.
After selling our MES business in October 2000, we announced a decision
by our board of directors (the "Board") to discontinue our Clinical Software
operations and pursue revenue generating or strategic opportunities in sectors
requiring less capital resources, technological development and time to market
uncertainties (the "Business Redirection"). We also announced a reconstitution
of our Board and changes in our senior management to implement the turnaround
strategy. See "Directors and Officers."
In March 2001, we entered into a Limited Liability Company Agreement
(the "LLC Agreement") with Almedica and Almedica Advanced Technology, LLC
("Almedica LLC") for the sale and deployment of the assets associated with our
Clinical Software. The terms of the LLC Agreement and the reasons for its
authorization and recommendation by our Board are summarized below. See
"Proposal 1 - Sale of Clinical Software Business."
Business Redirection
After entering into the LLC Agreement, we concentrated on identifying
opportunities for a business combination meeting the criteria for our Business
Redirection. In April 2001, we began to explore a potential merger (the
"Merger") with ConvergenceHealth.com, Inc. ("Convergence"), a privately held
Nevada corporation focused on developing interactive web-based resources to
assist people make healthy lifestyle decisions informed by exposure to
alternative and preventative as well as traditional healthcare options. Although
Convergence has generated no revenues to date for its initial offering, the
Personal Health Application ("PHA"), our Board concluded that the PHA offers
tangible benefits both to corporate sponsors and their employees by encouraging
adoption of wellness lifestyles that can increase productivity and reduce
healthcare costs. See "Proposal 2 - Merger with Convergence -- Risk Factors" and
"Business of Convergence."
2
On January 18, 2002, we entered into an Agreement and Plan of Merger
(as subsequently amended, the "Merger Agreement") with Convergence and Newco
B10, Inc., a wholly owned subsidiary of the Company (the "Merger Sub"). To
provide Convergence with working capital pending completion of the Merger, we
purchased 800,000 shares of its preferred stock for $200,000 (the "Convergence
Investment") upon execution of the Merger Agreement. The acquired shares are
subject to limited put and call options if the Merger is not completed for
specified reasons prior to March 15, 2002 .
To reduce administrative costs following the Merger, the Merger
Agreement provides for us to terminate our reporting obligations as a publicly
held small business company by completing a 1-for-1,000 reverse split of our
common stock and repurchasing fractional shares for cash based on market prices
immediately prior to the Merger (the "Share Combination"). See "Proposal 3 -
Share Combination." To further reduce administrative costs, the Merger Agreement
also provides for our relocation to the corporate offices of Convergence in
Nevada and reincorporate in that State (the "Reincorporation"). As part of the
Reincorporation, we will change our corporate name to "Convergence Systems,
Inc." both for corporate identity purposes and for compliance with the agreement
covering the October 2000 sale of our MES assets to ABB. See "Proposal 4 -
Nevada Reincorporation and Name Change."
If the Merger is approved by the parties' shareholders and other
closing conditions are satisfied, the Merger Sub will merge into Convergence,
which will survive the Merger as a wholly owned subsidiary of Base Ten (the
"Parent Company"). At the time of the Merger, the outstanding capital stock of
Convergence will be converted into the right to receive Class A common stock of
the Parent Company representing 73.25% of the common shares to be outstanding
after our repurchase of fractional shares in the Share Combination.
To avoid the costs of multiple shareholder solicitations during the
pendency of our Merger negotiations, we elected to defer shareholder meetings
for an annual election of directors in 2001 and approval of the transactions
contemplated by the LLC Agreement. Almedica agreed to defer the closing under
the LLC Agreement to enable us to consolidate all five Proposals in a single
solicitation. To accommodate the development schedule for our Clinical Software
pending the closing under our LLC Agreement, we granted Almedica LLC a license
for that purpose in December 2001 (the "Almedica License").
Forward Looking Statements
This proxy statement includes forward looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act") relating to our business prospects, developments and anticipated
operations from the Business Redirection. Actual performance, prospects,
developments and results may differ materially from anticipated results due to
economic conditions, unanticipated circumstances and other risks, including
uncertain market acceptance and demand for our products or services, performance
risks, competition, potential infringement of proprietary rights and
uncertainties in the availability and cost of capital. Words like "anticipate,"
"expect," "intend," "plan" and similar expressions are intended to identify
forward looking statements, all of which are subject to these risks and
uncertainties. See "Risk Factors" for Proposal 1, Proposal 2 and Proposal 3.
PROPOSAL 1
SALE OF CLINICAL SOFTWARE BUSINESS
Terms of the LLC Agreement
Consideration. Subject to customary closing conditions, the LLC
Agreement provides for us to receive $75,000 in cash for our Clinical Software
business, plus a 20% interest in Almedica LLC. An amendment to the LLC Agreement
in December 2001 eliminated the cash payment, which we expect to receive instead
as royalties during the first year of the Almedica License.
3
Board Nominees. We will be entitled to designate one nominee for
appointment to the board of directors of Almedica LLC. Our designee will
represent a minority of that board and will have no special leverage to
influence its decisions.
Accounting Treatment. When we originally acquired the Clinical Software
products from Almedica, we recorded the assets and liabilities of the acquired
operations based on the market value of the 790,000 shares of common stock we
issued at that time. In October 2000, based on the decision by our Board to
dispose of this business, we recorded a loss on the disposition of discontinued
operations in the amount of $1.9 million. Following our sale of these
operations, our balance sheet will reflect nominal value for our 20% interest in
Almedica LLC.
Tax Consequences. There will be no material tax consequences from the
sale of our Clinical Software operations to Almedica LLC.
Regulatory Approvals and Appraisals. No federal or state regulatory
requirements or approvals will apply to the proposed sale. No report, opinion or
appraisal materially relating to the proposed sale have been obtained or relied
upon by us or the other parties to the LLC Agreement.
Almedica License. An amendment to the LLC Agreement in December 2001
provides Almedica LLC with a ten-year worldwide license covering the Clinical
Software. The Almedica License is exclusive for the first year and non-exclusive
for the balance of the ten-year term. It provides for royalties at rates
intended to generate $75,000 through the anticipated closing date and will
terminate on closing.
Reasons for the Proposed Sale
Since our acquisition of two clinical trials software products from
Almedica in June 1999, the acquired business has generated only marginal sales.
We estimate that our efforts to commercialize the acquired software and our
internally developed Clinical Software have resulted in losses of approximately
$3 million.
We have limited financial, technical or marketing resources available
to develop a market for our Clinical Software products. In view of these
limitations, we anticipate that our Clinical Software business, if operated
internally, would continue to operate at a loss. Our Business Redirection calls
for our pursuit of revenue generating or strategic opportunities requiring less
capital resources, technological development and time to market uncertainties
than our discontinued Clinical Software operations. We believe it would be
impractical to continue devoting our limited resources to both the Clinical
Software business and the Business Redirection.
Description of Almedica's Business
Almedica provides clinical trials materials ("CTM") services for Phase
I-IV clinical studies. These services are subject to regulation by the U.S. Food
and Drug Administration ("FDA"). Almedica's CTM services include clinical trial
protocol development, patient-specific labeling, randomization and packaging of
clinical trial supplies to clients including pharmaceutical, biotechnology and
contract research organizations. Almedica also handles storage, distribution and
return of CTM supplies through distribution management and interactive voice
response software. The principal executive offices of Almedica are located at 75
Commerce Drive, Allendale, New Jersey, and its telephone number is (201)
995-9440.
Risk Factors
Almedica recently formed Almedica LLC for the purpose of this
transaction. It has no operating history or current financing commitments from
Almedica, Base Ten or any third party. If Almedica LLC is unable to successfully
commercialize the acquired assets, our equity interest will have no value. Any
future financing or acquisition transactions, even if adding to Almedica LLC's
value, will dilute our equity interest. We did not retain a financial advisor to
evaluate the fairness of this transaction to our shareholders from a financial
point of view.
4
Prior Contacts and Agreements
In connection with our June 1999 acquisition of clinical trials
software assets from Almedica, we entered into the following arrangements with
its affiliates:
o Almedica's chairman, Clark L. Bullock, joined our Board. He served on
our Board until April 28, 2000.
o We entered into an employment agreement with Robert J. Bronstein,
former president of an Almedica subsidiary, to serve as president of
our Applications Software Division. Mr. Bronstein resigned on March
31, 2000.
o We entered into a Program License Agreement with Almedica, which
acquired a limited license for the Clinical Software products we
acquired, subject to its agreement not to compete with us in North
America for five years. We assigned all of our indemnification and
other obligations under this agreement to ABB in connection with the
sale of our MES business to ABB in October 2000. See "Background of
the Proposals - Contraction of Business."
o After the June 1999, we completed software development work for
Almedica but received no payment from them on our invoiced fees
aggregating $255,000. We also failed to collect software maintenance
fees of $140,000 invoiced to Almedica.
o We had various commitments under the Program License Agreement
relating to our MES software. Although those commitments were not
satisfied, they were assumed by ABB in October 2000 in connection
with its purchase of that software.
Any claims related to these matters will be released under the LLC
Agreement, if consummated following its approval by our shareholders.
Dissenters' Rights
Under New Jersey law, if the proposed sale of our Clinical Software
business were considered a sale of substantially all our assets other than in
the ordinary course of business, shareholders entitled to vote for its approval
would have dissenters' rights similar to those offered to shareholders in merger
and consolidation transactions. Shareholders of a New Jersey corporation
engaging in a merger or consolidation transaction have the right to dissent and
have their shares purchased by the surviving corporation if their corporation
has exchange listed shares held by more than 1,000 record holders as of the
record date. Since we do not meet that condition, we believe no dissenters'
rights would be available to our shareholders even if the sale of our Clinical
Software business were considered a sale of substantially all our assets other
than in the ordinary course of business.
Vote Required
Under New Jersey law, a sale of substantially all the assets of a
corporation organized in that State requires shareholder approval if the sale is
not in the ordinary course of business. Although we do not believe the proposed
sale of our Clinical Software business should be considered a sale of
substantially all our assets other than in the ordinary course of business, we
are seeking shareholder approval because it is required as a closing condition
under the LLC Agreement. On matters where shareholder approval is called for,
New Jersey law requires the affirmative vote of at least two thirds of the votes
cast by the holders of shares of Class A common stock and Class B common stock
entitled to vote at the special meeting, voting together as a class. Our Board
recommends that shareholders vote "FOR" the proposal to sell our Clinical
Software business under the terms of the LLC Agreement.
5
PROPOSAL 2
Merger with Convergence
General
The following summary of the Merger Agreement and description of the
risks and reasons for the Merger should be read together with the summary of
Convergence's business and financial data included elsewhere in this proxy
statement. See "Business of Convergence." For convenience, since Convergence
will be our wholly owned subsidiary after the Merger, we use the term "Parent
Company" in this proxy statement to mean Base Ten after the Share Combination,
the Nevada reincorporation and name change and the Merger.
Terms of the Merger Agreement
The Merger. If the Merger Agreement is approved by the parties'
shareholders and the other conditions to closing are satisfied, the Merger Sub
will merge into Convergence, which will become a wholly owned subsidiary of the
Parent Company. At the time of the Merger, the outstanding capital stock of
Convergence will be converted into the shares of our Class A common stock (the
"Merger Shares") representing 73.25% of the Parent Company's outstanding common
stock (the "Merger Ratio") after giving effect to our repurchase of fractional
shares in the Share Combination. See "Proposal 3 - Share Combination." We did
not retain a financial advisor to evaluate the fairness of the Merger Ratio or
other aspects of the transaction to our shareholders from a financial point of
view. See "Risk Factors" and "Determination of Merger Ratio" below.
Based on the Merger Ratio, each outstanding share of Convergence
capital stock outstanding at the time of the Merger will be converted into
0.001919 Merger Shares (the "Merger Conversion Rate"). The Merger Shares will be
issued to the shareholders of Convergence without registration under the
Securities Act of 1933 (the "Securities Act") in reliance on the exemption
provisions of Regulation D under the Securities Act. We will be entitled to
receive a representation letter from each shareholder of Convergence to the
effect that the shareholder is an "accredited investor" for purposes of the
private placement exemption under Regulation D or is otherwise qualified to
participate in a private placement.
Outstanding Derivative Securities of Convergence. At the time of the
Merger, options and warrants previously issued by Convergence to its employees
and consultants will be converted at the Merger Conversion Rate into five--year
warrants to purchase a total of 3,873 shares of our Class A common stock at
exercise prices ranging from $5.21 to $1,302.76 per share. If fully exercised,
the issued shares will represent 16.22% of our outstanding common stock after
giving effect to the Share Combination and the issuance of the Merger Shares.
Under the terms of the Merger Agreement, any other unexercised stock options or
warrants for Convergence capital stock and securities convertible into
Convergence capital stock outstanding at the time of the Merger will terminate.
Outstanding Derivative Securities of Base Ten. We currently have
outstanding options and warrants issued to our employees and consultants
exercisable for a total of 629,791 shares of our Class A common stock at
exercise prices ranging from $.6875 to $90 per share. As adjusted for the Share
Combination, the options and warrants will be exercisable to purchase a total of
629 shares of our Class A common stock at exercise prices ranging from $687.50
to $90,000.00 per share. If fully exercised, the issued shares will represent
3.08% of our outstanding common stock after giving effect to the Share
Combination and the issuance of the Merger Shares. Under the terms of the Merger
Agreement, any other unexercised stock options or warrants for our capital stock
and securities convertible into our capital stock outstanding at the time of the
Merger will terminate.
New Warrants. The Merger Agreement provides for our issuance of
warrants at the time of the Merger to persons who facilitated the transaction
(the "Merger Warrants"). The Merger Warrants will be exercisable for five years
to purchase a total of 2,726 shares of our common stock (the "Warrant Shares")
at an exercise price of $.001 per share. The number of Warrant Shares was
increased by 909 shares in a February 2002 amendment to the Merger Agreement,
which allocates the additional Merger Warrants to Andrew Sycoff in recognition
of his contributions to Base Ten. See "Board Reconstitution" and "Issuance of
Merger Warrants to Designees" below. If all the Merger Warrants are exercised,
the issued shares will represent 12% of our outstanding common stock after
giving effect to the Share Combination and the issuance of the Merger Shares,
effectively reducing the stake of our continuing shareholders after the Merger
from 26.75% to 23.54% of our outstanding common stock.
6
New Option Plan. The Merger Agreement provides for our adoption of a
new stock option plan covering a total of 4,100 shares of our common stock,
representing 17% of our outstanding common stock after giving effect to the
Share Combination and the issuance of the Merger Shares. See "Proposal 5 - 2002
Stock Option Plan."
Accounting Treatment. We will account for the Merger under the purchase
method. Because the Merger will be treated as a purchase of Base Ten by
Convergence for accounting purposes, our consolidated balance sheet after the
Merger will reflect the assets acquired in the Merger based on their book value
at the time of the Merger, without any step up to reflect their valuation in
determining the Merger Ratio.
Tax Consequences. We expect the Merger to qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. There
will be no material tax consequences from the Merger to our continuing
shareholders.
Regulatory Approvals and Appraisals. No federal or state regulatory
requirements or approvals will apply to the Merger proposed sale. No report,
opinion or appraisal relating to the Merger has been obtained or relied upon by
us or the other parties to the Merger Agreement.
Board Reconstitution. In view of the controlling interest in Base Ten
to be acquired by the shareholders of Convergence in the Merger, the Merger
Agreement provides for the current members of our Board and the board of
directors of Convergence (the "Convergence Board") to resign at the time of the
Merger and appoint five designees (the "Board Designees"), of whom two were
selected by of our Board and three by the Convergence Board. Although
shareholder approval of the Designees is not among the Proposals, the following
summary of the business experience and background of the Designees is provided
in accordance with Rule 14f-1 under the Exchange Act.
BASE TEN DESIGNEES
Andrew G. Sycoff , age 36, was appointed to our Board in October 2000
for a term expiring at the 2002 annual meeting of shareholders. See "Directors
and Officers." He has also served on the board of directors of Paragon
Industries Corp. since 1999. Since 1992, Mr. Sycoff has been President, Chief
Executive Officer and Chairman of the Board of Andrew Garrett Inc., an
investment bank and full service brokerage firm located in New York City, as
well as Chief Executive Officer and Co-Chairman of the Board of Andrew Garrett
Trading, Inc., a trading and Nasdaq market making firm. He previously held
branch manager positions with Shamrock Partners and Paulson Securities. Mr.
Sycoff has also held senior management and consulting positions within the real
estate industry.
Edward A. Holmes, age 48, is the President and Chief Financial Officer
of MSI of Central Florida, Inc. and the Executive Vice President and Chief
Financial Officer of its parent company, Paragon Industries Corporation, both of
which are in the electronics contract manufacturing business. Prior to joining
Paragon in 1999, he served as Costs and Contracts Manager of Base Ten,
commencing in 1995. During that time, he was part of the team that completed the
turnaround and sale of its GTD business. Mr. Holmes has also held fiscal
management and controller positions with firms in the healthcare and
construction industries, prior to which he was an active stockbroker in the
1980s with two Wall Street firms. He received a BS degree in Finance and a BA
degree in Business-Accounting from the Richard Stockton College of New Jersey.
CONVERGENCE DESIGNEES
Byron Gehring, age __, is the Chief Executive Officer of Convergence.
Prior to co-founding Convergence in March 2000, he was the President and
principal shareholder of Loan Eagle Strategies, Inc., a financial advisory
boutique whose clients included Convergence Health, Inc., the predecessor
company of Convergence (the "Convergence Predecessor"). See "Business of
Convergence - Background.." In 1991, Mr. Gehring co-founded Applied Computer
Technologies, Inc. and served as the Executive Vice President of Strategic
Resource Solutions Inc., technology companies he operated until their sale in
1999. From 1985 to 1991, he was European Sales and Service Director with
7
Devron-Hercules and Measurex, providers of process automation and control
systems to the paper industry. Mr. Gehring received a BS degree in Chemical
Engineering from Oregon State University and a B.A. in German from the
University of Stuttgart.
Ken Waltzer, M.D., M.P.H., age __, is the Chief Medical Officer and a
co-founder of Convergence. He was the Chief Executive Officer of the Convergence
Predecessor, which he founded in 1997. From 1990 to 1997, Dr. Waltzer served in
various capacities with Kaiser-Permanente, where he was the first Preventive
Care Coordinator for Southern California. While at Kaiser, he was also Director
of Medical Education at the West Los Angeles Medical Center. During his tenure,
he helped develop statewide guidelines for preventive care. Dr. Waltzer received
a B.A. cum laude from Harvard College, an M.D. from Baylor College of Medicine
and an M.P.H. in Health Policy and Management from the Harvard School of Public
Health. He completed an internship and residency in Primary Care Internal
Medicine at The Cambridge Hospital of Harvard Medical School and is a
board-certified Internist and Geriatrician.
Jasna Gehring, age __, has worked with Byron Gehring in their previous
business ventures in various capacities, including executive management,
administrative functions and various board functions. She has also served in
various managerial capacities with several chain restaurants in Germany. Ms.
Gehring is multilingual and received a degree in Economics from the University
of Osijek. She is the wife of Byron Gehring.
Issuance of Merger Warrants to Designees. The Merger Agreement provides
for the allocation of 70.83% of the Merger Warrants to three of the Designees.
See "New Warrants" above. The following table shows the number of Warrant Shares
covered by their Merger Warrants and the percentage of our outstanding common
stock those shares will represent after giving effect to the Share Combination
and the issuance of the Merger Shares.
Designee Warrant Shares Covered Post-Merger Percentage
-------- ---------------------- ----------------------
Byron Gehring 511 2.25%
Kenneth Waltzer 284 1.25%
Andrew Sycoff 1,136 5.00%
Conditions to Closing by Base Ten. Our obligation to consummate the
Merger is subject to various conditions, including:
o Approval of the Merger Agreement by the shareholders of Convergence,
and absence of any legal or regulatory impediment to our consummation
of the Merger;
o No breach of the covenants or representations and warranties of
Convergence in the Merger Agreement;
o Absence of any event or condition that had or would likely have a
material adverse effect on the operations, prospects or financial
condition of Convergence; and
o Delivery of the Personal Health Application developed by Convergence
to at least one unaffiliated sponsor or other subscriber organization
under a binding agreement providing for license or subscription fees
at fair value for the contract period (the "Performance Condition").
Conditions to Closing by Convergence. The obligation of Convergence to
consummate the Merger is also subject to various conditions, including:
o Approval of the Merger Agreement by our shareholders, and absence of
any legal or regulatory impediment to the consummation of the Merger
by Convergence;
o No breach of our covenants or representations and warranties in the
Merger Agreement;
8
o Absence of any event or condition that had or would likely have a
material adverse effect on our operations, prospects or financial
condition;
o Reconstitution of the Boards with the Designees;
o Implementation of the Share Combination;
o Termination of our reporting obligations under the Exchange Act in
anticipation of our reduced shareholder base from the Share
Combination; and
o At least $450,000 in cash and cash equivalents remaining in our
accounts.
Closing
The Merger will become effective when a certificate of merger is filed
with the Secretary of State of the State of Nevada in accordance with applicable
law. The certificate of merger will be filed as promptly as practicable after we
have obtained shareholder approval for the Proposals, implemented the Share
Combination, terminated our registration as a reporting small business company
under the Exchange Act and reincorporated in Nevada, provided that the other
conditions to the parties' obligations under the Merger Agreement have been
satisfied or waived where permitted.
Termination of the Merger Agreement
The Merger Agreement provides for the following remedies if terminated
under the circumstances listed below:
Terminating Party Reason for Termination Remedy of Terminating Party
- ----------------- ---------------------- ---------------------------
Base Ten Failure of Convergence to satisfy Reimbursement of our transaction costs
the Performance Condition up to $100,000 and right to have Byron
Gehring purchase our Convergence
Investment for $100,000
Base Ten Failure of Convergence to satisfy Reimbursement of our transaction costs
any of its other closing conditions up to $100,000
Convergence Failure of Base Ten to satisfy any Right to repurchase the Convergence
of its closing conditions Investment for $100,000
Under all other circumstances, any termination of the Merger Agreement
will be without liability to the terminating party as long as that party had
satisfied its own closing conditions. Except for the limited put and call rights
noted in the table, we would likely be unable after a termination of the Merger
Agreement to liquidate our Convergence Investment, which could be expected to
have little or no value.
Business of Convergence
Convergence is an e-Health company organized in March 2000 to develop
interactive resources for assisting people make healthy lifestyle decisions
informed by exposure to alternative and preventative as well as traditional
healthcare options. As an initial offering, Convergence has developed its
web-based PHA to be deployed with large businesses and health plans for use by
their employees and participants. Convergence has designed the PHA as an
engaging and entertaining collection of interactive assessments, programs and
multimedia content. Each PHA site offers its users a personalized view of their
health and lifestyle, coupled with multidisciplinary options for understanding
and addressing their health concerns. See "Business of Convergence."
9
By encouraging adoption of wellness lifestyles that can increase
productivity and reduce healthcare costs, Convergence believes its PHA offers
tangible benefits both to sponsors and end users. With virtually no sales to
date, however, proof of this concept is highly uncertain. See "Risk Factors"
below. The principal executive offices of Convergence are located at 774 Mays
Boulevard, Suite 386, Incline Village, Nevada 89451, and its telephone number is
(775) 832-6632. Base Ten will relocate to this address upon completion of the
Merger.
Risk Factors
Recurring Losses. Our operations after the Merger will be conducted
solely through Convergence, which has yet to generate any revenues from
operations, resulting in net losses from its inception in March 2000 through
September 30, 2001 aggregating $4.1 million. These losses reflect expenses
incurred by Convergence in developing and marketing its Personal Health
Application. The business plan for Convergence contemplates substantial capital
expenditures to fund its ongoing operations without any assurance of achieving
any revenues from operations. Convergence anticipates that its costs to complete
development and to commerce marketing and deployment of its PHA services will
contribute to recurring losses at the rate of $______ per month by the time of
the Merger. Our ability to achieve profitable operations through the Convergence
subsidiary could be adversely affected by delays or inefficiencies in the
development cycle, inadequate marketing resources, lack of sponsor or consume
acceptance of its products, competition and changing technology.
Risks of Financial Leverage. Convergence is significantly leveraged,
with $______ of current liabilities at September 30, 2001, of which $_____ was
in default at year end. See "________________." Although Convergence expects
$____ of its outstanding notes to be converted to equity prior to the Merger and
plans to use our cash reserves after the Merger to retire approximately $_____
of outstanding obligations, its ability to repay the remaining obligations will
be dependent on its future performance or ability to raise equity capital on
acceptable terms. Certain of these outstanding obligations were assumed by
Convergence in prior acquisitions and are secured by the acquired assets. Upon
any repayment default on those obligations, the creditors would be entitled to
seek foreclosure sales of the collateral, potentially requiring Convergence to
liquidate or seek protection under the bankruptcy laws. In that event, our
shareholders could expect to lose their entire investment.
Risk of Inadequate Financial Resources. At the time we executed the
Merger Agreement, Convergence was dependent on the proceeds from our Convergence
Investment for its working capital requirements pending the Merger. See
"Background - Business Redirection." Other than our cash and cash equivalents to
be available to Convergence after the Merger, there are currently no commitments
from any sources to provide additional financing. In the absence of revenues
from sponsorship, licensing or subscription arrangements for its PHA services
our contributed working capital estimated at $500,000 at the time of the Merger
is expected to be allocated primarily to repayment of its outstanding current
liabilities. The balance of these funds is expected to enable Convergence to
pursue its development and marketing objectives at the desired pace and scope
only through ________ 2002. Accordingly, since Convergence does not expect to
begin generating significant revenues before those funds are expended, it will
be required to either limit future development and marketing activities or raise
additional equity capital or incur more debt to continue financing those
activities. The issuance of additional equity could be dilutive to existing
shareholders, and the alternative of financing development through borrowings
could reduce its operating flexibility and weaken our consolidated financial
condition.
Risks of New Product Development. Our operations through Convergence
after the Merger will be subject to all of the technological, business and
financial risks inherent in the commercialization of new products for markets in
which we are not an established participant. The success of the PHA offerings
will depend not only on securing sponsorship or licensing arrangements with
employers, health benefit intermediaries and other organizations but also on the
willingness of their employees and plan participants to utilize this data base
resource. Convergence could encounter resistance to implementation of its
technology based on a number of concerns by potential sponsors, including
possible exposure to end user claims or fall out from the traditional medical
establishment. The developmental as well as potentially controversial nature of
this product makes its ultimate success in the marketplace uncertain.
10
Risk of Inadequate Marketing Resources. The limited exposure of
Convergence to the healthcare markets could impair its ability to penetrate
those markets with sufficient speed to fully capitalize on its perceived
technological lead time for its PHA offering. In the absence of substantial
market penetration, it will be unable to generate sufficient sponsorship,
licensing or subscription fees to attain profitability. While Convergence will
seek to use relationships with distributors and health benefit intermediaries to
facilitate marketing arrangements for its products, it expects to remain
primarily dependent on its own limited marketing resources for developing
licensing or similar arrangements with sponsoring organizations. Convergence is
seeking to establish strategic alliances to enhance its licensing opportunities
but does not anticipate meaningful results until initial PHA sponsorships are in
place and a track record is established.
Risk of Technological Obsolescence. The marketplace for medical
information is characterized by rapid technological changes. Products and
services using different technologies could be introduced and established before
market acceptance is achieved for PHA services. Developers of similar products
and services have experienced time lags of one year or more between commencement
of marketing activities through the completion of field trials and ultimate
sales or subscriptions. Similar or longer delays could be experienced by
Convergence, in the course of which it could face the risk of the product's
technological obsolescence.
Dependence on Proprietary Technology and Risks of Infringement.
Convergence believes its PHA offering is distinguished in large part by a
proprietary interactive technology designed to enable users to find desired
information in its data base easily and quickly. This technology is subject to
the risks of misappropriation and infringement. Despite efforts to protect its
proprietary rights in this technology through a pending patent application as
well as confidentiality procedures and contractual provisions intended to lower
the risk of misappropriation or infringement, unauthorized parties may
nevertheless attempt to copy aspects of this product or obtain and use
information that Convergence considers proprietary. Policing unauthorized use of
its proprietary technology and content may be difficult and costly. As a result,
efforts by Convergence to protect its proprietary rights may be inadequate. In
addition, its competitors may independently develop similar technology enabling
them and penetrate markets otherwise accessible to Convergence.
Competition. The healthcare information industry is intensely
competitive and fragmented. Principal competitors of Convergence currently
include national and regional firms offering information systems and platforms
through established internet sites or proprietary networks. In addition, many
educational organizations provide a broad range of medical information data base
resources without charge. All of these competitors have substantially greater
financial, technical, marketing and deployment resources than Convergence. Many
of these competitors have the added advantage of offering a greater diversity of
products with a substantial installed base. Moreover, while Convergence is not
aware of any direct competitors that offer comparable interactive features and a
focus on preventative health options, current indirect competitors with greater
resources than Convergence could enter and control this market before
Convergence obtains any meaningful market share.
Risk of Product Liability. Convergence may be exposed to claims by PHA
end users to the effect that the services were defective, failed to properly
assess health status or provided guidance resulting in injuries, even if the
information underlying the claim was licensed by Convergence from highly
reputable third parties or was generally accepted in the preventative healthcare
community. While Convergence intends to include disclaimers in its agreements
with sponsors and publish similar cautionary notices on PHA web sites to limit
its exposure to liability claims, these may be unenforceable in whole or in
part. Insurance against these types of potential claims, even if obtainable on
acceptable terms, may also fail to fully protect Convergence from liability.
Defense of any liability claims could require Convergence to expend significant
resources and could be unsuccessful, resulting in substantial monetary and
reputational damages.
Dependence on the Internet and Computer Systems. Convergence will
depend on the continued growth in the use and efficient operation of the
Internet. Web based markets for information, products and services are new and
rapidly evolving. If Internet usage does not continue to grow or increases more
slowly than anticipated, Convergence could be unable to secure sponsorship and
licensing arrangements for its PHA offerings. Convergence will also be dependent
on adequate network infrastructure, consistent quality of service and
availability to customers of cost-effective, high-speed Internet access. If
systems maintained by Convergence cannot meet customer demand for access and
reliability, these requirements will not be satisfied, and customer satisfaction
could degrade substantially, adversely affecting prospects for market
penetration and profitability.
11
Regulatory Risks. The laws governing the Internet remain largely
unsettled, even in areas where there have been legislative initiatives. It may
take years to determine whether and how Internet services are affected by
existing laws, including those governing intellectual property, privacy, libel,
product liability and taxation. Future legislation or judicial precedents could
reduce Internet use generally and decrease its acceptance as a communications
and commercial medium, adversely affecting the prospects of Convergence.
Privacy Related Risks. Convergence intends to retain a data base of
confidential information provided by PHA users as part of an interactive
assessment available with this service. While Convergence intends to maintain
the confidentiality of this data through the security of its facilities and
infrastructure and restrict its us to PHA functions, it may nevertheless be
vulnerable to physical break-ins, computer viruses, programming errors or
similar disruptions. A material security breach could expose Convergence to
liability and reputational damage.
Risks Associated with Dependence on Key Personnel. Convergence has
substantially reduced its technical and marketing staff in response to working
capital constraints, and the execution of its business plan will be dependent to
a large extent upon its ability to attract and retain highly skilled technical,
managerial and marketing personnel. Current compensation and benefit levels
could contribute to the loss or reduced productivity of remaining personnel and
impair the ability of Convergence to attract new personnel, either of which
could have a material adverse affect on its business and financial prospects.
Control By Former Shareholders of Convergence. As a group, the 28
current shareholders of Convergence will receive Merger Shares that will
represent 73.25% of our outstanding common stock at the time of the Merger after
giving effect to the Share Combination. Under Nevada law, which will control our
corporate governance after our Reincorporation in that State, the affirmative
vote of at least two thirds of the votes cast by the holders of our common stock
will be able to determine the outcome of all matters submitted to a vote of our
shareholders. Accordingly, our current shareholders whose common stock is not
repurchased in the Share Combination will be unable to control the election of
any Board members or any other aspects of corporate governance after the Merger,
and holders of the Merger Shares will have the voting power to determine these
matters.
Summary Historical and Pro Forma Financial Data
The following table sets forth a summary of historical and pro forma
financial information for Base Ten as of the dates and for the periods
indicated. Except as otherwise noted, the historical financial information
presented below is derived from the audited Consolidated Financial Statements of
Base Ten incorporated by reference in this proxy statement. See "Documents
Incorporated by Reference." This information should be read in conjunction with
those Consolidated Financial Statements and the accompanying Notes. The pro
forma financial information presented below gives effect to the Merger as of the
beginning of each period reported in the Summary of Operations and as of the
balance sheet date for the Summary Balance Sheet Data. This information is
unaudited and should be read in conjunction with the Financial Statements of
Convergence and the related Notes thereto included elsewhere in this proxy
statement. See "Business of Convergence - Financial Information."
12
Nine Months Ended
September 30, 2001 Year Ended December 31, 2000
---------------------------- ----------------------------
Historical Pro Forma (2) Historical Pro Forma
---------- --------- ---------- ---------
Unaudited Unaudited
Summary of Operations:
Net loss from continuing operations.......... $ (519) $ $ (3,433) $ (6,596)
Net loss from discontinued operations........ --- (5,831) (5,832)
----------- ----------- ----------- -----------
Net loss from operations..................... $ (519) $ $ (9,264) $ (12,427)
=========== =========== =========== ===========
Net earnings (loss) per common share from: (1)
Continuing operations..................... $ (.02) $ $ (.66) $ (.33)
Gain on redemption of preferred stock..... --- 2.25 .59
Discontinued operations................... --- (1.12) (.22)
----------- ----------- ----------- -----------
Net earnings (loss) per share................ $ (.02) $ $ .47 $ (.36)
=========== =========== =========== ===========
Summary Balance Sheet Data:
Working capital.............................. $ 1,287 $ $ 1,675 $ 1,357
Total assets................................. 1,705 2,794 3,390
Long term debt............................... --- --- 500
Shareholders' equity (deficit)............... 1,300 1,790 1,050
- ----------------
(1) For consistency, does not give effect to the Share Combination.
(2) To be added.
Determination of the Merger Ratio
In determining the Merger Ratio, both Boards relied primarily on an
evaluation of the Merger parties' net asset values on a going concern basis as
the most appropriate way to allocate ownership of the combined enterprise.
Because the parties view the Merger as a combination of two enterprises rather
than a traditional acquisition, both Boards determined that a premium to either
parties' investors would be inappropriate.
In separate evaluations of the parties' relative net asset value
contributions, the two Boards initially estimated relative net contributions in
a range of 23% - 33% by Base Ten and approximately 67% - 77% by Convergence. The
variance was primarily from different weights placed on the capital requirements
and market prospects for commercialization of the PHA software being developed
by Convergence. After several months of due diligence and arms' length
negotiations, these contribution ranges were refined to approximately 27% by
Base Ten and 73% by Convergence. These estimated contributions formed the basis
for the Merger Ratio ultimately adopted by the parties.
Our Board did not analyze liquidation values of the Merger parties
because it views the Merger as a combination of two ongoing enterprises and that
reliance on estimated liquidation values in allocating ownership of the combined
enterprise between the two shareholder constituencies would be inconsistent with
that approach. The Board considered an evaluation of the Merger parties'
relative contributions from estimated net asset values on a going concern basis
to be entirely consistent with that approach.
13
Reasons for the Board's Authorization of the Merger
Our Board has unanimously authorized the Merger Agreement and
recommends its approval by our shareholders based on its determination that the
Merger and related transactions contemplated by the Merger Agreement
(collectively, the "Merger Transactions") are in the best interests of Base Ten
and are fair to our existing shareholders in all respects, including financial,
timing and procedural considerations. The Board considered the factors
summarized below in reaching this conclusion.
o The Merger is intended to address our objective of redirecting our
business to a market sector requiring less capital resources,
technological development and time to market uncertainties than our
MES and Clinical Software operations. The Board believes the Merger
will achieve this objective by concentrating our remaining resources
in the emerging and potentially sizable market for electronic
dissemination of personalized medical information. By targeting an
unestablished, cash constrained participant in this market as our
partner for implementing the Business Redirection, our Board balanced
the attendant risks against the perceived the potential of the merger
for maximizing investment values for our continuing shareholders
through partial ownership of a combined enterprise with greater
upside than their current investment in Base Ten.
o Because our primary assets remaining after the sale of our Clinical
Software business will be cash and cash equivalents, the Merger and
related Convergence Investment also address Convergence's objective
of securing needed capital on acceptable terms. This enabled us to
negotiate Merger terms considered relatively favorable by our Board.
o Our Board did not seek bids for the sale of Base Ten because it
believes that continued operations through Convergence as a privately
held enterprise should be more advantageous to continuing investors.
This conclusion was based in part on the recent contraction of our
business and the corresponding decline in the market price for our
common stock, which could be expected to have an adverse impact on
the consideration to be offered by any bidder.
o The Board also considered the that any active bidder for Base Ten
would likely apply a substantial discount to the value of our public
company franchise due to the delisting of our Class A common stock
from the Nasdaq Small Cap Market in December 2000. Trading in our
common stock was limited thereafter to the OTC Bulletin Board
("OTCBB"). This not only reduced liquidity in the outstanding common
stock but also impaired our ability to implement the Business
Redirection with any enterprise seeking to provide its shareholders
with publicly traded securities through a business combination.
Accordingly, our Board considered the lower administrative costs of
private operations to outweigh the limited benefits of maintaining
Exchange Act registration for an OTCBB traded security.
Dissenters' Rights
Our shareholders who object to the Merger will have the right under New
Jersey law to dissent and have their shares purchased by the Parent Company at
fair value. The procedures that must be followed to assert and enforce
dissenters' rights under the New Jersey statute governing these rights are
summarized below. Upon request, we will provide any dissenting shareholders with
a copy of the statute.
To exercise dissenters' rights, a dissenting shareholder must file with
us, in time to be received before the special meeting, a written notice of
dissent (a "Notice of Intent") indicating an intent to demand payment for his
shares if the Merger is consummated. The Notice of Intent must either be
submitted to us at the special meeting or mailed to us not less than three
business days before the special meeting, at our current offices located at 535
East County Line Road, Suite 16, Lakewood, New Jersey 08701, to the attention of
Kenneth W. Riley, Chief Financial Officer, Base Ten Systems, Inc. A dissenting
shareholder must also vote against the Merger or abstain from voting, and the
dissent must apply to all the shares of our common stock owned by the dissenting
shareholder.
If the Merger is approved and consummated, the Parent Company must send
each dissenting shareholder, within 10 days after the effective date of the
Merger, a written notice (a "Dissenters' Notice") confirming the effective date.
Within 20 days after the Dissenters' Notice is mailed, a dissenting shareholder
must respond by sending us a written demand for payment of the fair value of his
shares (the "Payment Demand"). Since we will be relocating after the Merger to
14
774 Mays Boulevard, Suite 386, Incline Village, Nevada 89451, the Payment Demand
should be sent to us at that address, to the attention of Kenneth W. Riley,
Chief Financial Officer, Convergence Systems, Inc.
Within 20 days after making a Payment Demand, a dissenting shareholder
must submit to us all stock certificates representing his shares. Upon receipt,
we will mark the certificates to reflect the demand and return them to the
dissenting shareholder. A dissenting shareholder who has made a Payment Demand
will thereafter be entitled only to payment for his shares and will not be
entitled to vote or exercise any other shareholder rights. A dissenting
shareholder may not withdraw a Payment Demand without our written consent. When
we communicate with any dissenting shareholders, we must inform them of the
deadlines for any actions they are required to take in order to perfect their
dissenters' rights. Merely voting against the Merger or abstaining from voting
will not satisfy the procedural requirements for perfecting dissenters' rights.
Within 10 days after the deadline for submitting Payment Demands, the
Parent Company will mail to each dissenting shareholder its financial statements
at and for a twelve-month period ended on the latest practicable date. The
transmittal letter must indicate whether we have elected to pay dissenting
shareholders the fair value of their shares. If so, it must specify the price we
have determined as the fair value of those shares. Within 30 days after the
deadline for submitting Payment Demands (the "Settlement Window"), we must make
payment of that fair value for all the shares of each dissenting shareholder who
accepts our valuation and submits his stock certificates for cancellation.
If a dissenting shareholder does not accept our valuation within the
Settlement Window, he may serve us with a written demand to commence an action
in the New Jersey Superior Court for the court's determination of the fair value
of his shares. The demand must be served within 30 days after the expiration of
the Settlement Window. Nor later than 30 days after our receipt of the demand,
we must commence the requested action. If we fail to do so, a dissenting
shareholder may commence the action in the our name not later than 60 days after
the expiration of the time allotted for us to commence the action.
In any action to determine the fair value of our common stock, all
dissenting shareholders who have not accepted our valuation within the
Settlement Window will be parties to the action. The court may appoint an
appraiser to receive evidence and report to the court on its evaluation of fair
value. The court will determine the appraiser's powers and, based on its
evaluation, will render a judgment against the Parent Company in favor of each
shareholder in the action for the fair value of his shares, as determined by the
court, together with an allowance for interest at a rate set by the court from
the applicable Payment Demand to the day of payment. The judgment will be
payable to a dissenting shareholder upon surrender to the Parent Company of the
certificates representing his shares.
The costs and expenses of any action for determining the fair value of
dissenters' shares, including reasonable compensation for and expenses of any
appraiser, will be determined by the court and apportioned and assessed as the
court determines. Fees and expenses of counsel and of experts for the parties to
the action may be assessed against the Parent Company if the court deems an
assessment to be equitable, but only if the court finds that our offer of
payment was not made in good faith or if we failed to make a payment offer.
The right of any dissenting shareholder to be paid the fair value of
his shares will terminate if (1) he fails to present the certificates
representing his shares for notation, unless a court directs otherwise, (2) the
Payment Demand is withdrawn by the dissenting shareholder with our written
consent, (3) we come to an agreement with the dissenting shareholder on the fair
value of his shares, (4) the New Jersey Superior Court determines that the
shareholder is not entitled to payment for his shares, (5) the Merger is
abandoned or rescinded or (6) a court having jurisdiction permanently enjoins or
sets aside the Merger. In any of those events, a dissenting shareholder's rights
as a shareholder will be reinstated as of the date of his Payment Demand without
prejudice to any corporate action that has taken place in the interim, and the
shareholder will be entitled to receive any intervening preemptive rights and
payment of any intervening dividend or other distribution.
15
Vote Required
Under New Jersey law, a corporation organized in that State must obtain
shareholder approval for a merger or consolidation transaction that is not in
the ordinary course of business. Because the Merger is not in the ordinary
course of business, New Jersey law requires the affirmative vote of at least two
thirds of the votes cast by the holders of our Class A common stock and Class B
common stock entitled to vote at the special meeting, voting together as a
class. Our Board recommends that shareholders vote "FOR" the Proposal to approve
the Merger Agreement.
PROPOSAL 3
Share Combination
Terms of the Share Combination
Our Board has adopted a resolution authorizing the Share Combination on
the following terms:
o Every 1,000 shares of both Class A and Class B common stock will be
combined into and exchanged for one share of the same class;
o Each holder of record of a fractional share of our common stock
before giving effect to the Share Combination will receive a cash
payment in lieu of the fractional share in an amount based on the
average closing price of our common stock during the 20 trading days
preceding the Merger;
o A certificate of amendment to our Amended and Restated Certificate of
Incorporation (the "Charter") will be filed with the New Jersey
Department of State, providing for the foregoing steps and for an
amendment of Article 6(a) of the Charter to read follows:
(a) This corporation is authorized to issue three classes of
shares of stock to be designated "Class A Common," "Class B Common" and
"Preferred." The total number of shares that this corporation is
authorized to issued is 1,268,200.9375, and the aggregate par value of
all such shares is $137,994,200.9375. Of these shares, 270,000 shall be
Class A common, par value $500.00 each, 4,000 shall be Class B common,
par value $500.00 each, and 994,200.9375 shall be Preferred, par value
$1.00 each.
o A Certification and Notice on Form 15 will be filed with the
Securities and Exchange Commission (the "SEC") terminating our
reporting obligations as a small business company under the Exchange
Act in anticipation of the reduction of our shareholder base below
500 record holders.
Purpose of the Share Combination
As of the record date for the special meeting, we had a total of ____
record holders of our common stock, with approximately [half] of these accounts
holding less than 1,000 shares ("Small Accounts"). During the last six month of
2001 through year end, when discussions on the structure and terms of the Merger
were continuing, the market price of our Class A common stock ranged from $.05
to $.11 per share. Based on an average share price of approximately $.065 per
share for the period, a median Small Account of 500 shares had a market value of
$32.50. We estimate that our annual costs for transfer agent, legal and
accounting services associated with our reporting and related obligations as a
publicly held small business company are approximately $120,000 ("Reporting
Costs"). This translates to $___ per record holder account, which exceeds the
average market value of the median Small Account.
Since reporting companies are entitled to terminate their Exchange Act
registration if their shareholder base has declined below 500 holders of record
(or below 300 if the issuer has total assets in excess of $10 million), the
Board authorized the Share Combination to achieve that result. By enabling us to
terminate our Exchange Act registration, the Share Combination is intended to
eliminate our Reporting Costs so all of our limited financial resources net of
costs for fractional share repurchases can be applied to execution of the
Convergence business plan.
16
Reasons for the Board's Authorization of the Share Combination
Our Board has unanimously authorized the Share Combination and
recommends its approval by our shareholders based on its determination that
cashing out the Small Accounts and terminating our Exchange Act registration is
in the best interests of Base Ten and is fair to our existing shareholders in
all respects, including financial, timing and procedural considerations. The
Board considered the factors summarized below in reaching this conclusion.
o In view of the limited market for our common stock following its
delisting from the Nasdaq SmallCap Market in December 2000, our Board
believes the advantages usually associated with a public company
franchise have been substantially undercut by the downturn in our
business and the resulting loss of market value and liquidity in our
common stock. The Board considers whatever advantages remain in our
public company franchise to be overwhelmingly outweighed by the
Reporting Costs.
o The Convergence Board not only concurred with this conclusion but
conditioned its willingness to complete the Merger on the termination
of our small business company registration under the Exchange Act.
o The Board also considered that holders of Small Accounts will benefit
from our repurchase of their fractional shares at market value. To
ensure procedural fairness, we intend to use average closing prices
during the 20 trading days preceding the Merger as the basis for
determining the repurchase price for fractional shares resulting from
the Share Combination.
Tax Consequences
Each shareholder receiving a cash payment in lieu of the fractional
share resulting from the Share Combination will generally recognize capital gain
or loss equal to the difference between the amount of the cash payment and the
tax basis in the fractional share.
Risk Factors
After the Merger, there will be no established trading market for our
common stock, and our continuing shareholders will have no liquidity in their
investment. Although regulations under the Exchange Act establish procedures for
brokers to issue quotations on securities of non-reporting companies that
provide the broker with specified business and financial information, we do not
expect the reconstituted Board to authorize the preparation or dissemination of
that information, and Base Ten will have no obligation to do so after the
Merger.
Dissenters' Rights
Under New Jersey law, holders of fractional shares to be exchanged for
cash by a New Jersey corporation engaging in a share combination transaction
have the right to dissent and have their fractional shares purchased by the
corporation at their fair market value. Since we will be paying cash for
fractional shares in the Share Combination at their market price at the time of
the transaction, we believe any exercise of dissenters' rights would have no
effect on the cash received by any dissenting shareholder in lieu of a
fractional share.
Vote Required
Under our Charter and New Jersey law, the Share Combination requires
the affirmative vote of at least two thirds of the votes cast by the holders of
shares of Class A and Class B common stock entitled to vote at the special
meeting, voting together as a class. Our Board recommends that the shareholders
vote "FOR" the proposed Share Combination.
17
PROPOSAL 4
Nevada Reincorporation and Name Change of Corporate Name
Terms of the Reincorporation and Name Change
Our Board has adopted a resolution authorizing the Reincorporation on
the following terms:
o Prior to the Merger, we will form a wholly owned subsidiary under the
laws of the State of Nevada (the "Nevada Sub").
o The certificate of incorporation of the Nevada Sub will be the same
as our Charter, modified only for a different name and a provision
for authorized capital stock corresponding to the amendment to
Article 6(a) of our Charter, reflecting the reduction in our
authorized shares and the increase in the par value of those shares
to be adopted in the Share Combination. See "Proposal 3 - Share
Combination -- Terms of the Share Combination."
o Immediately prior to the Merger, Base Ten will merge (the
"Reincorporation Merger") into the Nevada Sub, which will be the
surviving corporation (the "Parent Company").
o In the Reincorporating Merger, each whole share of our Class A and
Class B common stock outstanding after giving effect to the Share
Combination will be converted into a whole share of the same class of
the Nevada Sub's common stock.
o The plan and agreement of merger for the Reincorporating Merger (the
"Reincorporating Merger Agreement") will provide for a change in the
corporate name of the Parent Company at the time of the
Reincorporating Merger to "Convergence Systems, Inc." or a
substantially similar name.
Reasons for the Board's Authorization of the Reincorporation and Name Change
Our Board has unanimously authorized the Reincorporating Merger and
recommends its approval by our shareholders for the following reasons:
o Our Board determined that consolidating the corporate offices of the
Parent Company and Convergence after the Merger will achieve
financial and operating efficiencies. The Convergence Board concurred
with this conclusion and conditioned the obligation of Convergence to
consummate the Merger on completion of the Reincorporation.
o Both Boards also determined that the corporate identity for our
consolidated enterprise after the Merger would be enhanced by
adopting a compatible corporate name for the Parent Company. The name
"Convergence Systems, Inc." was selected for the Parent Company to
serve that purpose.
o The agreement with ABB covering the sale of our MES business includes
our undertaking to seek shareholder approval for a new corporate name
that does not include "Base Ten" or "Base Ten Systems." Changing our
corporate name to "Convergence Systems, Inc." also satisfies that
contractual obligation.
Comparison between New Jersey and Nevada Law
The rights of continuing shareholders after the Reincorporating Merger
will be governed by Nevada rather than New Jersey corporate law. The corporate
laws in these states are substantially alike. Areas where there are substantive
or procedural differences that could affect our shareholders after the Merger
are summarized below.
o [To be added]
18
o
o
Dissenters' Rights
Under New Jersey law, shareholders who object to the Reincorporating Merger
are not entitled to any appraisal or dissenters' rights.
Vote Required
Under our Charter and New Jersey law, approval of the Reincorporating
Merger requires the affirmative vote of at least two thirds of the votes cast by
the holders of shares of Class A and Class B common stock entitled to vote at
the special meeting, voting together as a class. Our Board recommends that the
shareholders vote "FOR" the proposed Reincorporating Merger.
PROPOSAL 5
2002 Stock Option Plan
General
Since 1990, we adopted six compensatory stock option plans (the "Prior
Plans"), providing for the grant of options to purchase an aggregate of 1.3
million shares of our common stock. Outstanding options granted under the Prior
Plans are currently exercisable for a total of 629,791 shares of our Class A
common stock. As reflected in the terms of the Merger Agreement, the Merger
parties determined that the Parent Company should have an option pool for future
grants covering 17% of the Parent Company's common stock to be outstanding after
giving effect to Share Combination and the issuance of the Merger Shares. In
accordance with those terms, the Board adopted a 2002 Stock Option Plan (the
"2002 Plan"), subject to approval by our shareholders at the special meeting.
Our Board recommends approval of the 2002 Plan to offer eligible employees of
the Parent Company and its Convergence subsidiary an opportunity to acquire or
increase their proprietary interests in the Parent Company, adding to their
incentive to contribute to the performance and growth of the consolidated
enterprise.
Terms of the 2002 Plan
Subject to completion of the Merger, the 2002 Plan authorizes the grant
of options to purchase a aggregate of 4,100 shares of the Parent Company's Class
A common stock, as adjusted for the Reincorporating Merger and the Merger.
Options may be granted under the 2002 Plan either as incentive stock options
("ISOs") or nonqualified stock options ("NSOs") within the meaning of the
Internal Revenue Code. Shares covered by the 2002 Plan may be either previously
unissued or reacquired shares. Shares that cease to be subject to an option
because of its expiration or termination will again be available for the grant
of options until termination of the 2002 Plan.
The 2002 Plan will be administered by the Compensation Committee of the
Parent Company's reconstituted Board. The Compensation Committee will have sole
discretion to select optionees, determine the number of shares subject to each
grant and prescribe the other terms and conditions of each award. All officers
and other employees of the Parent Company and its subsidiaries (including
Convergence) as well as their consultants will be eligible to receive options
under the 2002 Plan, except that any consultant or any person who owns more than
10% of the outstanding common stock may only receive options in the form of
NSOs.
The exercise price of each option granted under the 2002 Plan must be
equal to the fair market value of the Class A common stock, as determined by the
Compensation Committee at the time the option is granted. Payment in full of the
exercise price must be made upon the exercise of each option either in cash,
shares of common stock with a fair market value equal to the exercise price or
by a combination of cash and shares equal to the exercise price. The proceeds
received upon the exercise of options granted under the 2002 Plan will be used
for general corporate purposes.
19
Options granted under the 2002 Plan may not be transferred except to
the personal representative of a deceased employee. The 2002 Plan provides for a
period of one year during which an option, to the extent vested, may be
exercised after the termination of an optionee's employment or consultancy for
any reason other than cause, as defined in the 2002 Plan. No options may be
granted under the 2002 Plan after January 18, 2012, although the expiration date
of previously granted options may extend beyond that date. The maximum term of
any option is ten years.
The number of shares covered by the 2002 Plan and the exercise price of
outstanding options are subject to customary antidilution adjustments in the
event of any recapitalization or similar change affecting the common stock. In
the event the Parent Company sells all or substantially all its consolidated
assets, dissolves, merges or consolidates with another company or is involved in
a tender offer for all or a substantial portion of its common stock, the
Compensation Committee may amend all outstanding options to (1) permit their
exercise prior to the effective date of the transaction or terminate unexercised
options as of that date, (2) require the forfeiture of all options, provided the
Parent Company pays each grantee the excess of the fair market value of the
Class A common stock on that date over the option exercise price, or (3) make
other provisions that it deems equitable.
The Board may amend the 2002 Plan without further shareholder action,
except for any modifications that would (1) increase the number of covered
shares, (2) extend the maximum option term or the expiration date of the 2002
Plan, (3) permit grants below the fair market value of the Class A common stock
on the date of grant or (4) materially increase the benefits or modify the
eligibility requirements under the 2002 Plan. No amendment may adversely affect
any then outstanding option without the consent of the optionee.
No options will be granted under the 2002 Plan prior to the Merger.
Federal Income Tax Matters
An employee receiving an ISO under the 2002 Plan will not be in receipt
of taxable income upon the grant of the ISO or upon its timely exercise except
under alternative minimum tax rules. Generally, exercise of an ISO will be
timely if made during its term and if the optionee remains an employee of the
Parent Company or any subsidiary at all times from the date of grant until three
months before the date of exercise. Upon sale of the stock received up exercise,
the employee will generally recognize long term capital gain or loss equal to
the difference between the sale proceeds and the option exercise price. The
Parent Company, under these circumstances, will not be entitled to any federal
income tax deduction in connection with either the exercise of the ISO or the
sale of the underlying stock by the employee.
For purposes of the alternative minimum tax, an employee exercising an
ISO will have alternative minimum taxable income resulting from the exercise.
The amount of the alternative minimum taxable income and the tax basis in the
shares received upon exercise of an ISO will be determined in the year of
exercise unless the shares received upon exercise are sold to an unrelated party
in the same tax year. In that event, there will generally be no adverse effect
because the alternative minimum taxable income will then be limited to the
taxable gain on the sale as determined for regular tax purposes.
An employee or consultant receiving an NSO or electing to sell option
shares from an ISO exercise prior to the expiration of two years from the grant
date or within one year from the exercise date (a "Disqualified ISO") will not
recognize taxable income upon the grant of the NSO or ISO. Upon exercise of the
NSO or Disqualified ISO, an optionee will recognize ordinary income to the
extent of the difference between the option exercise price and the fair market
value of the stock on the date the option is exercised (the "Compensation
Element"). Upon sale of the stock received upon exercise, the optionee will
generally recognize capital gain or loss equal to the difference between the
sale proceeds and the fair market value of the common stock on the date of
exercise. The Company will be entitled to a federal income tax deduction equal
to the Compensation Element upon the exercise of an NSO or Disqualified ISO. If
an ISO is exercised by a former employee more than three months after his
termination of employment, the ISO will be treated as a Disqualified ISO for
federal income tax purposes.
20
If an optionee uses previously owned shares of common stock to exercise
an ISO or NSO, the transaction will generally not be considered to be a taxable
disposition of the previously owned shares. However, if the previously owned
shares had been acquired upon exercise of a prior tax qualified stock option and
the holding period requirement for those tendered shares was not satisfied at
the time they were used to exercise an ISO, the use of the tendered shares would
cause the ISO to be treaded as a Disqualified ISO for federal income tax
purposes.
Vote Required
The Board believes the supplemental and flexible noncash incentive
compensation provided by the 2002 Plan will be useful in enabling the Parent
Company and Convergence to attract and retain qualified executives and other
employees and consultants who can make important contributions to our success
and recommends that shareholders vote to approve the adoption of the 2002 Plan.
Approval of the 2002 Plan requires the affirmative vote of a majority of the
total shares represented in person or by proxy and entitled to vote at the
special meeting.
Directors and Officers
Current Members of the Board
Our Board was realigned twice during 2000. In the second quarter, the
Board memberships held by Clark L. Bullock since June 1999 and by Alan S. Poole
since May 1994 were relinquished to Edward J. Klinsport. In the fourth quarter
of 2000, following the sale of our MES business, we announced our plan for the
Business Redirection. To reflect the Business Redirection, the Board appointed
Mr. Klinsport as its Chairman, in place of Stephen Cloughley, and Andrew G.
Sycoff joined the Board in place of Robert Hurwitz. Biographical information
about Andrew G. Sycoff is provided under the caption "Merger with Convergence -
Board Reconstitution." Biographical information about our other current
directors is set forth below.
John C. Rhineberger, age 56, was appointed to the Board in May 1999 for
a term expiring at the 2002 annual meeting of shareholders. Since 1997, he has
been employed as President of The Rhineberger Organization, Inc., a provider of
sales, marketing and product development consulting services to the home center
and related industries. From 1996 to August 1997, Mr. Rhineberger was a Vice
President of Shaw Industries, Inc., a carpet manufacturer, with responsibility
for retail operations. He previously held positions as a merchandising executive
for Home Depot, President and Chief Executive Officer of Post Tool Retail Stores
and Sun Flooring Distribution, each a subsidiary of West Union Company,
President and General Manager of Sherwin Williams Floor World, a floor covering
retail business, and various executive positions, including President and Chief
Operating Officer, at Color Tile, a retail store chain.
Edward J. Klinsport, age 53, has been nominated to serve as a director
for a term expiring at the 2004 annual meeting of shareholders. In October 2000,
Mr. Klinsport was appointed Chairman of the Board, Chief Executive Officer and
President of Base Ten in connection with the Board's decision to implement the
Business Redirection and a related management realignment. Mr. Klinsport also
serves as Chairman of the Board, Chief Executive Officer and President of
Paragon Industries Corp., a electronics contract manufacturer that he co-founded
in 1999. Mr. Klinsport was the founder, Chief Executive Officer and President of
Strategic Technology Systems, Inc., which purchased the Company's government
technology division ("GTD") in 1997. Prior to that transaction, he served as a
director of Base Ten, commencing in 1985, and as a member of senior management,
commencing in 1978, most recently as the Company's Executive Vice President and
Chief Financial Officer as well as General Manager of GTD operations.
Executive Officers
The executive officers of Base Ten prior to the Business Redirection
adopted in October 2000 were as follows:
21
Officer of
Base Ten
Name Age Position Since
---- --- -------- -----
Robert Hurwitz 57 Chairman of the Board 1999
Stephen A. Cloughley 40 President and Chief Executive Officer 1999
William F. Hackett 50 Chief Financial Officer and Senior VP 1997
In connection with the Business Redirection, Mr. Cloughley was
succeeded as President and Chief Executive Officer by Mr. Klinsport, and Mr.
Hackett was succeeded as Chief Financial Officer by Kenneth W. Riley.
Biographical information about Mr. Klinsport is provided above under the caption
"Current Members of the Board," and biographical information about Mr. Riley is
provided below.
Kenneth W. Riley, age 38, joined Base Ten as its Controller in May
1999. In October 2000, he was named Chief Financial Officer, Treasurer and
Secretary. Prior to joining Base Ten, Mr. Riley was the Chief Financial Officer
of Ocean Computer Group from 1998 to 1999 and the Vice President - Finance and
Administration of Decision Technology, Inc. from 1989 to 1998. Mr. Riley also
served on the audit staff of Ernst & Young and is licensed as a Certified Public
Accountant.
Principal Shareholders
Security Ownership by Principal Shareholders and Management
The following table shows the number of shares of common stock
beneficially owned as of December 31, 2001 by:
o each person who we know owns beneficially more than 5% of our common
stock
o each current director
o each current executive officer and each executive officer named in
our 2000 annual report
o the current directors and executive officers as a group
22
Class A Class B
Common Stock Common Stock
Beneficially Beneficially Percentage
5% Shareholders Owned Owned of Class
- --------------- ------------- ------------- --------------
Jesse Upchurch(1)................................ 2,432,303 -- 40.6%
Almedica International, Inc.(2).................. 633,700 -- 10.7
Executive Officers and Directors
Edward J. Klinsport(3)........................... 10,000 -- *
Andrew Sycoff(3)................................. 88,666 -- 1.5
John C. Rhineberger(3)........................... 10,200 -- *
Stephen A. Cloughley(4).......................... -- -- --
William F. Hackett(4)............................ -- -- --
Robert Bronstein................................. 80,000 -- 1.4
Current directors and executive officers(3)
as a group (3 persons)........................ 108,866 -- 1.8%
- ----------------------
* Less than 1% of class.
(1) The address of Mr. Upchurch is 500 Main Street, Fort Worth, TX
76102. Represents (a) 1,528,573 shares held directly by Mr. Upchurch, (b)
703,730 shares held directly by the Constance J. Upchurch Family Trust, of which
Mr. Upchurch is the executor and beneficiary, and (c) 200,000 shares issuable
upon the exercise of warrants.
(2) The address of Almedica International, Inc. is 75 Commerce Drive,
Allendale, NJ 07401.
(3) Includes options or warrants exercisable within 60 days by (a)
Messrs. Rhineberger and Klinsport for 10,000 shares each, (b) Mr. Sycoff for
79,000 shares, and (c) all current directors and executive officers as a group
for 99,000 shares.
(4) Messrs. Cloughley and Hackett each resigned in the last week of
October 2000 and Mr. Bronstein on April 1, 2000.
Certain Transactions
A firm owned by John C. Rhineberger, a member of our Board and its
Compensation and Audit Committees since May 1999, served as a consultant to Base
Ten for strategic advice in connection with the disposition of its software
operations. Under the one year consulting contract which terminated in October
2001, Mr. Rhineberger received total payments of $100,000.
Andrew Sycoff, a member of our Board and its Compensation and Audit
Committees since October 2000, will receive Merger Warrants exercisable for
1,136 Warrant Shares for his assistance in introducing the Merger parties and
structuring the transaction. See "Proposal 2 - Merger with Convergence -- Terms
of the Merger Agreement-Board Reconstitution."
Mr. Sycoff also assisted Convergence raise equity capital in October
2001 and received a fee from Convergence in the form of 50,000 shares of its
common stock for his services in connection with the transaction.
It is the policy of our Board to structure any transactions with
related parties only on terms that are no less favorable to Base Ten than could
be obtained on an arm's length basis from unrelated parties.
Business of Convergence
The following information has been provided by management of
Convergence. Based on our due diligence review in connection with the Merger, we
believe the factual statements included in this information are accurate. Any
forward looking statements should be read in conjunction with our cautionary
disclosures under the caption "Proposal 2 - Merger with Convergence -- Risk
Factors."
23
Introduction
Convergence is an e-Health company focused on providing interactive
resources to assist people make healthy lifestyle decisions informed by exposure
to alternative and preventative as well as traditional healthcare options. As an
initial offering, Convergence has developed its web-based PHA to be deployed
with large businesses and health plans for use by their employees and
participants. Convergence has designed the PHA as an engaging and entertaining
collection of interactive assessments, programs and multimedia content. Each PHA
site offers its users a personalized view of their health and lifestyle, coupled
with multidisciplinary options for understanding and addressing their health
concerns. By encouraging adoption of wellness lifestyles that can increase
productivity and reduce healthcare costs, Convergence believes its PHA offers
tangible benefits both to sponsors and end users.
Background
Convergence was organized as a Nevada corporation in March 2000 by
Byron Gehring, Dr. Ken Walzer and Glen Miller (the "Founders") to succeed by
merger to the business of the Convergence Predecessor. See "Proposal 2 - Merger
with Convergence -- Terms of the Merger-Board Reconstitution" and "Executive
Officers" below. Building on the technology acquired from the Convergence
Predecessor, Convergence developed a patent pending process called the "Medicine
Engine" to provide users with interactive personalized feedback assimilated from
its interdisciplinary data base compiled under the direction of Dr. Walzer.
Convergence was initially capitalized with $650,000 in equity
contributions from the Founders and their associates. Between July 2000 and
January 2002, ongoing software development, licenses and acquisitions for the
components of the PHA were funded with additional equity capital, convertible
debt and Founder loans aggregating $3.5 million. Major acquisitions were
completed in May 2000 for the assets of MEDigy, Inc., including various software
systems and content for the PHA, and in September 2000 for the assets of
HealthWorldOnline, Inc., an e-commerce business focused on wellness products and
content. Convergence is seeking to dispose of the HealthWorldOnline business to
concentrate its limited resources on PHA development, marketing and deployment.
Business Strategy
From inception, Convergence has developed its business plan and initial
product offering on the premise that the healthcare market will increasingly be
shaped by a fundamental shift away from the traditional supplier dominated model
to a consumer oriented model addressing the desires of 75 million aging baby
boomers for products and services that can improve their overall health and
quality of life. Convergence believes this trend will force the integration of
conventional medicine with complementary and alternative medicine. As healthcare
consumers become more assertive in their demand for products and services that
address their health concerns and meet their wellness objectives, employers will
presumably take action to provide responsive solutions to their workforces.
While health benefit providers historically have been slow to provide or cover
new product offerings that address these goals issues, the need to meet consumer
demand should ultimately affect their decision making as well.
Convergence's purpose is to encourage lifestyle changes and adoption of
preventive healthcare options that can reduce reliance on disease management and
intervention. To serve that purpose, Convergence has focused on marshaling
Internet and interactive multimedia technology to provide corporate employees
with personalized feedback on maintaining a wellness lifestyle grounded in good
nutrition, adequate exercise and the potential benefits of alternative and
preventive health options. The strategy adopted by Convergence for deploying
this resource is to focus on the corporate employer, since a path to wellness
solutions not only benefits the individuals who choose that path but also makes
good business sense for corporate sponsors. Businesses providing this type of
resource to their workforce for access in the workplace can expect to improve
their corporate image, boost employee morale and productivity and ultimately
reduce the cost of employee healthcare benefits.
Personal Health Application
Convergence has developed its Personal Health Application by combining
in-house clinical expertise and advanced web and interactive software
development with strategic acquisitions of key technologies, content and
24
multimedia assets The result is engaging and entertaining as well as
informative. It consists of an integrated collection of interactive healthy
living assessments, programs and multimedia content reflecting the convergence
of conventional and alternative health options. The PHA is designed to encourage
people to adopt healthier lives by providing them with a personalized view of
their health and lifestyle, coupled with multidisciplinary options for
understanding and addressing their health concerns.
The PHA includes a broad range of software tools to help people improve
their quality of life. They include interactive health assessments, personal
health profiles, disease or symptom assessments, life area assessments,
healthcare decision support tools and lifestyle and disease management programs.
Many of these are actionable programs that help coach and motivate users. The
PHA also provides natural health store, provider directory, diet, nutrition and
fitness tools, ask the experts via e-mail, health journal, health calendar,
health history and electronic health record, live newsfeed and customizable
newsletter, as well as one of the largest link libraries in the e-Health market.
Convergence believes its PHA currently gives it an early mover
advantage in the fragmented healthy living and integrative health markets,
primarily because conventional medicine has been the main focus within e-Health
markets to date. Convergence is not aware of any comparable products now on the
market that provides consumers, employers and benefit providers with wellness
tools that are both integrated and interactive, with access to over 40,000 pages
of integrative health content.
Business Plan
The eHealth market reflects the public's insatiable appetite for health
information. Initial entries have demonstrated, however, that the path to
profitability for a consumer driven business model dependent upon advertising or
e-commerce alone can be highly elusive. To avoid those pitfalls, Convergence has
focused on developing core software assets that can be deployed within multiple
revenue streams. The PHA was selected as an initial offering because it can be
utilized in three variations of a licensing model, depending on whether the
usage or subscription fees are sought from a corporate sponsor, health plan or
the consumer.
Target Markets
Initially, Convergence has concentrated its limited resources on the
employee health benefit market. With million of covered lives, it represents the
largest potential revenue source. In the face of escalating costs, its also
represents a market that should be receptive to web based, self service
applications, particularly resources like the PHA that can potentially reduce
modifiable health risks, which are generally believed to account for up to 25%
of healthcare expenditures. To reach this market, Convergence plans to
concentrate its marketing efforts on the third party benefit providers that
generally manage health plans. They include traditional health insurers, HMOs,
MBHOs and employee assistance program providers. With increasing pressure to
meet employers' needs for more innovative products, many are already beginning
to include integrated health services in their offerings, including web based
products that can stimulate greater use of their services without increasing
costs. Convergence also plans to market its PHA directly to corporations with
large work forces, since they generally represent the actual purchaser of
eHealth products, whether sold directly or through a health benefit
intermediary.
Land-based health centers such as hospitals, medical clinics, wellness
centers, spas and health clubs also represent a potential market for web based
products because they can provide additional services and value, as well as
incremental revenue, at relatively low cost. There are over 5,000 hospitals in
the US, about 2,000 wellness centers and spas, and over 15,000 health clubs.
These land-based business service over 100 million people each year. Convergence
expects these facilities to provide a second potential market for its PHA.
Revenue Model
Convergence plans to provide access to PHA web sites to corporate
sponsors and health benefit intermediaries under non-exclusive, multi-year
licenses that may also individual tools. License fees in this sector are
expected to be based on a capitated service fee model, either "per member per
25
month" or "per employee per month." Land-based health centers will be charged an
annual license fee based on the number of patients, clients or customers who
will have access to the PHA. Negotiated annual rates may also be implemented.
Ancillary revenue streams may be available at some point for membership
and affinity programs. In addition, e-commerce revenues may be derived from both
direct sales of lifestyle and disease management programs and other premium
services, and indirectly through commissions from sales of partners' products
and services resulting from use of PHA assessments, decision support tools and
programs.
Competition
Convergence believes it currently faces a broad mix of indirect
competitors that offer parts of its total service offering, with direct
competitors expected to emerge with comprehensive comparable services within the
next few years. Current competitors can be categorized as channel competitors
and content/commerce competitors.
Channel competitors providing corporate wellness and related programs
include online corporate wellness programs that are extensions of established
brands, such as Mayo Clinic's Healthquest, Johnson & Johnson's Live For Life,
Staywell.com and Gordian Health Solutions. They also include online corporate
wellness initiatives developed by start-up ventures such as DoHealth,
MyDailyHealth, Nutrio.com, Wellmed and Wellcall. Employee assistance programs
with an online or corporate presence such as Lifescape, Lifeworks, Horizon
Health and American Psych Systems are also cannel competitors by attempting to
move into the wellness space, since they compete for the same benefit funds.
This category also includes health insurance companies that seek to provide a
comprehensive range of information to support their insurance plans. They
include Aetna/US Healthcare, Kaiser Permanente and Blue Cross/Blue Shield. Many
of these channel competitors offer established wellness programs that will
compete with Convergence for access to employees, and virtually all have
substantially greater resources for implementing their programs. Convergence
believes, however, that most of these competitors focus primarily on disease
management and intervention. With its focus on prevention, Convergence hopes to
find a means to complement and even partner with their existing offerings.
Content/commerce competitors provide "healthy living" information or
health and wellness products and merchandise. These companies will compete with
Convergence for product sales, content and community development. They include
e-commerce sites such as Drugstore.com, Planet Rx and More.com, e-Health
pure-plays including Web/MD, Drkoop.com, Health Central and CBS HealthWatch.
online communities like iVillage, Women.com and Oxygen.com, and portals to
pharmaceutical companies, many of which are free. Although some of these
companies could be either strategic alliance partners or even future acquisition
candidates, Convergence intends to compete pending any of those developments
based on the quality of its product offering, marketing efficiency, price and
brand strategies. Other content/commerce competitors include FoodFit.com,
eDiets, CyberDiet, Asimba and FitnessOnline, all of which tend to focus on one
aspect of healthy living such as weight loss and fitness. Convergence plans to
distinguish itself from this category of content/commerce sites by delivering an
accessible, actionable, seamless experience that uses personalized programs to
promote healthy eating and healthy lifestyle changes.
Executive Officers
Key members of Convergence's management team are Byron Gehring, Dr. Ken
Waltzer, Jay Handline and Glenn Miller. Biographical information about Mr.
Gehring and Dr. Waltzer is provided under the caption "Merger with Convergence -
Terms of the Merger -- Board Reconstitution." Biographical information about
Messrs. Handline and Miller is set forth below.
Jay Handline, age __, is the Chief Marketing Officer of Convergence. He
has more than 20 years of experience at senior management levels on both the
payer and provider sides of the health services industry. Since 1995, he has
been involved with various start-up ventures in developing various multiple
media platforms, including cable television, Internet and telephony, prior to
which he served as Chief Operational Architect and Executive Vice President of
Interactive Technology Solutions at RnetHealth.com. Mr. Handline has also
managed and co-founded two multi-media technology companies. [Education to be
added]
26
Glenn Miller, age __, is the Chief Technical Officer of Convergence.
Prior to joining Convergence, he served as Chief Technology Officer at Strategic
Resource Solutions Corp., a technology-based energy services company and a
wholly owned subsidiary of the Fortune 500 utility, Carolina Power and Light. He
developed its innovative core technology, a platform that enables organizations
to control, navigate and monitor all facility operations through the Internet,
as well as many other web based tools and services. He previously held a senior
executive position at Applied Computer Technologies, where he led the effort on
development of web based real-time workflow management software. In 1995 he was
recognized by Microsoft Corp. as one of the top 20 developers in the world.
[Education to be added]
Financial Information
The following tables present summary historical and pro forma financial
information for Convergence as of the dates and for the periods indicated.
Except as otherwise noted, the financial information presented below is derived
from the audited Financial Statements of Convergence included as Exhibit A at
the end of this proxy statement. This information should be read in conjunction
with those Financial Statements and related Notes thereto. The pro forma
information presented below for the year ended December 31, 2000 gives effect to
the March 2000 merger of the Convergence Predecessor into Convergence as of
January 1, 2000.
Nine Months Ended
September 30, Year Ended December 31, 2000
---------------------------- ----------------------------
2001 2000 Historical Pro Forma
---------- ---------- ------------ ---------
Unaudited Unaudited
Summary of Operations:
Net loss from continuing operations.......... $ $ $ $
Net loss from discontinued operations........
----------- ----------- ----------- -----------
Net loss from operations..................... $ $ $ $
=========== =========== =========== ===========
Net earnings (loss) per common share from:
Continuing operations..................... $ $ $ $
Gain on redemption of preferred stock.....
Discontinued operations...................
---------- ----------- ---------- -----------
Net earnings (loss) per share................ $ $ $ $
========== =========== ========== ===========
Summary Balance Sheet Data:
Working capital.............................. $ $ $
Total assets.................................
Long term debt...............................
Shareholders' equity (deficit)...............
Additional Information
We are currently subject to the informational requirements of the
Exchange Act and file reports and other information with the SEC in accordance
with those requirements, ass they pertain to small business issuers. Our reports
and other information can be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices. We file
our periodic reports with the SEC electronically, and the SEC maintains a web
site providing access to those materials at http://www.sec.gov.
27
Incorporation of Documents by Reference
The following documents previously filed by Base Ten with the SEC under
the Exchange Act are incorporated into this proxy statement by reference:
o Annual Report on Form 10-KSB for the year ended December 31, 2000 and
Amendment No. 1 thereto;
o Quarterly Report on Form 10-QSB for the quarter ended September 30,
2001; and
o Current Report on Form 8-K dated January 30, 2002, including a copy
of the Merger Agreement dated as of January 18, 2002.
o Current Report on Form 8-K dated February ___, 2002, including a copy
of the Merger Agreement, as amended and restated as of February __,
2002.
In addition, any subsequent documents that we may file with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
special meeting are incorporated herein by reference. Any statement contained in
an incorporated document should be considered modified by more current
information provided in this proxy statement.
28
EXHIBIT A
---------
FINANCIAL STATEMENTS OF
CONVERGENCEHEALTH.COM, INC.
A-1
Form of Proxy Card
Front:
BASE TEN SYSTEMS, INC.
(THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
BASE TEN SYSTEMS, INC.-Proxy for the Special Meeting of Shareholders at
9:00 a.m. March __, 2002, at 200 Campus Drive, Morristown, New Jersey 07962
The undersigned hereby appoints Edward J. Klinsport and Kenneth W.
Riley, and each of them, with full power of substitution, as Proxies to vote the
Common Stock of the undersigned at the referenced Special Meeting, and any
adjournments thereof, upon the matters set forth in the Notice of Special
Meeting and Proxy Statement, as follows:
1. SALE OF CLINICAL SOFTWARE BUSINESS: [ ] FOR [ ] ABSTAIN [ ] AGAINST
2. MERGER WITH CONVERGENCE: [ ] FOR [ ] ABSTAIN [ ] AGAINST
3. SHARE COMBINATI?ON: [ ] FOR [ ] ABSTAIN [ ] AGAINST
4. NEVADA REINCORPORATION ANND NAME CHANGE: [ ] FOR [ ] ABSTAIN [ ] AGAINST
5. 2002 STOCK OPTION PLAN: [ ] FOR [ ] ABSTAIN [ ] AGAINST
This Proxy will be voted as specified. If no specification is made, it will
be voted FOR EACH Proposal and at the discretion of the Proxies on any other
business.
- --------------------------------------------------------------------------------
Back:
- --------------------------------------------------------------------------------
Any Proxy heretofore given by the undersigned with respect to such
stock is hereby revoked. Receipt of the Notice of Special Meeting and Proxy
Statement is hereby acknowledged.
Do you plan to attend the Meeting? [ ] Yes [ ] No
Please mark, sign, date and return
the Proxy Card promptly using the
enclosed envelope.
DATED: , 2002
----------------
----------------------------------
----------------------------------
(Joint owners must EACH sign.
Please sign EXACTLY as your
name(s) appear(s) on the card.
When signing as attorney, trustee,
executor, administrator, guardian
or corporate officer, please give
your FULL title.)