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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. 2]
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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 to ss.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.
[ ] 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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. Set forth amount on which
filing fee is calculated and state how it was determined:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ x ] 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:
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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. 2]
BASE TEN SYSTEMS, INC.
(Name of the Issuer and Name of Person Filing Statement)
Class A Common Stock, par value $5.00
(Title of Class of Securities)
069779304
(CUSIP Number)
Class B Common Stock, par value $5.00
(Title of Class of Securities)
069779403
(CUSIP Number)
Kenneth W. Riley
Base Ten Systems, Inc., 535 East County Line Road, Suite 16, Lakewood, NJ 08701
(732) 370-6895)
(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
-------------------------
Transaction valuation Amount of filing fee
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$40,000, based on estimated market
price of shares to be repurchased $200.00
[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
statemen 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: 2/05/02.
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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 ("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: _______, 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 2. Merger with Convergence
Item 3. Share Combination
Item 4. Nevada Reincorporation and Name Change
Item 5. 2002 Stock Option Plan
Item 6. Any other matters properly before the meeting
By order of the Board of Directors
Kenneth W. Riley,
_________, 2002 Chief Financial Officer
Contents of Proxy Statement
Item Page
---- ----
General Information About Voting ................................. 1
Background ....................................................... 2
Proposal 1 - Sale of Clinical Software Business .................. 4
Proposal 2 - Merger with Convergence ............................. 6
Proposal 3 - Share Combination ................................... 16
Proposal 4 - Nevada Reincorporation and Name Change .............. 18
Proposal 5 - 2002 Stock Option Plan .............................. 20
Directors and Officers ........................................... 22
Principal Shareholders ........................................... 24
Certain Transactions ............................................. 24
Business of Convergence .......................................... 25
Additional Information ........................................... 30
Incorporation of Documents by Reference .......................... 30
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 ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNNLAWFUL.
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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 ___________, 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 __________, 2002. On that date,
there were 5,338,812 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.
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."
Sale of Clinical Software Business
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." To avoid the costs of
multiple shareholder solicitations during the pendency of our Business
Redirection, 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").
Business Redirection
Beginning in November 2000, we concentrated on identifying
opportunities for a business combination meeting the criteria for the Business
Redirection. We ultimately focused these efforts on exploring and structuring a
potential business combination with ConvergenceHealth.com ("Convergence"), a
privately held Nevada corporation that has developed interactive web-based
resources called the Personal Health Application ("PHA") designed to assist
people make healthy lifestyle decisions informed by exposure to alternative and
preventative as well as traditional healthcare options. Although Convergence has
generated only marginal revenues and has incurred substantial losses to date,
its initial PHA offering promises to address major priorities of corporate
sponsors by encouraging employees participating in their health plans to adopt
wellness lifestyles that can increase productivity and reduce healthcare costs.
2
Proposed Merger with Convergence
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"). If the
merger with Convergence (the "Merger") and other initiatives contemplated by the
Merger Agreement are 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 75% of its outstanding common shares, and our
existing shareholders will own 25% of the Parent Company's outstanding common
stock.
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." It also provides for our relocation to the corporate offices
of Convergence in Nevada, our reincorporation in that State and a reduction of
the superplurality voting threshold in our charter (the "Reincorporation"). As
part of the Reincorporation, we will also 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."
After entering into the Merger Agreement with Convergence, we purchased
a total of 1 million shares of its preferred stock for $250,000 to provide it
with working capital pending completion of the Merger (the "Convergence Series
A-3 Preferred Stock Investment"). A portion of the Convergence Series A-3
Preferred Stock Investment is subject to limited put and call options if the
Merger is not completed for specified reasons. If the Merger and Clinical
Software sale are completed, our operations will be conducted solely through
Convergence, and our remaining assets, consisting primarily of cash and cash
equivalents of $627,000 at March 31, 2002, will be used to refine, market and
deploy its PHA product offerings.
Convergence has recognized accumulated losses of $4.5 million from
inception in June 1999 through December 31, 2001and had negative cash flow of
$2.2 million from operations for the year ended December 31, 2001 At December
31, 2001, Convergence had a working capital deficiency of $1.4 million and a
shareholders' deficiency of $1.6 million. The independent auditors' report
accompanying the financial statements of Convergence included at the end of this
proxy statement has a qualification that the ability of Convergence to continue
as a going concern is dependent on its ability to raise additional funds to
implement its business plan. The report also cautions that the financial
statements of Convergence do not include any adjustments that might be necessary
if Convergence were unable to continue as a going concern.
The business plan for Convergence contemplates substantial capital
expenditures to fund its ongoing operations without any assurance of deriving
revenues from operations. We anticipate that operating costs for Convergence
will contribute to recurring losses at the rate of approximately $50,000 per
month following 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 consumer acceptance of its products, competition and changing
technology. See "Proposal 2 - Merger with Convergence -- Risk Factors."
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.
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.
Board Nominees. Upon the closing under the LLC Agreement, 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. The December 2001 agreement covering the Almedica
License 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 a royalty of
$75,000 payable either upon the closing under the LLC Agreement or, if
shareholder approval for the sale of our Clinical Software business is not
obtained, in ten equal installments commencing in December 2002.
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.
4
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.
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 acquisition, 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 have been released under the LLC
Agreement.
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. For a description of those rights, see "Proposal
2 - Merger with Convergence -- Dissenters' Rights."
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. Assuming for this purpose that the Proposal involves
the sale of substantially all our assets, our charter requires the affirmative
vote of at least three-quarters of the votes cast by the holders 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 completion of the Share
Combination, the 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 75% 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 and our estimated common shares outstanding
after the Share Combination, each outstanding share of Convergence capital stock
outstanding at the time of the Merger will be converted into 0.0019608 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. The shareholders of Convergence will be
requested to provide us with representation letters to the effect that they are
"accredited investors" for purposes of the private placement exemption under
Regulation D or are 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,
and the shares we acquired in the Convergence Series 3-A Preferred Investment
will be cancelled.
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 the Parent Company's 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 the Parent Company's 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 25% to 22% of the Parent Company's 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 the Parent Company's 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 35, 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 39, 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
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.
7
Kenneth Waltzer, M.D., M.P.H., age 43, 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 40, 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.
Warrant Shares Post-Merger
Designee Covered Percentage
-------- ------- ----------
Byron Gehring 511 2.25%
Kenneth Waltzer 284 1.25
Andrew Sycoff 1,136 5.00
Kenneth W. Riley 227 1.00
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 PHA 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;
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;
8
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 $400,000 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
the Performance Condition costs up to $100,000 and right to
have Byron Gehring purchase 80% of
our Convergence Series A-3
Preferred Stock Investment for
$100,000
Base Ten Failure of Convergence to satisfy Reimbursement of our transaction
any of its other closing conditions costs up to $100,000
Convergence Failure of Base Ten to satisfy any Right to repurchase 80% of the
of its closing conditions Convergence Series A-3 Preferred
Stock Investment for $100,000
Under all other circumstances, including a termination by either party
for failure to complete the Merger by _____, 2002, a 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 above, we would likely be unable after a termination of the
Merger Agreement to liquidate our Convergence Series A-3 Preferred Stock
Investment, which could be expected to have little or no value.
Business of Convergence
Convergence is a web-based healthcare information 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 product offering, Convergence
has developed its PHA product offering to be deployed with large corporate
health plan sponsors for use by their employees participating in those plans.
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."
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 only marginal 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.
9
Risk Factors
Recurring Losses. Our operations after the Merger will be conducted
solely through Convergence, which has generated only marginal revenues from
operations. Convergence has recognized accumulated losses of $4.5 million from
inception in June 1999 through December 31, 2001and had negative cash flow of
$2.2 million from operations for the year ended December 31, 2001 At December
31, 2001, Convergence had a working capital deficiency of $1.4 million and a
shareholders' deficiency of $1.6 million. The losses recognized by Convergence
primarily reflect expenses incurred in developing and marketing its PHA product
offering. The business plan for Convergence contemplates substantial capital
expenditures to fund its ongoing operations without any assurance of deriving
revenues from operations. Convergence anticipates that its costs to complete
development and to commence marketing and deployment of its PHA services will
contribute to recurring losses at the rate of approximately $50,000 per month
following 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
consumer acceptance of its products, competition and changing technology.
Risks of Financial Leverage. Convergence is significantly leveraged,
with total liabilities of $1.7 million at December 31, 2001. See "Business of
Convergence - Financial Information." Although $1 million of those total
liabilities were secured convertible notes that were converted into 2,536,320
shares of Convergence common stock since year end, the ability of Convergence to
repay its remaining obligations fund the execution of its business plan will be
dependent on its future performance or ability to raise equity capital on
acceptable terms. In the absence of additional capital, Convergence could face
repayment defaults its remaining obligations, 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
Series A-3 Preferred Stock 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 in part to retire
outstanding payables and the balance to fund ongoing efforts to refine, market
and deploy PHA product offerings. If these efforts are pursued at the desired
pace and scope, our contributed working capital will likely be expended by the
end of 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
the alternative medicine components of this product makes its ultimate success
in the marketplace uncertain.
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.
10
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. If Convergence experiences similar or longer delays, 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 to 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 customer 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 disclaimers 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.
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.
11
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 75% of the Parent Company's outstanding common stock at the time of
the Merger after giving effect to the Share Combination. After giving effect to
the Reincorporation, the affirmative vote of at least two thirds of the votes
cast by the holders of the Parent Company's common stock will be able to
determine the outcome of any business combination proposal, and all other
matters submitted to a shareholder vote will be determined by holders of a
plurality of the votes cast. 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
Year Ended December 31, 2001 Year Ended December 31, 2000
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Unaudited Unaudited
Summary of Operations:
Net loss from continuing operations.......... $ (727) $ (2,088) $ (3,433) $ (6,596)
Net loss from discontinued operations........ -- -- (5,831) (5,832)
----------- ----------- ----------- -----------
Net loss from operations..................... $ (727) $ (2,088) $ (9,264) $ (12,427)
=========== =========== =========== ===========
Net earnings (loss) per common share from: (1)
Continuing operations..................... $ (.14) $ (.10) $ (.66) $ (.31)
Gain on redemption of preferred stock..... -- -- 2.25 .55
Discontinued operations................... -- -- (1.12) (.27)
----------- ----------- ----------- -----------
Net earnings (loss) per share................ $ (.14) $ (.10) $ .47 $ (.03)
=========== =========== =========== ===========
Summary Balance Sheet Data:
Working capital.............................. $ 1,072 $ (304) $ 1,675 $ 1,357
Total assets................................. 1,414 1,511 2,794 3,390
Total liabilities(2)......................... 329 2,047 1,004 2,340
Shareholders' equity (deficit)............... 1,085 (539) 1,790 1,050
- ----------------
(1)For consistency, does not give effect to the Share Combination.
(2)Does not reflect the conversion of $1 million principal amount of
secured notes of Convergence into 2,536,320 shares of its common stock
in January 2002.
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
party's 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 25% by Base Ten and 75%
by Convergence. These estimated contributions formed the basis for the Merger
Ratio ultimately adopted by the parties.
Our Board did not analyze the respective liquidation values of the
Merger parties because it views the Merger as a combination of two ongoing
enterprises. Accordingly, it determined 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.
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.
13
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 potential benefits of the Merger for maximizing our
continuing shareholders' investment values 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 Series A-3 Preferred Stock 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
774 Mays Boulevard, Suite 386, Incline Village, Nevada 89451, the Payment Demand
should be sent to us at that address, to Convergence Systems, Inc., 774 Mays
Boulevard, Suite 396, Incline Village, Nevada 89451, Attention: President.
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.
14
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. Not 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 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.
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, our charter requires the affirmative vote of at least
three-quarters 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.
15
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 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
[1,100] record holders of our common stock. Approximately 90% of those accounts
held less than 1,000 shares ("Small Accounts"). During the last half of 2001 and
the first quarter of 2002, the market price of our Class A common stock ranged
from $.04 to $.11 per share. Based on a weighted average share price of
approximately $.05 per share for that period, a median Small Account of 500
shares had a market value of $25.00. 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 over $100 per record holder
account, which far 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.
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.
16
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 a 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 amount of cash to be received by any dissenting shareholder in
lieu of a fractional share.
Vote Required
Under New Jersey law, the Share Combination requires the affirmative
vote by holders of majority of the 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.
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 for (1) a different name, (2) a provision for
authorized capital stock reflecting the reduction in our authorized
shares and the increase in the par value of those shares to be adopted
in the Share Combination and (3) a reduction in the superplurality
voting threshold in our charter from three-quarters to two-thirds of
the votes for approval of any merger, consolidation or asset sale,
lease or exchange not in the usual and regular course of business (the
"Superplurality Reduction"). See "Proposal 3 - Share Combination --
Terms of the Share Combination."
17
o Immediately prior to the Merger, Base Ten will merge (the
"Reincorporating Merger") into the Nevada Sub, which will be the
surviving corporation and the Parent Company of Convergence after the
Merger.
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 Parent Company 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 The Convergence Board required the Superplurality Reduction as a
condition to the Merger, and our Board determined that it should have
no practical effect on the voting rights of our current shareholders,
viewed as a class, after the Merger, since they would be unable to veto
any proposal under the current charter provision or after
implementation of the Superplurality Reduction.
o Both Boards also determined that the corporate identity of 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.
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Action Nevada Law New Jersey Law
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Removal of Directors can be removed by shareholders Directors may be removed for cause or, unless
Directors: representing at least two-thirds of the otherwise provided in the charter, without cause by
voting power of the outstanding stock shareholders representing at least a majority of
entitled to vote on the matter, or any the outstanding stock entitled to vote in the
larger percentage specified in the charter. election of directors.
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Merger or Sale: Unless otherwise provided in the charter, a A merger, consolidation or a sale of all or
merger, consolidation or a sale of all or substantially all of a corporation's assets
substantially all of a corporation's assets requires approval by shareholders representing at
requires approval by the shareholders least a majority of the outstanding stock entitled
representing at least a majority of the to vote on the matter (two-thirds for corporations
voting power of the outstanding stock formed before 1969), or any larger percentage
entitled to vote on the matter. specified in the matter.
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Action Nevada Law New Jersey Law
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholder Action Unless otherwise provided in the charter, Except as otherwise provided in the charter,
by Written Consent: shareholders may act without a meeting by shareholders may act without a meeting by written
written consent of a majority (or any consent of the minimum percentage of the voting
required supermajority) of the voting power power of the outstanding common stock that would
of the outstanding common stock entitled be required to approve the matter at a meeting,
to vote on the matter, and notice need not except for the annual election of directors, which
be given to shareholders. may be by written consent only if unanimous.
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Amendment of A charter or bylaw amendment requires A charter amendment requires approval by vote of
Charter and approval by vote of the holders of a a majority of the votes cast at the meeting by the
Bylaws: majority of the outstanding stock entitled holders of shares entitled to vote on the matter.
to vote on the matter and by the holders of Bylaws may also be amended by plurality vote.
a majority of the outstanding stock of each
class entitled to vote thereon as a class.
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Exculpation of Directors may not be exculpated from Directors may not be exculpated from liability for
Directors and liability for (1) acts or omissions (1) a breach of their duty of loyalty to the
Officers: involving either intentional misconduct, corporation or its shareholders, (2) acts or
fraud or a knowing violation of the law or omissions not in good faith or involving
(2) the payment of improper distributions. intentional misconduct or a knowing violation of
law or (3) any act or omission from which they
derived an improper personal benefit.
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Stand Stills: Unless waived in the charter, there is a There is a five-year restriction on any business
three-year restriction on transactions combination between a publicly held New Jersey
between public corporations and the holder corporation and an Interested Shareholder unless
of 10% or more of the corporation's the business combination was approved by the
outstanding capital stock (an "Interested corporation's board of directors before the
Shareholder") unless the transaction was shareholder's interest exceeded 10% or more of the
approved before the shareholder's interest corporation's outstanding stock. After the
exceeded 10% or more of the corporation's expiration of the five-year period, covered New
outstanding stock. Even after the Jersey corporations may not engage at any time in
expiration of the three-year period, the a covered business combination with any Interested
transaction will remain prohibited unless Shareholder other than a business combination (1)
(1) the board of directors approved the approved by the holders of two-thirds of the
transaction before the shareholder became voting stock not beneficially owned by the
"interested" or (2) the transaction is Interested Shareholder, (2) with an Interested
approved by a majority of disinterested Shareholder who inadvertently exceeded the 10%
shareholders. threshold and promptly reduced his holdings below
10% or (3) in which the Interested Shareholder
pays a formula price designed to ensure that
all other shareholders receive at least the
highest price per share paid by the Interested
Shareholder. A New Jersey corporation may not opt
out of these provisions.
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19
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, approval of the Reincorporating Merger requires the
affirmative vote of at least three-quarters 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 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 an 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.
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.
20
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 a modification 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.
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.
21
Vote Required
Approval of the 2002 Plan requires the affirmative vote by holders of a
majority of the Class A and Class B common stock entitled to vote at the special
meeting, voting together as a class. 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.
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 57, 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 54, 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 following tables lists our current executive officers:
Officer of
Base Ten
Name Age Position Since
---- --- -------- ----------
Edward J. Klinsport 54 Chairman of the Board, President, Chief
Executive Officer and a Director 2000
Kenneth W. Riley 38 Chief Financial Officer, Treasurer and
Secretary 2000
22
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 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
The following table shows the number of shares of common stock
beneficially owned as of February 28, 2002 by:
o each person known to beneficially own more than 5% of the common stock
o each current director
o each incumbent Named Officer
o the current directors and executive officers as a group
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 -- *
Kenneth W. Riley(3).............................. 14,603 -- *
Current directors and executive officers(3)
as a group (4 persons)........................ 108,866 -- 1.8%
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* 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 (the "Trust"), of
which Mr. Upchurch is the executor and beneficiary, and (c) 200,000 shares
issuable upon the exercise of warrants. The Trust also owns 500,000 shares of
Convergence Series A-3 preferred stock.
(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, (c) Mr. Riley for 14,500 shares and (d) all current directors and
executive officers as a group for 113,500 shares.
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 consulting contract, which continued for one year through
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 (adjusted for the Share Combination) for introducing the
Merger parties and assisting in structuring the transaction. See "Proposal 2 -
Merger with Convergence -- Terms of the Merger Agreement-Board Reconstitution."
23
Mr. Sycoff also assisted Convergence obtain the participation of the
Constance J. Upchurch Family Trust in a convertible debt offering by Convergence
in October 2001. He 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."
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. Kenneth Waltzer 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. Waltzer.
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.
24
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
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 of these organizations
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.
25
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 businesses 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. License fees in this sector are expected to be based on a capitated
service fee model, either "per member per 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.
26
Executive Officers
Key members of Convergence's management team are Byron Gehring, Dr.
Kenneth 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 46, 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.
Glenn Miller, age 45, 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.
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.
27
- ------------------------------------------------------------------------------
CONVERGENCEHEALTH.COM
- ------------------------------------------------------------------------------
Year Ended December 31,
-----------------------
2001 2000
------------- -------------
STATEMENT OF OPERATIONS DATA(1)
Revenues - net.................................................. $ 84,700 $ 500
------------- -------------
Operating expenses
Cost of providing services................................... -- 400
Salaries..................................................... 307,100 585,700
Professional fees............................................ 736,200 451,600
Other general and administrative expenses.................... 261,000 2,131,700
------------- -------------
Total operating expenses................................... 1,304,000 3,169,400
Loss from operations............................................ (1,220,700) (3,168,900)
------------- -------------
Other income (expense)
Interest income.............................................. 6,900 10,200
Interest expense............................................. (125,600) (4,400)
Loss on disposal of assets................................... (51,600) --
Gain on sale of web site..................................... 30,000 --
------------- -------------
Total other income (expense) - net......................... (140,400) 5,900
------------- -------------
Net loss........................................................ $ (1,361,000) $ (3,162,000)
============= =============
Net loss per common share and equivalents:
Basic and diluted............................................ $ (0.53) $ (1.29)
============= =============
Weighted number of shares outstanding:
Basic and diluted............................................ 2,571,800 2,456,700
============= =============
As of
December 31, 2001
-----------------
BALANCE SHEET DATA:
Working capital (deficit)....................................... $ (1,376,200)
Total assets.................................................... 237,000
Total liabilities(3)............................................ 1,717,700
Shareholders' deficiency........................................ (1,620,800)
(1) Amounts are rounded to the nearest $100.
(2) Amounts are rounded to the nearest $1,000.
(3) Does not reflect the conversion of $1 million principal amount of
Convergence secured notes onto 2,536,320 shares of its common stock in
January 2002.
28
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, as 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.
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, 2001;
o Current Report on Form 8-K dated January 30, 2002, including a copy of
the Merger Agreement dated as of January 18, 2002; and
o Current Report on Form 8-K dated March 14, 2002, including a copy of
the Merger Agreement, as amended and restated on February 11, 2002 and
a copy of Amendment No. 1 to the Amended and Restated Merger Agreement.
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.
29
EXHIBIT A
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001
AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002
CONTENTS
--------
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGE F-2 BALANCE SHEET AS OF DECEMBER 31, 2001
PAGE F-3 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM
JUNE 9, 1999 (INCEPTION) TO DECEMBER 31, 2001
PAGE F-4 STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JUNE 9, 1999 (INCEPTION) TO
DECEMBER 31, 2001
PAGES F-5 - F-6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM
JUNE 9, 1999 (INCEPTION) TO DECEMBER 31, 2001
PAGES F-7 -
F-15 NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31,
2001
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
ConvergenceHealth.com
We have audited the accompanying balance sheet of ConvergenceHealth.com (a
development stage enterprise) as of December 31, 2001 and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 2001 and 2000 and for the period from June 9, 1999
(inception) to December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of ConvergenceHealth.com (a
development stage enterprise) as of December 31, 2001 and the results of its
operations and its cash flows for the years ended December 31, 2001 and 2000 and
for the period from June 9, 1999 (inception) to December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has accumulated losses of $4,524,032 since
inception, a working capital deficiency of $1,376,245, a stockholders'
deficiency of $1,615,859 and a negative cash flow from operations of $1,222,163.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plan in regards to these matters is also described
in Note 11. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Los Angeles, CA
April 16, 2002
F-1
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF DECEMBER 31, 2001
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 91,429
-----------
Total Current Assets 91,429
-----------
OTHER ASSETS
Deposits 5,400
-----------
Total Other Assets 5,400
-----------
TOTAL ASSETS $ 96,829
- ------------ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accounts payable $ 265,293
Accrued interest and other liabilities 173,389
Notes payable 970,000
Due to officer 58,992
-----------
Total Current Liabilities 1,467,674
-----------
LONG-TERM LIABILITIES
Notes payable 250,000
-----------
Total Long-Term Liabilities 250,000
-----------
TOTAL LIABILITIES 1,717,674
-----------
STOCKHOLDERS' DEFICIENCY
Class A-1 Preferred stock $.001 par value, 325,000 shares authorized,
issued and outstanding 325
Class A-2 Preferred stock $.001 par value, 1,375,000 shares authorized, 1,177,000 issued and outstanding 1,177
Class A-3 Preferred stock $.001 par value, 5,000,000 shares authorized, 800,000 issued and outstanding 800
Common stock $ .001 par value, 50,000,000 shares authorized,
2,655,000 issued and outstanding 2,655
Additional paid-in capital 2,898,230
Deficit accumulated during development stage (4,524,032)
-----------
Total Stockholders' Deficiency (1,620,845)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 96,829
- ----------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-2
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For The Period
For The Year For The Year June 9, 1999
Ended Ended (Inception) To
December 31, December 31, December 31,
2001 2000 2001
------------ ------------ ---------------
REVENUES - NET $ 83,717 $ 548 $ 84,265
----------- --------- ------------
OPERATING EXPENSES
Salaries 307,102 586,151 893,253
Professional fees 736,222 451,633 1,187,855
General and administrative expenses 261,046 2,131,651 2,392,697
----------- --------- ---------
Total Operating Expenses 1,304,370 3,169,435 4,473,805
----------- --------- ---------
LOSS FROM OPERATIONS (1,220,653) (3,168,887) (4,389,540)
----------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 6,894 10,248 17,142
Interest expense (125,635) (4,359) (129,994)
Loss on disposal of assets (51,640) - (51,640)
Gain on sale of web site 30,000 - 30,000
----------- --------- ---------
Total Other Income-Net (140,381) 5,889 (134,492)
----------- --------- ---------
NET LOSS $(1,361,034) $(3,162,998) $(4,524,032)
- --------- =========== =========== ===========
Net loss per common share and equivalents -
basic and diluted $ (0.53) $ (1.29) $ (2.08)
=========== =========== ===========
Weighted average number of shares outstanding during the period -
basic and diluted 2,571,758 2,456,723 2,172,728
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JUNE 9, 1999
(INCEPTION) TO DECEMBER 31, 2001
Preferred Stock Preferred Stock Preferred Stock
Class A-1 Class A-2 Class A-3 Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
Issuance of common stock - $ - - $ - - $ - 996,000 $ 996
for acquisition of
Convergence Health, Inc.
Issuance of common stock
for cash - - - - - - 1,547,000 1,547
Issuance of common stock
for conversion of note
payable to stockholder - - - - - - 12,000 12
Issuance of preferred
stock for cash 325,000 325 705,000 705 - - - -
Net loss, 2000 - - - - - - - -
------- ---- --------- ------ ------- ---- --------- ------
Balance, December 31, 2000 325,000 325 705,000 705 - - 2,555,000 2,555
Issuance of common stock
for cash - - - - - - 100,000 100
Stock issued for services - - 12,000 12 - - - -
Issuance of preferred
stock for settlement of
amounts due to officer - - 239,200 239 - - - -
Issuances of preferred
stock for cash - - 220,800 221 800,000 800 - -
Net loss, 2001 - - - - - - - -
------- ---- --------- ------ ------- ---- --------- ------
BALANCE, 325,000 $325 1,177,000 $1,177 800,000 $800 2,655,000 $2,655
DECEMBER 31, 2001 ======= ==== ========= ====== ======= ==== ========= ======
Deficit
Accumulated
Additional During
Paid-In Development
Capital Stage Total
---------- ----------- ---------
Issuance of common stock $ 18,044 $ - $ 19,040
for acquisition of
Convergence Health, Inc.
Issuance of common stock
for cash - - 1,547
Issuance of common stock
for conversion of note
payable to stockholder 14,988 - 15,000
Issuance of preferred
stock for cash 2,386,470 - 2,387,500
Net loss, 2000 - (3,162,998) (3,162,998)
---------- ----------- -----------
Balance, December 31, 2000 2,419,502 (3,162,998) (739,911)
Issuance of common stock
for cash - - 100
Stock issued for services 29,988 - 30,000
Issuance of preferred
stock for settlement of
amounts due to officer 129,761 - 130,000
Issuances of preferred
stock for cash 318,979 - 320,000
Net loss, 2001 - (1,361,034) (1,361,034)
---------- ----------- -----------
BALANCE, $2,898,230 $(4,524,032) $(1,620,845)
DECEMBER 31, 2001 ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
For The Period
From
June 9, 1999
For The Year For The Year (Inception) To
Ended December Ended December December 31,
31, 2001 31, 2000 2001
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,361,034) $ (3,162,998) $ (4,524,032)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 20,281 21,355 41,636
Loss on disposal of assets 51,641 - 51,641
Stock issued for services 30,000 - 30,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Other assets 1,500 (6,900) (5,400)
Increase decrease in: -
Accounts payable and accrued expenses (75,494) 340,787 265,293
Advances from officer - 188,992 188,992
Other accrued liabilities 110,943 66,171 177,114
-------------- -------------- --------------
Net Cash Used In Operating Activities (1,222,163) (2,552,593) (3,774,756)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,115) (73,122) (74,237)
-------------- -------------- --------------
Net Cash Used In Investing Activities (1,115) (73,122) (74,237)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes and loans payable 476,275 755,000 1,231,275
Proceeds from issuance of preferred stock and common stock 320,100 2,389,047 2,709,147
-------------- -------------- --------------
Net Cash Provided By Financing Activities 796,375 3,144,047 3,940,422
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (426,903) 518,332 91,429
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 518,332 - -
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 91,429 518,332 $ 91,429
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 14,000 $ - $ 14,000
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-5
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
During 2000, the Company issued 996,000 shares of common stock for the
acquisition of Convergence Health, Inc. in the amount of $19,040.
During 2000, the Company issued 12,000 shares of common stock for the conversion
of a note payable to a stockholder in the amount of $15,000.
During 2001, the Company issued 64,000 shares of A-2 preferred stock for the
settlement of $130,000 in amounts due from officer.
During 2001, the Company sold a domain name in settlement of a $30,000 note
payable.
The accompanying notes are an integral part of these financial statements.
F-6
CONVERGENCEHEALTH.COM
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Organization and Description of Business
ConvergenceHealth.com (the "Company") was formed on June 9, 1999 in the
state of Nevada as Wild Wild Web Ventures and is in the development stage.
The Company changed its name to ConvergenceHealth.com on February 22,
2000. Simultaneous with the name change, the Company acquired all the
outstanding stock and assets of Convergence Health, Inc. ("CHI") an
inactive development stage California corporation, for 996,000 shares of
common stock. Subsequent to the acquisition CHI was dissolved.
The Company is developing the production of web-enabled application
software. The software is designed to provide end-users with personalized
and relevant information on holistic health and alternative medicine that
may be used to improve health status. This software will be licensed to
health benefit providers who will make it available to workers in the
corporate workplace for a monthly fee per employee. At December 31, 2001,
the Company has not yet commenced material operations, and primarily all
activity to date relates to formation, fundraising, product and business
plan development. The Company currently receives fees from users of its
website which is currently being developed.
The Company's future operations is dependent upon its ability to raise
additional working capital through the issuance of equity or debt
securities, or a combination thereof in order to implement its business
plan.
(B) Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(C) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at
time of purchase to be cash equivalents.
(D) Property and Equipment
Property and equipment were stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation was provided using the straight-line method over
the estimated useful lives of the assets from three to five years (See
Note 2).
(E) Income Taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109. "Accounting for Income Taxes" ("Statement
No. 109"). Under Statement No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
F-7
(F) Stock Options
In accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123") the Company has elected to account for Stock Options issued
to employees under Accounting Principles Board Opinion No. 25 ("APB
Opinion No. 25") and related interpretations.
(G) Per Share Data
Basic net income per common share is computed based on the weighted
average common shares outstanding during the year as defined by Statement
of Financial Accounting Standards, No. 128, "Earnings Per Share" ("SFAS
128"). Basic and diluted net income per common share is computed based on
the weighted average common shares and common stock equivalents
outstanding during the year as defined by SFAS 128. Common stock
equivalents have not been included in the weighted average computation
since the results would be anti dilutive.
(H) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosures of information
about the fair value of certain financial instruments for which it is
practicable to estimate that value. For purposes of this disclosure, the
fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties other
than in a forced sale or liquidation.
The carrying amounts of the Company's financial instruments, including
accounts payable, accrued liabilities, and notes and loans payable
approximates fair value.
(I) Website Development Expenses
The Company follows the Emerging Issues Task Force Issue 00-2, "Accounting
for Web Site Development Costs" in accounting for its website development
expenses. Accordingly, costs that involve design of the web page and do
not change the content are capitalized and amortized over their estimated
useful life. Costs incurred in operating a web site that have no future
benefits are expensed in the current period. Costs incurred in operating
the web site which have a future benefit are capitalized in accordance
with the AICPA's Statement of Position 98-1 and amortized over the
respective future periods which are expected to benefit from the changes.
(J) Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related
pronouncements. Pursuant to the new guidance in Statement No. 141, all
business combinations must be accounted for under the purchase method of
accounting; the pooling-of-interests method is no longer permitted. SFAS
141 also establishes new rules concerning the recognition of goodwill and
other intangible assets arising in a purchase business combination and
requires disclosure of more information concerning a business combination
in the period in which it is completed. This statement is generally
effective for business combinations initiated on or after July 1, 2001.
Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB
Opinion 17 and related interpretations. Statement No. 142 establishes new
rules on accounting for the acquisition of intangible assets not acquired
in a business combination and the manner in which goodwill and all other
intangibles should be accounted for subsequent to their initial
recognition in a business combination accounted for under SFAS No. 141.
Under SFAS No. 142, intangible assets should be recorded at fair value.
Intangible assets with finite useful lives should be amortized over such
period and those with indefinite lives should not be amortized. All
intangible assets being amortized as well as those that are not, are both
subject to review for potential impairment under SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". SFAS No. 142 also requires that goodwill arising in a
business combination should not be amortized but is subject to impairment
testing at the reporting unit level to which the goodwill was assigned to
at the date of the business combination.
F-8
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 and must be applied as of the beginning of such year to all goodwill
and other intangible assets that have already been recorded in the balance
sheet as of the first day in which SFAS No. 142 is initially applied,
regardless of when such assets were acquired. Goodwill acquired in a
business combination whose acquisition date is on or after July 1, 2001,
should not be amortized, but should be reviewed for impairment pursuant to
SFAS No. 121, even though SFAS No. 142 has not yet been adopted. However,
previously acquired goodwill should continue to be amortized until SFAS
No. 142 is first adopted.
Statement No. 143 "Accounting for Asset Retirement Obligations"
establishes standards for the initial measurement and subsequent
accounting for obligations associated with the sale, abandonment, or other
type of disposal of long-lived tangible assets arising from the
acquisition, construction, or development and/or normal operation of such
assets. SFAS No. 143 is effective for fiscal years beginning after June
15, 2002, with earlier application encouraged.
The adoption of these pronouncements will not have a material effect on
the Company's financial position or results of operations.
(K) Concentrations of Credit Risk from Deposits in Excess of Insured
Limits
The Company's cash balances on deposit with banks are guaranteed by the
Federal Deposit Insurance Corporation up to $100,000. The Company is
exposed to risk for the amounts of funds held in one bank in excess of the
insurance limit. At December 31, 2001, the Company had approximately
$23,200 in excess of the insurance limit. In assessing the risk, the
Company's policy is to bank with high quality financial institutions.
NOTE 2 PROPERTY AND EQUIPMENT
During 2001, the Company disposed of its fixed assets resulting in a loss
of $51,640. Total depreciation expense for the years ended December 31,
2001 and 2000 was $20,281 and $21,355, respectively.
NOTE 3 INTANGIBLES
During the year 2000 the Company purchased certain computer software, in
process web-site development software, trademarks, service marks, and
certain lists from various individuals operating under the "Medigy" and
"Healthworld Online" names in California and North Carolina aggregating
$957,610. These intangibles were expensed in 2000 because the related
software had not yet reached the feasibility stage.
NOTE 4 NOTES PAYABLE
(A) Notes Payable - Short-Term
The following schedule reflects short-term notes payable at
December 31, 2001:
Note payable, unsecured, due in full on demand,
bearing interest at 10% (See Note 5) $ 40,000
Note payable, unsecured, due in full on demand,
bearing interest at 5% 180,000
Note payable, secured by assets of the Company, due
in full on June 30, 2002, bearing interest at 12%.
The note is convertible to A-3 preferred stock at the
option of the Company (See Note 10). 750,000
---------
$ 970,000
=========
F-9
(B) Notes Payable - Long-Term
The following schedule reflects long-term notes payable at
December 31, 2001:
Note payable, unsecured, principal and interest
due on September 30, 2003, bearing interest at 12%.
The note is convertible to A-3 preferred stock at
the option of the Company (See Notes 5 and 10). $ 125,000
Note payable, unsecured, principal and interest
due on September 30, 2003, bearing interest at 12%
The note is convertible to A-3 preferred stock at the
option of the Company (See Note 10). 125,000
----------
Total long-term notes payable $ 250,000
==========
Required payments of principal on notes payable at
December 31, 2001 are summarized as follows:
2002 $ 970,000
2003 250,000
----------
$1,220,000
==========
The accrued interest on the notes payable at December 31, 2001 is included
with accrued interest and other liabilities on the balance sheet. Interest
expense for the periods ended December 31, 2001 and 2000 was $115,649 and
$4,359, respectively.
NOTE 5 RELATED PARTY TRANSACTIONS
The Company received $188,992 during the year 2000 from an officer of the
Company for working capital. Such funds are non-interest bearing. The
balance due to such officer at December 31, 2001 was $58,992.
The Company is indebted to an officer of the Company for a total of
$165,000 in notes payable. A note for $40,000 is due on demand and bears
interest at 10% until paid. A second note for $125,000 is due on September
30, 2003 and bears interest at 12% (See Note 4).
NOTE 6 INCOME TAXES
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $4,484,000 for income tax purposes, available to offset
future taxable income expiring on various dates through 2021. The net
operating loss created a deferred tax asset of approximately $1,525,000.
This tax asset has been fully reserved through a valuation allowance due
to the uncertainty of future operations generating income to realize such
deferred tax asset
NOTE 7 COMMITMENTS AND CONTINGENCIES
(A) Operating Lease Agreements
On April 16, 2001 the Company entered into a new sublease agreement
covering 3,312 square feet of office space. The sublease called for
monthly payments of $1,600 and was for a term of fourteen months expiring
June 30, 2002. The Company cancelled such lease in June 2001.
(B) Consulting Agreements
The Company entered into a consulting agreement with a consultant to
provide brand development including a marketing plan. The agreement does
not specify any termination date but can be cancelled by either party on
30 days notice and calls for monthly payments of $10,000.
The Company has entered into finders fee agreements with various
individuals where such individuals will find qualified investors for
equity or debt financing. The agreements call for payments between 2.5% to
10% of the financing depending on the type of investor. Amounts due are
payable one year after the closing of such financing between the qualified
investor and the Company.
F-10
NOTE 8 STOCKHOLDERS' DEFICIENCY
(A) Authorized Common and Preferred Stock
The Company is authorized to issue 50,000,000 common shares at $.001 par
value. At December 31, 2001 there were 2,655,000 shares outstanding.
The Company is authorized to issue up to 25,000,000 shares of preferred
stock. The Board of Directors has been given the discretion of designating
the number, series and preferences assigned to the preferred stock. As of
December 31, 2001, the Board of Directors has designated three types of
preferred stock.
Series A-1 Preferred
The Company is authorized to issue 325,000 shares of Series A-1 preferred
stock at $0.001 par value. At December 31, 2001 there were 325,000 shares
of Series A-1 preferred stock outstanding. Preferred stock only has
preference in liquidation and does not have any other rights or
privileges.
Series A-2 Preferred
The Company is authorized to issue 1,375,000 shares of Series A-2
preferred stock at $0.001 par value. At December 31, 2001 there were
1,177,000 shares of Series A-2 preferred stock outstanding.
Series A-3 Preferred
The Company is authorized to issue 5,000,000 shares of Series A-3
preferred stock at $0.001 par value. At December 31, 2001 there were
800,000 shares of Series A-3 preferred stock outstanding.
(B) Common Stock Options
During 2001 and 2000, the Company granted stock options to certain
employees and consultants. The Company applies APB Opinion No. 25 and
related interpretations in accounting for stock options issued to
employees and statement of Financial Accounting Standard #123 ("SFAS123")
for options granted to non-employees. Options granted to both employees
and non-employees did not result in a fair value greater than the exercise
price and accordingly, no compensation cost was recognized for such
options issued as of December 31, 2001.
A summary of the stock options issued under the employment and consulting
agreements as of December 31, 2001 is presented below:
Number of Weighted Average
Options Exercise Price
--------- ----------------
Stock Options
Balance, June 9, 1999 (inception) - -
Granted 820,000 0.25
Exercised - -
Forfeited -
-------- -----------
Balance, December 31, 2000 820,000 $ 0.25
Granted - -
Exercised - -
Forfeited 442,000 0.25
--------- -----------
Balance, December 31, 2001 378,000 0.26
========= ===========
Weighted average fair value of
options granted during the year $ -
===========
F-11
The following table summarizes information about stock options outstanding
at December 31, 2001:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range Of Outstanding at Remaining Average Exercisable Average
Exercise December 31, Contractual Exercise at December Exercise
Price 2001 Life Price 31, 2001 Price
--------- --------------- ----------- -------- ------------ ---------
0.213-
$ 0.275 378,000 46 Months $ 0.26 378.000 $ 0.26
========== =============== =========== ======== ============ =========
(C) Common Stock Warrants
During 2001, the Company granted warrants to employees and consultants to
purchase 490,000 and 101,852 shares of common stock at $2.50 and $0.01 per
share, respectively for a period of five years.
During 2000, the Company issued 247,500 warrants at an exercise price of
$2.50 per share, of which 80,000 have been cancelled and 177,500 are
outstanding as of December 31, 2001. The Company accounts for the warrants
under APB 25 for employees and SFAS 123 for non-employees. Accordingly, no
direct offering costs or compensation expenses were recognized as of
December 31, 2001 and 2000.
NOTE 9 LEGAL PROCEEDINGS
On May 23, 2001, Interactive Information Services, Inc. ("ITS") obtained a
judgment in the General Court of Justice, Superior Court of Wake County in
the amount of $85,076. This lawsuit originated from a breach of liability
accrued on the acquisition of a software contract. ITS has domesticated
the judgment in the state of Nevada. The liability for this judgment is
included in accounts payable at December 31, 2001 and in January 2002, the
judgment was paid and satisfied.
NOTE 10 SUBSEQUENT EVENTS
On January 18, 2002, the Company entered into a merger agreement with a
public company whereby the shareholders of the Company will receive
approximately 73.25% of the public company class A common stock
outstanding. The merger document calls for the public company to have
$450,000 in cash after liquidation of current liabilities and is subject
to approval by stockholders' at the 2002 annual meeting.
The Company was obligated to certain note holders in the amount of
$1,000,000 (See Notes 4(A) and (B)). Such notes had conversion features
which allowed the Company to convert such notes to A-3 preferred stock
upon reaching certain financial milestones. On January 31, 2002, the
Company converted the notes by issuing a total of 2,536,320 shares of A-3
preferred stock.
The Company is in the process of negotiating with various corporations for
the use of the Company's web sites by such corporations. Currently the
Company has contracts which are generating approximately $2,000 per month
in fees.
NOTE 11 GOING CONCERN
As reflected in the accompanying financial statements, the Company has
accumulated losses of $4,524,032 since inception, a working capital
deficiency of $1,376,245, a stockholders' deficiency of $1,615,859 and a
negative cash flow from operations of $1,222,163. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional funds and implement its business plan. The
accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
Management's plans include raising of capital through a merger and
marketing its products to health care organizations. The Company is also
seeking to merge with another viable company to develop its website
application and market such website.
F-12
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. June __, 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 COMBINATION: [ ] FOR [ ] ABSTAIN [ ] AGAINST
4. NEVADA REINCORPORATION AND 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.)