<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1997
FILE NO. 0-22799
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM
FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
BEI TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3274498
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
ONE POST STREET, SUITE 2500
SAN FRANCISCO, CA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(415) 956-4477
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE.
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
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<PAGE>
BEI TECHNOLOGIES, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM LOCATION IN INFORMATION
NO. CAPTION STATEMENT
---- ------- -----------------------
<C> <C> <S>
1. Business....................................... "Summary"; "The
Distribution"; "Risk
Factors"; "The
Business"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
2. Financial Information.......................... "Summary"; "The
Distribution"; "Proforma
Combined Balance Sheets
and Statements of
Operations"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
3. Properties..................................... "The Business--
Properties."
4. Security Ownership of Certain Beneficial Owners
and Management................................ "The Distribution" and
"Ownership of
Technologies Common
Stock by Certain
Beneficial Owners and
Management."
5. Directors and Executive Officers............... "Directors and Executive
Officers of the Company"
and "Liability and
Indemnification of
Officers and Directors."
6. Executive Compensation......................... "Compensation of
Executive Officers."
7. Certain Relationships and Related "Directors and Executive
Transactions.................................. Officers of the
Company--Certain
Relationships."
8. Legal Proceedings.............................. "The Business--Legal
Proceedings."
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................... "Summary"; "The
Distribution"; "Risk
Factors"; "Directors and
Executive Officers of
the Company";
"Description of Capital
Stock" and "Stockholder
Rights Plan."
10. Recent Sales of Unregistered Securities........ Not Applicable.
11. Description of Registrant's Securities
to be Registered.............................. "The Distribution";
"Description of Capital
Stock"; and "Share
Purchase Rights Plan."
12. Indemnification of Directors and Officers...... "Liability and
Indemnification of
Directors and Officers."
13. Financial Statements and Supplementary Data.... "Summary"; "Pro forma
Combined Balance Sheets
and Statements of
Operations"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION IN INFORMATION
NO. CAPTION STATEMENT
---- ------- -----------------------
<C> <C> <S>
14. Changes in and Disagreements with Accountants Not Applicable.
on Accounting and Financial Disclosure......
15. Financial Statements and Exhibits............ "Selected Proforma Data";
"Proforma Combined Balance
Sheets and Statements of
Operations"; "Index to
Financial Statements"; and
"Index to Exhibits."
</TABLE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTIONS 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
BEI TECHNOLOGIES, INC.
(Registrant)
/s/ Charles Crocker
By___________________________________
Name: Charles Crocker
Title: President and Chief Executive
Officer
Date: September 22, 1997
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS TO
FORM 10
GENERAL FORM
FOR REGISTRATION OF SECURITIES
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
----------------
BEI TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
2.1 Form of Distribution Agreement between BEI Electronics,
Inc. and BEI Technologies, Inc.
2.2** Form of Corporate Services Agreement between BEI
Technologies, Inc. and BEI Electronics, Inc.
2.3** Form of Tax Allocation and Indemnity Agreement between
BEI Electronics, Inc. and BEI Technologies, Inc.
2.4** Form of Assumption of Liabilities and Indemnity
Agreement between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.5 Form of Technology Transfer and License Agreement by
and between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.6 Form of Trademark Assignment and Consent Agreement by
and between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.7** Form of Agreement Regarding Certain Representations and
Covenants by and between BEI Electronics, Inc. and BEI
Technologies, Inc.
3.1** Certificate of Incorporation of BEI Technologies, Inc.
3.2** Bylaws of BEI Technologies, Inc.
4.1** Specimen Common Share certificate
4.2** Certificate of Incorporation of BEI Technologies, Inc.
(filed as Exhibit 3.1 hereto)
4.3** Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
hereto)
10.1** Form of Registrant's 1997 Equity Incentive Plan and
forms of related agreements.
10.2** Form of Executive Change in Control Benefits Agreement
between BEI Technologies, Inc. and Certain Named
Executive Officers
10.3 Assumption Agreement--Series A and Series B Senior
Notes
10.4 Credit Agreement
11.1** Statement regarding Computation of Per Share Earnings
21.1** List of Subsidiaries of BEI Technologies, Inc.
27.1** Combined Balance Sheet and Statement of Operations for
the nine months ended
June 28, 1997
27.2** Combined Statement of Operations for the nine months
ended June 29, 1996
99.1 BEI Technologies, Inc. Information Statement dated
September 11, 1997
99.2 Rights Agreement dated as of September 11, 1997 among
BEI Technologies, Inc. and ChaseMellon Shareholder
Services, L.L.C.
99.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock
99.4 Form of Rights Certificate
</TABLE>
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* To be filed by amendment
** Previously filed
<PAGE>
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 1 Definitions................................................................. 1
1.1 General..................................................................... 1
1.2 References; Interpretation.................................................. 5
Article 2 Distribution And Other Transactions; Certain Covenants...................... 5
2.1 The Distribution And Other Transactions..................................... 5
(a) Certain Transactions................................................. 5
(b) Stock Dividend To BEI................................................ 5
(c) Charter; By-Laws..................................................... 5
(d) Directors............................................................ 5
(e) Certain Licenses And Permits......................................... 5
(f) Lease Amendments..................................................... 6
(g) Transfer Of Agreements............................................... 6
(h) Consents............................................................. 7
(i) Delivery Of Shares To Agent.......................................... 7
(j) Other Transactions................................................... 7
2.2 Financing................................................................... 7
2.3 Operations In Ordinary Course............................................... 7
2.4 Capital Structure........................................................... 8
2.5 Assumption And Satisfaction Of Liabilities.................................. 8
2.6 Resignations................................................................ 8
2.7 Further Assurances.......................................................... 8
2.8 No Representations Or Warranties............................................ 8
2.9 Elimination Of Guarantees................................................... 8
2.10 Witness Services............................................................ 9
2.11 Certain Postdistribution Transactions....................................... 9
2.12 Transfers Not Effected Prior To Effective Time; Transfers Deemed
Effective As Of Effective Time.............................................. 9
2.13 Ancillary Agreements........................................................ 10
Article 3 Access To Information....................................................... 10
3.1 Provision Of Corporate Records.............................................. 10
3.2 Access To Information....................................................... 10
3.3 Reimbursement; Other Matters................................................ 10
3.4 Confidentiality............................................................. 11
Article 4 Dispute Resolution.......................................................... 11
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 5 Insurance.............................................................. 13
5.1 Coverage............................................................... 13
5.2 Claims Following The Effective Time; Waiver............................ 13
5.3 Administration......................................................... 14
5.4 Insurance Proceeds..................................................... 14
5.5 Retrospectively Rated Policies......................................... 14
5.6 Agreement For Waiver Of Conflict And Shared Defense.................... 14
5.7 Cooperation............................................................ 14
5.8 Indemnity Agreement.................................................... 14
Article 6 Employee Obligations And Benefit Plans................................. 15
6.1 BEI Retirement Plan.................................................... 15
6.2 Supplemental Plan...................................................... 15
6.3 Stock Options And Restricted Stock..................................... 15
(a) Stock Options..................................................... 15
(b) Restricted Stock.................................................. 16
6.4 Other Benefits......................................................... 16
6.5 Severance Claims....................................................... 17
Article 7 Miscellaneous.......................................................... 17
7.1 Complete Agreement; Construction....................................... 17
7.2 Ancillary Agreements................................................... 17
7.3 Counterparts........................................................... 17
7.4 Survival Of Agreements................................................. 17
7.5 Expenses............................................................... 17
7.6 Notices................................................................ 18
7.7 Waivers................................................................ 18
7.8 Amendments............................................................. 18
7.9 Assignment............................................................. 18
7.10 Successors And Assigns................................................. 19
7.11 Termination............................................................ 19
7.12 Subsidiaries........................................................... 19
7.13 Third Party Beneficiaries.............................................. 19
7.14 Attorney Fees.......................................................... 19
7.15 Title And Headings..................................................... 19
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.16 Exhibits And Schedules.................................................... 19
7.17 Specific Performance...................................................... 19
7.18 Governing Law............................................................. 20
7.19 Consent To Jurisdiction................................................... 20
7.20 Severability.............................................................. 20
7.21 Force Majeure............................................................. 20
</TABLE>
iii
<PAGE>
DISTRIBUTION AGREEMENT
The following DISTRIBUTION AGREEMENT dated as of September [ ], 1997, is
entered into by BEI ELECTRONICS, INC., a Delaware corporation ("BEI"), and BEI
TECHNOLOGIES, INC., a Delaware corporation ("Technologies").
The Board of Directors of BEI has determined to distribute to the holders
of shares of Common Stock, par value $0.001 per share, of BEI (the "BEI Common
Stock") shares of Common Stock, par value $0.001 per share, of Technologies (the
"Technologies Common Shares"). It is desirable to allocate and assign
responsibility for various matters affecting the activities of Technologies and
to set forth the principal corporate transactions required to effect such
distribution and other agreements that will govern certain other matters
following the distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 GENERAL. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Action" shall mean any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative official, agency, body or commission or any
arbitration tribunal, including any claims or contract disputes concerning any
governmental contract.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the person
specified.
"Agent" shall mean ChaseMellon Shareholder Services, LLC, as transfer
agent for BEI and Technologies.
"Ancillary Agreements" shall mean all of the written agreements,
instruments, understandings, assignments or other arrangements (other than this
Agreement) entered into in connection with the transactions contemplated hereby,
including, without limitation, (i) the Tax Allocation and Indemnity Agreement,
(ii) the Technology Transfer and License Agreement, (iii) the Trademark
Assignment and Consent Agreement, (iv) the Assumption of Liabilities and
Indemnity Agreement, (v) the Tax Allocation and Indemnity Agreement, and (vi)
the Corporate Services Agreement.
1
<PAGE>
"BEI Business" shall mean the businesses of any division, Subsidiary
or investment of BEI (other than the Technologies Business) managed or operated
prior to the Effective Time by any such business entity.
"BEI Liabilities" shall mean collectively, (i) all the Liabilities of
BEI and its Subsidiaries under this Agreement and any of the Ancillary
Agreements and (ii) all the Liabilities of the parties hereto or their
respective Subsidiaries (whenever arising whether prior to, at or following the
Effective Time) arising out of or in connection with or otherwise relating to
the management or conduct before or after the Effective Time of the BEI
Business.
"BEI Restricted Stock Plan" shall mean the 1992 BEI Restricted Stock
Plan, as in effect at the Effective Time.
"BEI Retirement Plan" shall mean the BEI Retirement Savings Plan, as
in effect at the Effective Time.
"BEI Supplemental Plan" shall mean the BEI Deferred Compensation Plan,
as in effect on the Distribution Date.
"Claims Administration" shall mean (i) the processing of claims made
under Company Policies, including the reporting of claims and occurrences to the
appropriate insurance carriers and the collection of the proceeds of Company
Policies and (ii) in the case of the Technologies Business, the reporting to BEI
of any losses or claims which may cause the per-occurrence deductible or self-
insured retention or limits of any Company Policy to be exceeded.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder, including any successor
legislation.
"Commission" shall have the meaning set forth in Section 3.2(b).
"Company Policies" shall mean all Policies, current or past, under
which BEI or any subsidiary, affiliate or predecessor of BEI is a named insured.
"Conveyancing and Assumption Instruments" shall mean, collectively,
the various agreements, instruments and other documents to be entered into to
effect the transfer of assets and the assumption of Liabilities in the manner
contemplated by this Agreement.
"Corporate Services Agreement" shall mean the Corporate Services
Agreement dated as of the date hereof between BEI and Technologies.
["Credit Agreement" shall mean the line of credit agreement dated
_______________, 1997 with Canadian Imperial Bank of Commerce, the Senior Note
Agreements dated _______________, 199_ related to the Series A and Series B
Senior Notes, the loan agreements related to the mortgage note dated
_______________, 199_, and any other related agreements or other financing
agreements which will be assumed by Technologies prior
2
<PAGE>
to the Distribution Date pursuant to Section 2.2 hereof and which are intended
to provide financing and working capital for Technologies after the
Distribution.]
"Distribution" shall mean the distribution to holders of record of
shares of BEI Common Stock as of the Distribution Record Date of the
Technologies Common Shares owned by BEI on the basis of one Technologies Common
Share for every one share of BEI Common Stock. The Distribution shall be deemed
effective as of the Effective Time.
"Distribution Date" shall mean October ___, 1997, or such other date
as may hereafter be determined by BEI's Board of Directors as the date on or
after which certificates representing the Common Shares shall be distributed by
the Agent to holders of record of shares of BEI Common Stock on the Distribution
Record Date.
"Distribution Record Date" shall mean September ___, 1997, or such
other date as may hereafter be determined by BEI's Board of Directors as the
record date for the Distribution.
"Effective Time" shall mean midnight on September ___, 1997, or such
other date as may hereafter be determined by BEI's Board of Directors as the
date on which the Distribution shall be deemed effective.
"Indemnity Agreement" shall mean the Assumption of Liabilities and
Indemnity Agreement dated as of the date hereof between BEI and Technologies.
"Information Statement" shall mean the Information Statement sent to
the holders of shares of BEI Common Stock in connection with the Distribution,
including any amendment or supplement thereto.
"Insurance Proceeds" shall mean those monies (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of an insured, in either case net of any applicable premium adjustment,
retrospectively-rated premium, deductible, retention, or cost of reserve paid or
held by or for the benefit of such insured.
"Insured Claims" shall mean those Liabilities that, individually or in
the aggregate, are covered within the terms and conditions of any Company
Policy, whether or not subject to deductibles, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Company Policy limits, including aggregates.
"Liabilities" shall mean any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including, without limitation, those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any court, any governmental or other regulatory or administrative
agency or commission or any award of any arbitration tribunal, and those arising
under any contract, guarantee, commitment or undertaking.
3
<PAGE>
"Person" shall mean any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
"Policies" shall mean insurance policies and insurance contracts of
any kind (other than life and benefits policies or contracts), including,
without limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, environmental impairment, director and
officer, health, automobile, aircraft, property and, casualty, workers'
compensation and employee dishonesty insurance policies, bonds and self-
insurance and captive insurance company arrangements, together with the rights,
benefits and privileges thereunder.
"Subsidiary" shall mean any corporation, partnership or other entity
of which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Tax" shall mean all Federal, state, local and foreign taxes and
assessments, including all interest, penalties and additions imposed with
respect to such amounts.
"Tax Agreement" shall mean the Tax Allocation and Indemnity Agreement
dated as of the date hereof between BEI and Technologies.
"Technologies Assets" shall mean, collectively, all the rights and
assets of BEI and its Subsidiaries relating to the Technologies Business,
including, without limitation, all the outstanding capital stock or other
interests of Subsidiaries of BEI conducting Technologies Business and the
technology, patents, trademarks and other intellectual property described in the
Technology Transfer and License Agreement.
"Technologies Business" shall mean the businesses heretofore conducted
by BEI, including but not limited to the sensors and defense businesses, other
than those medical device businesses conducted by BEI Medical Systems Company,
Inc. ("BEI Medical") prior to the Effective Time, and business activities
acquired, developed or established by or for Technologies or any of its
Subsidiaries after the Effective Time.
"Technologies Equity Plan" shall mean Technologies' 1997 Equity
Incentive Plan, as in effect at the Effective Time.
"Technologies Liabilities" shall mean, collectively, (i) all the
Liabilities of Technologies and its Subsidiaries under this Agreement and any of
the Ancillary Agreements and (ii) all the Liabilities of the parties hereto or
their respective Subsidiaries (whenever arising whether prior to, at or
following the Effective Time) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Effective Time of the
Technologies Business.
4
<PAGE>
"Technology Transfer and License Agreement" shall mean the Technology
Transfer and License Agreement dated as of the date hereof between BEI and
Technologies.
"Trademark Assignment and Consent Agreement" shall mean the Trademark
Assignment and Consent Agreement dated as of the date hereof between BEI and
Technologies.
1.2 REFERENCES; INTERPRETATION. References to an "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
ARTICLE 2
DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS
2.1 THE DISTRIBUTION AND OTHER TRANSACTIONS.
(a) CERTAIN TRANSACTIONS. At or prior to the Effective Time:
(i) BEI shall contribute to Technologies the business entities
that are to comprise the Technologies Business (to the extent they are not owned
by Technologies or any of its Subsidiaries).
(ii) BEI shall transfer to Technologies effective as of the
Effective Time all of BEI's and its Subsidiaries' right, title and interest in
the Technologies Assets.
(iii) BEI shall transfer to Technologies and its Subsidiaries, all
other assets that relate to the BEI executive office and human resources
functions.
(b) STOCK DIVIDEND TO BEI. At or prior to the Effective Time,
Technologies shall issue to BEI as a stock dividend the number of Technologies
Common Shares required to effect the Distribution less the number of
Technologies Common Shares already owned by BEI.
(c) CHARTER; BY-LAWS. Technologies' Certificate of Incorporation was
filed with the Delaware Secretary of State on June 30, 1997, and the Board of
Directors of Technologies adopted the Bylaws of Technologies at a meeting held
on June 30, 1997.
(d) DIRECTORS. At or prior to the Effective Time, BEI, as the sole
shareholder of Technologies, shall have taken all necessary action to elect, or
cause to be elected, to the Board of Directors of Technologies the individuals
identified in the Information Statement as directors of Technologies, such
elections to be effective on or prior to the Effective Time, with the specific
date to be set by BEI in its discretion.
(e) CERTAIN LICENSES AND PERMITS. At or prior to the Effective Time
or as soon as reasonably practicable thereafter, all transferrable licenses,
permits and authorizations issued by governmental or regulatory entities which
relate to the Technologies Business but
5
<PAGE>
which are held in the name of BEI or any of its Subsidiaries (other than any
Subsidiary of Technologies), or any of their respective employees, officers,
directors, stockholders, agents, or otherwise, on behalf of Technologies (or its
Subsidiaries) shall be duly and validly transferred by BEI to Technologies (or
its Subsidiaries).
(f) LEASE AMENDMENTS. At or prior to the Effective Time, or as soon
as reasonably practicable thereafter, amendments shall be executed to each of
the leases to which BEI is a party and which provide for the lease of real or
personal property representing Technologies Assets or relating to the
Technologies Business which amendments will provide for the substitution of
Technologies for BEI as lessee or lessor, as the case may be, and excuse BEI
from any future liabilities or responsibilities with respect thereto.
(g) TRANSFER OF AGREEMENTS.
(i) BEI hereby agrees that at or prior to the Effective Time or as
soon as reasonably practicable thereafter, subject to the limitations set forth
in this Section 2.1(g) and the terms of the Ancillary Agreements, it will, and
it will cause its Subsidiaries (other than Technologies or any of its
Subsidiaries) to, assign, transfer and convey to Technologies all of BEI's or
such Subsidiaries' respective right, title and interest in and to any and all
agreements that, in BEI's sole judgment, relate exclusively to the Technologies
Business.
(ii) Subject to the provisions of this Section 2.1(g) and the terms
of the Ancillary Agreements, any agreement to which either or both of the
parties hereto or any of their Subsidiaries is a party that inures, in BEI's
sole judgment, to the benefit of both the BEI Business and the Technologies
Business shall be assigned in part, on or prior to the Effective Time or as soon
as reasonably practicable thereafter, so that each party shall be entitled to
the rights and benefits inuring to its business under such agreement.
(iii) The assignee of any agreement assigned, in whole or in part,
hereunder (an "Assignee"), shall assume and agree to pay, perform, and fully
discharge all obligations of BEI under such agreement or, in the case of a
partial assignment under paragraph (g) (ii), Technologies's related portion of
such obligations as determined in accordance with the terms of the relevant
agreement, where determinable on the face thereof, and otherwise as determined
in accordance with the practice of the parties prior to the Distribution.
(iv) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign any agreement, in
whole or in part, or any rights thereunder if the agreement to assign or attempt
to assign, without the consent of a third party, would constitute a breach
thereof or in any way adversely affect the rights of the Assignee thereof. Until
such consent is obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of any party hereto so that the
Assignee would not, in fact, receive all such rights, the parties will cooperate
with each other in any arrangement designed to provide for the Assignee the
benefits of, and to permit the Assignee to assume liabilities under, any such
agreement.
6
<PAGE>
(h) CONSENTS. The parties hereto shall use commercially reasonable
efforts to obtain required consents to assignment of agreements hereunder.
(i) DELIVERY OF SHARES TO AGENT. At or prior to the Effective Time,
BEI shall deliver to the Agent the share certificate or certificates
representing the Technologies Common Shares issued to BEI by Technologies,
pursuant to Section 2.1(b) and shall instruct the Agent to distribute, on or as
soon as practicable following the Distribution Date, such Common Shares to
holders of record of shares of BEI Common Stock on the Distribution Record Date
as further contemplated by, and subject to the conditions contained in, the
Information Statement and this Agreement. Technologies shall provide all share
certificates that the Agent shall require in order to effect the Distribution.
(j) OTHER TRANSACTIONS. At or prior to the Effective Time, BEI and
Technologies shall have consummated those other transactions in connection with
the Distribution that are contemplated by the Information Statement and not
specifically referred to in subparagraphs (a)-(i) above.
2.2 FINANCING.
(a) Each of the parties hereto shall take all actions necessary to
cause Technologies immediately prior to the Effective Time: (i) to assume BEI's
rights and obligations under the Credit Agreements, provided that BEI shall have
no obligation to guarantee or otherwise provide credit support or enhancement
for the obligations of Technologies under such Credit Agreements; and (ii) to
assume BEI's intercompany payable to Defense Systems Company, Inc. ("Defense").
(b) Each of the parties hereto shall take all actions necessary such
that immediately prior to the Effective Time, BEI Sensors and Systems Company,
Inc. ("Sensors") shall pay BEI up to $9.0 million in partial satisfaction of the
intercompany obligation owed by Sensors to BEI. Immediately following such
payment, BEI shall contribute the balance of its intercompany receivable from
Sensors to Technologies.
(c) Prior to the Effective Time, each of the parties shall take all
actions necessary to cause Electronics to exchange its intercompany receivable
from BEI Medical Systems Company, Inc. ("Medical") for common stock of Medical.
(d) Prior to the Effective Time, each of the parties hereto shall take
all actions necessary to cause Technologies to tender to Defense the
intercompany receivable from Sensors (contributed to Technologies pursuant to
the second sentence of Section 2.2(b) hereof) in partial satisfaction of the
intercompany payable to Defense (assumed by Technologies pursuant to clause (ii)
of Section 2.2(a) hereof).
2.3 OPERATIONS IN ORDINARY COURSE. Each of BEI and Technologies agrees
that, except as otherwise provided in any Ancillary Agreement or this Agreement
or as otherwise mutually agreed between BEI and Technologies, during the period
from the date of this Agreement through the Effective Time, it will, and will
cause their respective Subsidiaries during such period to, conduct its and their
respective businesses in a manner substantially consistent with current and past
operating practices and in the ordinary course, including, without limitation,
with respect to the payment and administration of accounts payable and the
administration of accounts receivable, the purchase of capital assets and
equipment and the management of inventories.
7
<PAGE>
2.4 CAPITAL STRUCTURE. Each of BEI and Technologies agrees to use
commercially reasonable efforts to achieve both an allocation of consolidated
indebtedness of BEI and a capital structure of Technologies which substantially
reflects the capital structure after the Distribution of Technologies set forth
in the Information Statement under the heading "Capitalization."
2.5 ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as otherwise
specifically set forth in any Ancillary Agreement, from and after the Effective
Time, (i) BEI shall, and shall cause its Subsidiaries to, assume, pay, perform
and discharge all BEI Liabilities, and (ii) Technologies shall, and shall cause
its Subsidiaries to, assume, pay, perform and discharge all Technologies
Liabilities.
2.6 RESIGNATIONS. BEI shall cause all its directors, officers and
employees, other than those continuing in their present roles, as described in
the Information Statement, to resign, effective as of the Effective Date, from
all positions as directors, officers and employees of BEI or as officers or
directors of BEI Medical or its subsidiaries.
2.7 FURTHER ASSURANCES. In case at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement and the Ancillary Agreements, the proper officers of each party
to this Agreement shall take all such necessary action. Without limiting the
foregoing, BEI and Technologies shall use commercially reasonable efforts to
obtain all consents and approvals, to enter into all amendatory agreements and
to make all filings and applications that may be required for the consummation
of the transactions contemplated by this Agreement and the Ancillary Agreements,
including, without limitation, all applicable governmental and regulatory
filings and novations.
2.8 NO REPRESENTATIONS OR WARRANTIES. Each of the parties hereto
understands and agrees that, except as otherwise expressly provided, no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, making any representation or warranty
whatsoever, including, without limitation, as to title, value or legal
sufficiency. It is also agreed and understood that all assets either
transferred to or retained by the parties, as the case may be, shall be "as is,
where is" and that (subject to Section 2.7) the party to which such assets are
to be transferred hereunder shall bear the economic and legal risk that any
conveyances of such assets shall prove to be insufficient or that such party's
or any of the Subsidiaries' title to any such assets shall be other than good
and marketable and free from encumbrances. Similarly, each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any amendatory agreements and the
making of any filings or applications contemplated by this Agreement will
satisfy the provisions of any or all applicable agreements or the requirements
of any or all applicable laws or judgments, it being agreed and understood that
the party to which any assets are transferred shall bear the economic and legal
risk that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with.
2.9 ELIMINATION OF GUARANTEES. Except as otherwise specified in any
Ancillary Agreement, BEI and Technologies shall use commercially reasonable
efforts to have, on or prior
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to the Effective Time, or as soon as reasonably practicable thereafter, BEI and
any of its Subsidiaries removed as guarantor of or obligor for any Technologies
Liability or Liabilities. To the extent that BEI or any of its Subsidiaries
cannot be removed as guarantor of or obligor for any such Technologies Liability
or Liabilities, Technologies agrees that until such Technologies Liability or
Liabilities shall have been discharged in full, Technologies will take no
action, and will not permit any of its Subsidiaries to take any action, which
will have the effect of increasing the contingent liability or exposure of BEI
or any of its Subsidiaries with respect to such Technologies Liability or
Liabilities.
2.10 WITNESS SERVICES. At all times from and after the Effective Time,
each of BEI and Technologies shall use commercially reasonable efforts to make
available to each other, upon reasonable written request, its and its
Subsidiaries' officers, directors, employees and agents as witnesses to the
extent that (i) such persons may reasonably be required in connection with the
prosecution or defense of any Action in which the requesting party may from time
to time be involved and (ii) there is no conflict in the Action between the
requesting party and itself. A party providing witness services to the other
party under this Section shall be entitled to receive from the recipient of such
services, upon the presentation of invoices therefor, payments for such amounts
relating to supplies, disbursements and other out-of-pocket expenses and direct
and indirect costs of employees who are witnesses as may be reasonably incurred
in providing such witness services.
2.11 CERTAIN POSTDISTRIBUTION TRANSACTIONS. Each of BEI and Technologies
agrees that (i) it shall comply with and otherwise not take action inconsistent
with each representation and statement made, or to be made, to Davis, Polk &
Wardwell in connection with such firm's rendering an opinion to BEI and
Technologies as to certain tax aspects of the Distribution and (ii) until two
years after the Distribution Date, it will maintain its status as a company
engaged in the active conduct of a trade or business, as defined in Section
355(b) of the Code.
2.12 TRANSFERS NOT EFFECTED PRIOR TO EFFECTIVE TIME; TRANSFERS DEEMED
EFFECTIVE AS OF EFFECTIVE TIME. To the extent that any transfers contemplated
by this Article II shall not have been consummated at or prior to the Effective
Time, the parties shall cooperate to effect such transfers as promptly following
the Effective Time as shall be practicable. Nothing herein shall be deemed to
require the transfer of any assets or the assumption of any Liabilities which by
their terms or operation of law cannot be transferred; provided, however, that
the parties hereto and their respective Subsidiaries shall cooperate to seek to
obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this Article II. In the
event that any such transfer of assets or Liabilities has not been consummated,
from and after the Effective Time, the party retaining such asset or Liability
shall hold such asset in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto) or retain such Liability
for the account of the party by whom such Liability is to be assumed pursuant
hereto, as the case may be, and take such other action as may be reasonably
requested by the party to whom such asset is to be transferred, or by whom such
Liability is to be assumed, as the case may be, in order to place such party,
insofar as is reasonably possible, in the same position as would have existed
had such asset or Liability been transferred as contemplated hereby. As and
when any such asset or Liability becomes transferable, such transfer shall be
effected forthwith. The parties agree that, as of the Effective
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Time, each party hereto shall be deemed to have acquired complete and sole
beneficial ownership over all of the assets, together with all rights, powers
and privileges incident thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incident thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
2.13 ANCILLARY AGREEMENTS. At or prior to the Effective Time, each of BEI
and Technologies shall enter into, and/or (where applicable) shall cause their
respective Subsidiaries to enter into, the Ancillary Agreements and any other
agreements in respect of the Distribution reasonably necessary or appropriate in
connection with the transactions contemplated hereby and thereby.
ARTICLE 3
ACCESS TO INFORMATION
3.1 PROVISION OF CORPORATE RECORDS. After the Effective Time, upon the
prior written request by one party for specific and identified agreements,
documents, books, records or files including, without limitation, computer
files, microfiche, tape recordings and photographs (collectively, "Records"),
relating to or affecting the requesting party, the other party shall arrange, as
soon as reasonably practicable following the receipt of such request, for the
provision of appropriate copies of such Records (or the originals thereof if the
party making the request has a reasonable need for such originals) in the
possession of such other party or any of its Subsidiaries, but only to the
extent such items are not already in the possession of the requesting party.
3.2 ACCESS TO INFORMATION.
(a) From and after the Effective Time, BEI and Technologies shall
afford to the other and its authorized accountants, counsel and other designated
representatives (including governmental representatives and auditors in
connection with governmental claims or audits) reasonable access during normal
business hours, subject to appropriate restrictions for classified, privileged
or confidential information, to the personnel, properties, books and records of
such party and its Subsidiaries insofar as such access is reasonably required by
the other party.
(b) For a period of five years following the Effective Time, each of
BEI and Technologies shall provide to the other, promptly following such time at
which such documents shall be filed with the Securities and Exchange Commission
(the "Commission"), all documents that shall be filed by it and by any of its
respective Subsidiaries with the Commission pursuant to the periodic and interim
reporting requirements of the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
3.3 REIMBURSEMENT; OTHER MATTERS.
(a) Except to the extent otherwise contemplated by any Ancillary
Agreement, a party providing Records or access to information to the other party
under this Article III shall
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be entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts relating to supplies, disbursements and
other out-of-pocket expenses as are reasonably incurred in providing such
Records or access to information.
(b) The parties hereto shall comply with those document retention
policies set forth in Schedule 3.3(b) hereto or established and agreed to in
writing by their respective authorized officers on or prior to the Effective
Time in respect of Records and related matters.
3.4 CONFIDENTIALITY. Each of BEI and its Subsidiaries and Technologies
and its Subsidiaries shall not use or permit the use of (without the prior
written consent of the other) and shall hold, and shall cause its consultants
and advisors to hold, in strict confidence, all information concerning the other
parties in its possession, its custody or under its control (except to the
extent that (A) such information has been in the public domain or becomes part
of the public domain through no fault of such party, (B) such information has
been later lawfully acquired by such party, without an obligation of confidence,
from a third party who is legally free to disclose such information, (C) this
Agreement or any other Ancillary Agreement or any other agreement entered into
pursuant hereto permits such use or disclosure of such information or (D) such
information is independently developed by such party without reference to such
information) to the extent such information (x) relates to the period up to the
Effective Time, (y) relates to any Ancillary Agreement or (z) is obtained in the
course of performing services for the other party pursuant to any Ancillary
Agreement, and each party shall not (without the prior written consent of the
other) otherwise release or disclose such information to any other person,
except such party's auditors and attorneys, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure. To
the extent that a party hereto is compelled by judicial or administrative
process to disclose such information under circumstances in which any
evidentiary privilege would be available, such party agrees to assert such
privilege in good faith prior to making such disclosure. Each of the parties
hereto agrees to consult with each relevant other party in connection with any
such judicial or administrative process, including, without limitation, in
determining whether any privilege is available, and further agrees to allow each
such relevant party and its counsel to participate in any hearing or other
proceeding (including, without limitation, any appeal of an initial order to
disclose) in respect of such disclosure and assertion of privilege.
ARTICLE 4
DISPUTE RESOLUTION
In the event of a controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or any of the Ancillary
Agreements or otherwise arising out of, or in any way related to this Agreement
or any of the Ancillary Agreements, including, without limitation, any claim
based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), the Presidents (or their designees) of the respective parties shall
negotiate in good faith for a reasonable period of time to settle such Agreement
Dispute.
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If after such reasonable period such Presidents (or their designees) are
unable to settle such Agreement Dispute (and in any event after 60 days have
elapsed from the time the parties began such negotiations), such Agreement
Dispute shall be determined, at the request of either party, by arbitration
before a single arbitrator conducted in San Francisco, California, before and in
accordance with the then-existing Rules of Practice and Procedure of the San
Francisco office of JAMS/Endispute, Inc. ("JAMS") (the "Rules"), and any
judgment or award rendered by the arbitrator shall be final, binding and
nonappealable (except upon grounds specified in 9 U.S.C. section 10 or
California Code of Civil Procedure section 1285 et seq. as in effect on the date
hereof), and judgment may be entered by any state or Federal court having
jurisdiction thereof in accordance with Section 7.19 hereof. Each party shall
have the right to conduct the following discovery: one-time service of up to 25
document requests upon the other party, with receipt of all responsive documents
within 30 days; exchange of witness lists identifying any witnesses the party
intends to call at the arbitration hearing and any other persons with material
information about the dispute, including a brief description of each identified
person's knowledge; the taking of depositions of any fact (non-expert)
witnesses, however, the total time for all of each party's depositions of fact
witnesses shall not exceed ten eight-hour days, including breaks; and the
designation of up to three expert witnesses per party, with the right to depose
the opposing party's experts, however the total time for all of each party's
depositions of expert witnesses shall not exceed two eight-hour days, including
breaks. Any controversy concerning whether an Agreement Dispute is an
arbitrable Agreement Dispute, whether arbitration has been waived, whether an
assignee of this Agreement is bound to arbitrate, or as to the interpretation of
enforceability of this Article 4 shall be determined by the arbitrator. The
arbitrator shall be a retired or former judge of any Federal or California trial
or appellate court or such other qualified person as the parties may agree to
designate, provided such individual has had substantial professional experience
with regard to settling commercial disputes. The arbitration hearing shall
commence no later than six months following the service of the Demand for
Arbitration. The arbitrator shall make detailed findings of fact and law in
writing in support of his or her decision and shall serve his or her award and
findings of fact within 15 days following the later of the conclusion of the
arbitration hearing or submission of the final briefs. The arbitrator shall be
entitled, if appropriate, to award any remedy in such proceedings, including,
without limitation, monetary damages, specific performance and all other forms
of legal and equitable relief; provided, however, the arbitrator shall not be
entitled to award punitive damages and shall not reform, modify or materially
change this Agreement or any of the Ancillary Agreements. In his or her award
the arbitrator shall allocate, in his or her discretion, among the parties to
the arbitration all costs of the arbitration, including, without limitation, the
fees and expenses of the arbitrator and reasonable attorneys' fees, costs and
expert witness expenses of the parties. The parties hereto agree to comply with
any award made in any such arbitration proceedings that has become final in
accordance with the Rules and agree to the entry of a judgment in any
jurisdiction upon any award rendered in such proceedings becoming final under
the Rules.
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ARTICLE 5
INSURANCE
5.1 COVERAGE. As of the Effective Time, coverage of Technologies and its
Subsidiaries shall cease under current Company Policies, except as provided in
this Article 5. From and after the Effective Time, Technologies and its
Subsidiaries will be responsible for obtaining and maintaining insurance
coverages for their own account, and, with respect to policies of commercial
general liability insurance, shall name BEI as an additional insured with
respect to liabilities assumed by BEI under the Indemnity Agreement. To the
extent that liabilities arising from the activities of Technologies prior to the
Effective Time are covered by Company Policies, and result in the assertion of
claims against BEI after the Effective Time, it is the intention of the parties
that, without increasing or expanding the risks assumed by the insurer,
Technologies will have the benefit of such insurance coverage after the
Effective Time. No assignment pursuant to Section 5.2 is intended to increase
the liability of any insurer under a Company Policy. If and when such
assignment occurs, it is BEI's intention to assign only such coverage as would
have been available to BEI in respect of the Technologies Business if the
Distribution had not occurred.
5.2 CLAIMS FOLLOWING THE EFFECTIVE TIME; WAIVER.
(a) If, subsequent to the Effective Time, any person shall assert a
claim or institute a suit, action or proceeding against Technologies or any of
its Subsidiaries (including, without limitation, where Technologies or its
Subsidiaries are joint defendants with other persons) with respect to any
injury, loss, liability, damage or expense incurred or claimed to have been
incurred prior to the Effective Time in the course of or in connection with the
conduct of the Technologies Business and which injury, loss, liability, damage
or expense may constitute an insured or insurable occurrence under one or more
Company Policies, BEI shall, at the time such claim is asserted, be deemed,
without need of further documentation, to assign to Technologies or any of its
Subsidiaries an interest in the relevant Company Policies (unless such
assignment would render BEI's coverage for such occurrence thereunder void),
subject to any limitations or obligations of Technologies contemplated by this
Article 5, if necessary, and then only to the extent necessary, to convey to
Technologies or any of its Subsidiaries rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to any such claim,
suit, action, proceeding, injury, loss, liability, damage or expense provided,
however, that, with respect to Company Policies for which Technologies has
payment obligations pursuant to Section 5.5 or otherwise, Technologies and its
Subsidiaries shall only have the rights set forth under this Section 5.2(a) with
respect to such Company Policies if such payment obligations have been satisfied
by Technologies.
(b) Notwithstanding any contrary provision contained herein, BEI shall
at all times retain the Company Policies, together with the rights, benefits and
privileges thereunder, including without limitation the right to invade or
exhaust any Company Policy by submission of claims, settlement or otherwise;
provided, that the retention of the Company Policies by BEI is not intended to
limit, inhibit or preclude any right granted pursuant to Section 5.2(a), and
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provided further that Section 5.2(a) is not intended to limit, inhibit or
preclude any rights, benefits or privileges BEI may have under Company Policies.
5.3 ADMINISTRATION. From the Effective Time until one full policy year
after the end of the policy year in which the Effective Time occurs (the
"Insurance Transition Period"), Technologies shall be responsible for Claims
Administration with respect to BEI Liabilities and Technologies Liabilities.
BEI hereby appoints Technologies as its agent and attorney in fact to assert
claims against insurance carriers and to otherwise perform Claims Administration
with respect to BEI Liabilities during the Insurance Transition Period.
Technologies shall be responsible for Claims Administration with respect to
Technologies Liabilities with respect to which BEI is engaged in coverage
litigation as of the Effective Time.
5.4 INSURANCE PROCEEDS. Proceeds received with respect to claims made
under Company Policies shall be paid to BEI with respect to BEI Liabilities and
to Technologies with respect to Technologies Liabilities.
5.5 RETROSPECTIVELY RATED POLICIES. From and after the Effective Time,
any additional premiums payable or rebates of premiums previously paid in
respect of any retrospectively rated Company Policy shall be paid or collected
by BEI. BEI shall be reimbursed by Technologies, or shall distribute to
Technologies, amounts equal to the portion of any such additional premium or
rebate, as applicable, which relates to the Technologies Business. BEI shall
notify Technologies when it becomes aware of a proposed adjustment.
5.6 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In the event
that Insured Claims of more than one of the parties hereto exist relating to the
same occurrence, the parties shall jointly defend and waive any conflict of
interest necessary to the conduct of the joint defense. Nothing in this Section
5.6 shall be construed to limit or otherwise alter in any way the obligations of
the parties to this Agreement, including those created by this Agreement, by
operation of law or otherwise.
5.7 COOPERATION. The parties hereto agree to use commercially reasonable
efforts to cooperate with respect to the various insurance matters contemplated
by this Agreement.
5.8 INDEMNITY AGREEMENT. The parties hereto agree that the amount which
any indemnifying party is or may be required to pay to an indemnified party
pursuant to the Indemnity Agreement shall be reduced (including, without
limitation, retroactively) by any proceeds of insurance policies or other
amounts actually recovered by or on behalf of such indemnified party in
reduction of the related Liability (as defined in the Indemnity Agreement). If
an indemnified party shall have received the payment (an "Indemnity Payment")
required by the Indemnity Agreement from an indemnifying party in respect of any
Liability (as defined in the Indemnity Agreement) and shall subsequently
actually receive proceeds of insurance policies or other amounts in respect of
such Liability, then such indemnified party shall repay to such indemnifying
party a sum equal to the amount actually received (up to but not in excess of
the amount of any Indemnity Payment made thereunder). An insurer who would
otherwise be obligated to pay any claim shall not, solely by virtue of the
indemnification provisions contained in the Indemnity Agreement, be relieved of
its responsibility with respect thereto, or have any
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subrogation rights with respect thereto, it being expressly understood and
agreed that no insurer or any other third party shall be entitled to a benefit
they would not otherwise be entitled to receive in the absence of the
indemnification provisions contained in the Indemnity Agreement by virtue
thereof.
ARTICLE 6
EMPLOYEE OBLIGATIONS AND BENEFIT PLANS
6.1 BEI RETIREMENT PLAN. From the Effective Time, and through December
31, 1997, Technologies employees will continue to participate in the BEI
Retirement Plan. Effective January 1, 1998, Technologies will establish a
qualified retirement plan with a salary deferral (401(k)) feature ("Technologies
401(k) Plan") for its and its Subsidiaries' employees. Prior service with BEI
or any of its Subsidiaries shall be recognized under the Technologies 401(k)
Plan for the purpose of meeting all vesting, eligibility and other service-
related requirements thereunder. Effective January 1, 1998, Technologies' and
its Subsidiaries' employees will no longer participate in the BEI Retirement
Plan but will become participants in the Technologies 401(k) Plan in accordance
with the terms of the Technologies 401(k) Plan. Effective as of, or as soon as
administratively feasible following, January 1, 1998, the account balances of
the Technologies and its Subsidiaries' employees held in the BEI Retirement Plan
will be transferred to the Technologies 401(k) Plan in a trustee-to-trustee
transfer (the "Transferred Assets"). Technologies hereby agrees to assume, and
shall indemnify and hold harmless BEI from and against, any and all claims
brought against BEI or any of its Subsidiaries under the Technologies 401(k)
Plan or with respect to the Transferred Assets.
6.2 SUPPLEMENTAL PLAN. Effective as of the Effective Time, Technologies
shall adopt a plan substantially similar to the BEI Supplemental Plan (the
"Technologies Supplemental Plan"). Prior service with BEI or any of its
Subsidiaries shall be recognized under the Technologies Supplemental Plan for
the purpose of meeting all vesting, eligibility and other service-related
requirements thereunder. As of, or as soon as administratively feasible
following, the Effective Time, assets, benefits and liabilities accrued under
the BEI Supplemental Plan, with respect to participants in the BEI Supplemental
Plan who become employees of Technologies or who become or remain employees of
any Subsidiary of Technologies, shall be transferred to, and thereafter
administered under, the terms of the Technologies Supplemental Plan.
Technologies hereby agrees to assume, and shall indemnify and hold harmless BEI
from and against, any and all claims brought against BEI or any of its
Subsidiaries under the Technologies Supplemental Plan or with respect to the
assets, benefits or liabilities transferred from the BEI Supplemental Plan to
the Technologies Supplemental Plan.
6.3 STOCK OPTIONS AND RESTRICTED STOCK.
(a) STOCK OPTIONS. BEI and Technologies shall cause vested and
unvested incentive stock options and nonstatutory stock options to purchase BEI
Common Stock outstanding at the Effective Time to be converted to vested and
unvested incentive stock options and nonstatutory stock options, as appropriate,
to purchase Technologies Common Stock issued
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under the Technologies Equity Plan. The conversion will be accomplished
according to the following rules:
(i) the excess of the aggregate fair market value of the shares of
Technologies Common Stock subject to the option after the conversion over the
aggregate option price of such shares shall be essentially equal to, and in any
event no more than, the excess of the aggregate fair market value of the shares
of BEI Common Stock subject to the option before such conversion over the
aggregate option price of such shares;
(ii) on a share by share comparison, the ratio of the option price
to the fair market value of the shares of Technologies Common Stock subject to
the option immediately after the conversion may not be more favorable to the
optionee than the ratio of the option price to the fair market value of the
shares of BEI Common Stock subject to the option immediately before the
conversion; and
(iii) the new option does not give the option holder additional
benefits that such holder did not have under the old option.
For purposes of the calculation identified above, the fair market value of
Technologies Common Stock after the conversion shall be calculated in accordance
with accepted practices for such determinations, as determined by the management
of Technologies in consultation with its professional advisers.
(b) RESTRICTED STOCK. BEI and Technologies shall cause each holder as
of the Distribution Record Date of shares of BEI Common Stock issued pursuant to
the BEI Restricted Stock Plan ("BEI Restricted Stock") to receive as a result of
the Distribution vested and unvested shares of Technologies Common Stock equal
to the number of vested and unvested shares of BEI Restricted Stock held by such
holder on the Distribution Record Date. Vesting of the unvested shares of
Technologies Common Stock so issued shall be in accordance with the vesting
requirements of the BEI Restricted Stock Plan; provided, however, that
employment by Technologies or Electronics or any of either company's respective
Subsidiaries shall be deemed to be employment by BEI or any of its Subsidiaries
for purposes of satisfying the vesting requirements of the BEI Restricted Stock
Plan. For the purpose of vesting unvested shares of BEI Restricted Stock under
the vesting requirements of the BEI Restricted Stock Plan, employment by
Technologies or any of its Subsidiaries shall be deemed to be employment by BEI
or any of its Subsidiaries.
6.4 OTHER BENEFITS. From the Effective Time, and through December 31,
1997, Technologies employees and employees of its Subsidiaries will continue to
participate in the health, disability and other welfare benefit plans (other
than plans described in Section 6.5) sponsored by BEI. Effective January 1,
1998, Technologies will adopt welfare benefit plans and programs (the
"Technologies Benefit Plans") affording benefits similar to those provided under
BEI's welfare benefit plans. Effective January 1, 1998, Technologies employees
and employees of its Subsidiaries will no longer participate in the BEI welfare
benefit plans and programs but will become participants in the Technologies
Benefit Plans in accordance with the terms of the Technologies Benefit Plans.
BEI will not be responsible for and will incur no liability with
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respect to the Technologies Benefit Plans. The BEI group medical plan or plans
shall provide required group health continuation coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1984 ("COBRA") for qualifying events that
occur prior to January 1, 1998. Technologies, with respect to its and its
Subsidiaries' employees, shall provide COBRA coverage for qualifying events that
occur on or after January 1, 1998. Technologies hereby agrees to assume, and
shall indemnify and hold harmless BEI from and against, all claims brought
against BEI or any of its Subsidiaries under the Technologies Benefit Plans,
including, without limitation, any claims under COBRA for qualifying events of
Technologies' and its Subsidiaries' employees and dependents that occur on or
after January 1, 1998.
6.5 SEVERANCE CLAIMS. Technologies shall assume, and shall indemnify and
hold BEI harmless against, all claims and liabilities for severance, change-in-
control or termination benefits arising out of or resulting from the transfer of
employment of any employee of BEI or any of its Subsidiaries to Technologies or
any of its Subsidiaries at the Effective Time.
ARTICLE 7
MISCELLANEOUS
7.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter. In the event of any inconsistency between this
Agreement and any Schedule hereto, the Schedule shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of any Ancillary Agreement, such Ancillary Agreement shall
control.
7.2 ANCILLARY AGREEMENTS. This Agreement is not intended to address, and
should not be interpreted to address, the matters specifically and expressly
covered by the Ancillary Agreements.
7.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
7.4 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Effective Time.
7.5 EXPENSES. Except as otherwise set forth in this Agreement or any
Ancillary Agreement, all costs and expenses incurred on or prior to the
Effective Time (whether or not paid on or prior to the Effective Time) in
connection with the preparation, execution, delivery and implementation of this
Agreement and any Ancillary Agreement, the Information Statement and the
Distribution and the consummation of the transactions contemplated thereby shall
be
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charged to and paid by BEI Electronics, Inc. and allocated to the parties on an
equitable basis. Except as otherwise set forth in this Agreement or any
Ancillary Agreement, each party shall bear its own costs and expenses incurred
after the Effective Time.
7.6 NOTICES. All notices and other communications hereunder shall be in
writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
Prior to the Effective Time:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
After the Effective Time:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
with a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
7.7 WAIVERS. The failure of either party to require strict performance by
the other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
7.8 AMENDMENTS. Subject to the terms of Section 7.11 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the parties.
7.9 ASSIGNMENT. This Agreement shall be assignable in whole in connection
with a merger or consolidation or the sale of all or substantially all the
assets of a party hereto so long as the resulting, surviving or transferee
entity assumes all the obligations of the relevant party
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hereto by operation of law or pursuant to an agreement in form and substance
reasonably satisfactory to the other party to this Agreement. Otherwise this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the prior written consent of the others and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void.
7.10 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
7.11 TERMINATION. This Agreement may be terminated and the Distribution
may be amended, modified or abandoned at any time prior to the Effective Time by
and in the sole discretion of BEI without the approval of Technologies or the
shareholders of BEI. In the event of such termination, no party shall have any
liability of any kind to any other party or any other person. After the
Effective Time, this Agreement may not be terminated except by an agreement in
writing signed by the parties.
7.12 SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party at
the time such performance is anticipated to occur in order to facilitate the
Distribution.
7.13 THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and their respective Subsidiaries and Affiliates and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.14 ATTORNEY FEES. Except as contemplated by the third to the last
sentence of Article 4 hereof, a party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other party hereto for and against all
out-of-pocket expenses, including, without limitation, legal fees, incurred by
such other party by reason of the enforcement and protection of its rights under
this Agreement. The payment of such expenses is in addition to any other relief
to which such other party may be entitled hereunder or otherwise.
7.15 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be construed
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
7.17 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges that
there is no adequate remedy at law for failure by such party to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages, and therefore agree that
its agreements contained herein may be
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specifically enforced without the requirement of posting a bond or other
security, in addition to all other remedies available to the other party hereto
under this Agreement.
7.18 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS SUCH LAWS ARE APPLIED TO
AGREEMENTS BETWEEN CALIFORNIA RESIDENTS ENTERED INTO AND PERFORMED ENTIRELY IN
CALIFORNIA.
7.19 CONSENT TO JURISDICTION. This Section 7.19 shall not limit the
provisions of Article 4 hereof. Each of the parties irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Northern
District of California located in San Francisco, California or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Superior Court for the City and County of San Francisco,
California. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's address set
forth above shall be effective service of process for any action, suit or
proceeding in California with respect to any matters to which it has submitted
to jurisdiction in this Section 7.19. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Superior Court for the City and County of San Francisco,
California, or (ii) the United States District Court for the Northern District
of California located in San Francisco, California, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
7.20 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
7.21 FORCE MAJEURE.
7.21.1 ACTS CONSTITUTING FORCE MAJEURE. Neither party shall be
liable to the other for a delay in its performance of this Agreement arising
from causes beyond its reasonable control. Without limiting the generality of
the foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
party shall be required to resolve labor disputes, but shall use commercially
reasonable efforts to seek alternative sources to the extent practicable.
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7.21.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either party under this Agreement, whether or not such
circumstances are excused pursuant to Section 7.21.1 above, such party shall,
when it first becomes aware of such circumstances, promptly notify the other
party, by facsimile or by telephone confirmed in writing within two (2) business
days in the case of oral notice. Within ten (10) business days of the date when
either party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BEI ELECTRONICS, INC.,
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BEI TECHNOLOGIES, INC.,
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
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SCHEDULE 3.3(b)
DOCUMENT RETENTION POLICY
I. GENERAL GUIDELINES AFFECTING DOCUMENT RETENTION
Generally, the document retention policy is shaped by the following
requirements and issues:
A. LEGAL REQUIREMENTS. The comprehensive document retention policy must
conform to legal requirements that affect the businesses.
B. INDUSTRY PRACTICE. Standards and customs in the industries in which
the companies do business will often determine record retention policies. These
standards and customs, coupled with accrued experience within the companies,
often provide a basis for decisions made concerning the relative utility of
competing policies.
C. INDIVIDUAL REQUIREMENTS. Need for access and retrieval of documents
also determines the parameters of the document retention policy.
II. PARTICULAR CATEGORIES OF DOCUMENTS AND THEIR RETENTION
Several categories of documents that bear special consideration are
identified below. While minimum retention periods are suggested, the retention
of the documents identified below and of documents not included in the
identified categories should be determined primarily by the application of the
general guidelines affecting document retention identified above, as well as any
other pertinent factors known to the respective company.
A. TAX RECORDS. Tax records include, but may not be limited to,
documents concerning payroll, expenses, proof of deductions, business costs,
accounting procedures, and other documents concerning the Companies revenues.
Tax records should be retained for at least six years from the date of filing
the applicable return.
B. EMPLOYMENT RECORDS/PERSONNEL RECORDS. State and federal statutes
require the companies to keep certain recruitment, employment and personnel
information. The companies should also keep personnel files that reflect
performance reviews and any complaints brought against the Company or individual
employees under applicable state and federal statutes. The companies should
also keep all final memoranda and correspondence reflecting performance reviews
and actions taken by or against personnel in the employee's personnel file.
Employment Records/Personnel Records should be retained for six years.
C. BOARD MATERIALS. Meeting minutes should be retained in perpetuity in
the companies' respective minute books. A clean copy of all Board materials
should be kept for no less than three years by each company.
1.
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D. PRESS RELEASES/PUBLIC FILINGS. The companies should retain permanent
copies of all press releases and publicly filed documents under the theory that
each company should have its own copy to test the accuracy of any document a
member of the public can theoretically produce against that company.
With regard to Registration Statement materials or any periodic
reports filed with the SEC or any government agency, a copy of the materials
actually filed or publicly disseminated should be kept in a permanent file by
the company.
E. LEGAL FILES. Counsel should be consulted to determine the retention
period of particular documents.
F. MARKETING AND SALES DOCUMENTS. Each company should keep final copies
of marketing and sales documents for the same period of time it keeps other
corporate files --generally three years.
An exception to the three year policy may be sales invoices,
contracts, leases, licenses and other legal documentation. These documents
should be kept for at least three (3) years beyond the life of the agreement.
G. DEVELOPMENT/INTELLECTUAL PROPERTY AND TRADE SECRETS. Development
documents are often subject to intellectual property protection in their final
form (e.g., patents and copyrights). The documents detailing the development
process are often also of value to a company and are protected as a trade secret
where the company:
(a) derives independent economic value from the secrecy of the
information; and
(b) the company has taken affirmative steps to keep the information
confidential.
Each company should keep all documents designated as containing trade
secret information for at least the life of the trade secret.
H. CONTRACTS. Final, execution copies of all contracts entered into by a
company should be kept by that company. Each company should retain copies of
the final contracts for at least three (3) years beyond the life of the
agreement, and longer in the case of publicly filed contracts.
I. ELECTRONIC MAIL. Email that needs to be saved should be either:
(a) printed in hard copy and kept in the appropriate file; or
(b) downloaded to a computer file and kept electronically or on disk
as a separate file.
2.
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The retention period depends upon the subject matter of the email, as
covered elsewhere in this policy.
3.
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EXHIBIT 2.5
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
BY AND BETWEEN
BEI ELECTRONICS, INC.
AND
BEI TECHNOLOGIES, INC.
<PAGE>
BEI
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of this _____ day of September,
1997 by and between BEI ELECTRONICS, INC., with its principal executive offices
at [Address], (hereinafter referred to as "Electronics") and BEI TECHNOLOGIES,
INC., with its principal executive offices at One Post Street, Suite 2500, San
Francisco, California 94104 (hereinafter referred to as "Technologies")
(hereinafter collectively the "Parties" and each individually a "Party").
RECITALS
WHEREAS, Electronics and Technologies are contemplating entering into
a Distribution Agreement concerning the spin-off of Technologies from
Electronics (the "Distribution Agreement");
WHEREAS, prior to entering into the Distribution Agreement,
Electronics possesses certain Intellectual Property and Technology used
exclusively or primarily in the Technologies business;
WHEREAS, Technologies desires to own or have the right to use such
certain Intellectual Property and Technology used in its business;
WHEREAS, to allow each of Electronics and Technologies (and their
respective stockholders) to obtain the full value of its respective rights under
the Distribution Agreement, Technologies and Electronics desire to enter into
and execute this Agreement concerning the assignment and licensing of certain
Intellectual Property and Technology;
NOW, THEREFORE, in consideration of the above, and the mutual promises
set forth below, Electronics and Technologies agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
following meanings, on the understanding that words in the singular include the
plural and vice-versa. Headings and subheadings are used for convenience only
and are not intended as limitations in the Agreement or for use in interpreting
the Agreement.
"Agreement" shall mean this agreement as amended and/or supplemented from
time to time, including all the Exhibits attached hereto.
"Confidential Information" shall mean any and all information disclosed to
the receiving Party by the disclosing Party pursuant to this Agreement, in any
form such as, but not limited
1.
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to, visual, oral, written, graphic, electronic or model form, including but not
limited to know-how and trade secrets, whether patented or not and whether in
the laboratory, pilot plant or commercial plant stage (including drawings,
operating conditions, specifications and safety instructions) owned or
controlled by a Party.
"Effective Date" shall mean the Effective Time specified in the
Distribution Agreement.
"Electronics Businesses" shall mean the businesses of BEI Medical Systems
Company, Inc. (hereinafter "Medical Systems"), as they were carried out on or
before the Effective Date.
"Electronics Intellectual Property" shall mean the Intellectual Property,
not including trademarks or tradedress, owned or licensed in by Medical Systems
on or before the Effective Date.
"Electronics Products" shall mean those products that were made by Medical
Systems on or before the Effective Date and products acquired, developed or
established by or for Electronics or any of its Subsidiaries after the Effective
Date.
"Electronics Technology" shall mean all the Technology, that was used by or
derived from efforts by or on behalf of Medical Systems on or before the
Effective Date.
"Intellectual Property" shall mean all classes or types of patents, utility
models, design patents, copyrights, mask works and applications for the
aforementioned, in all countries of the world, owned by a Party and in existence
on or before the Effective Date.
"Medical Device" shall mean a product that is primarily intended for use in
the field of woman's health care and has virtually no other independent
application.
"Person" shall mean any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political sub-division thereof.
"Products" shall mean the Electronics Products and the Technologies
Products.
"Subsidiary" shall mean any corporation, partnership or other entity of
which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Technologies Businesses" shall mean the businesses of Electronics other
than the Electronics Businesses, as they were carried out on or before the
Effective Date.
2.
<PAGE>
"Technologies Intellectual Property" shall mean the Intellectual Property,
not including trademarks or tradedress, owned or licensed in by Electronics, its
Subsidiaries and their constituent companies and predecessor companies prior to
the Effective Date, other than Electronics Intellectual Property.
"Technologies Products" shall mean all products of Electronics other than
Electronics Products that were made by Subsidiaries of Electronics or their
constituent companies and their predecessor companies on or before the Effective
Date and all products acquired, developed or established by or for Technologies
or any of its Subsidiaries after the Effective Date.
"Technologies Technology" shall mean all the Technology, other than
Electronics Technology, that was used by or derived from efforts by or on behalf
of Electronics or its constituent companies and their predecessors on or before
the Effective Date.
"Technology" shall mean the body of knowledge owned by a Party or a
Subsidiary of a Party and in existence as of the Effective Date, including: (i)
information such as technical, engineering, maintenance, environmental and
safety information with respect to the design, equipment selection,
construction, installation, staffing and operation of facilities and equipment
for the design and manufacture of Products; (ii) formulae, process drawings and
descriptions, know-how, and technological and processing information, for the
design and manufacture of Products; and (iii) specifications and properties of
the Products.
"Term" shall mean the period of time during which this Agreement is in full
force and effect pursuant to Section 5.
2. ASSIGNMENT OF INTELLECTUAL PROPERTY.
2.1 ASSIGNMENT. At or prior to the Effective Time, Electronics
irrevocably agrees to assign and transfer to Technologies all of its right,
title and interest, together with all rights of priority, in and to the
Technologies Intellectual Property, the Technologies Technology and the
Technologies Products that are or will be owned by Electronics or any of its
Subsidiaries at the time of the assignment and transfer. Electronics will
retain all right, title and interest in and to the Electronics Intellectual
Property, the Electronics Technology and the Electronics Products.
2.2 DISCLAIMER. EXCEPT AS EXPRESSLY STATED IN SECTION 3.10, ELECTRONICS
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
INTELLECTUAL PROPERTY OR TECHNOLOGY ASSIGNED HEREBY, INCLUDING WITHOUT
LIMITATION AS TO THEIR VALIDITY, ENFORCEABILITY OR FITNESS FOR ANY PARTICULAR
USE OR PURPOSE. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF CONFIDENTIAL
INFORMATION OR INTELLECTUAL PROPERTY RIGHTS OBTAINED BY IT FROM THE OTHER PARTY
HEREUNDER.
3.
<PAGE>
3. LICENSES.
3.1 LIMITED LICENSE. Technologies and its Subsidiaries hereby grant
to Electronics an irrevocable, royalty free, worldwide, nonexclusive license,
with the right to sublicense, to use the Technologies Intellectual Property and
the Technologies Technology, that have been used by or on behalf of Electronics
in the Electronics Businesses on or before the Effective Date, solely for
designing, making, having made, using, offering for sale, selling and importing
Electronics Products that qualify as Medical Devices hereunder.
3.2 SUBLICENSE TERMS. Any sublicense granted pursuant to this Section 3
shall be consistent with and subject to the terms and conditions of this
Agreement.
3.3 LIMITATIONS. Notwithstanding any other provision of this Agreement,
no Party or its Subsidiaries shall be obligated to: (i) grant any license, or
make any disclosure, to the other Party with respect to Intellectual Property,
owned or controlled by such Party or its Subsidiaries, if to do so would violate
an agreement with an unrelated third party in effect on the Effective Date, or
(ii) grant any license, or make any disclosure, to the other Party with respect
to Intellectual Property owned or controlled by such Party or its Subsidiaries
if to do so would be in violation of law. If the violation can be avoided by a
more limited license, then the Parties, for themselves and on behalf of their
respective Subsidiaries, agree to grant same to the extent commercially
reasonable. Notwithstanding any other provision of this Agreement, following
the Effective Date, neither Party nor any of their respective Subsidiaries shall
be obligated to make any further disclosure to the other Party with respect to
any Technology or Intellectual Property licensed hereunder.
3.4 WARRANTY. Each Party warrants that (a) except as expressly set forth
in this Agreement, neither such Party nor any of its Subsidiaries has granted
nor will grant any licenses that conflict with the rights and licenses set forth
in this Agreement, and (b) such Party and its respective Subsidiaries have the
right to grant the rights and licenses granted by such Party or its respective
Subsidiaries in or pursuant to this Agreement. NO OTHER WARRANTY OF ANY KIND,
WHETHER EXPRESS OR IMPLIED, IS GIVEN BY ONE PARTY TO THE OTHER PARTY AND IN
PARTICULAR THE PARTIES DISCLAIM ANY WARRANTY THAT THEIR RESPECTIVE INTELLECTUAL
PROPERTY AND RIGHTS WITH RESPECT THERETO ARE VALID OR ENFORCEABLE OR USEFUL FOR
ANY PURPOSE.
3.5 EXPRESS LICENSES ONLY. Except for licenses expressly granted pursuant
to this Section 3, no other licenses are intended to be or are granted hereby,
and nothing in this Agreement shall be construed as, or result in, conveying by
implication, waiver or estoppel any right or license to either Party, any
Subsidiary or to any third party.
4.
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4. CONFIDENTIALITY.
4.1 CONFIDENTIALITY OBLIGATION. Each of the Parties agrees to keep
confidential and neither disclose to others nor use except as permitted herein
any Confidential Information received from the other Party or its Subsidiaries
pursuant to this Agreement.
4.2 LIMITS ON DISCLOSURE. The receiving Party shall treat such
Confidential Information in the same manner and with the same degree of care as
it uses with respect to its own Confidential Information of like nature and
shall disclose Confidential Information of the other Party only to its employees
or consultants who have a need to know it, provided that such employees and
consultants are bound to respect all confidentiality obligations provided for in
this Agreement.
4.3 EXCEPTIONS. The obligations set forth in Sections 4.1 and 4.2 shall
not apply with respect to any Confidential Information that:
4.3.1 PUBLIC KNOWLEDGE. Is generally available to the public or
subsequently becomes generally available to the public through no breach by the
receiving Party of confidentiality obligations under this Agreement or prior
agreements between the Parties concerning the Confidential Information; or
4.3.2 RECEIVED FROM THIRD PARTY. Is received without a
confidentiality obligation from a third party who is legally free to disclose
such Confidential Information and who did not receive such Confidential
Information in confidence from the disclosing Party; or
4.3.3 APPROVED FOR DISCLOSURE. Is approved in writing for release by
the disclosing Party or its Subsidiaries; or
4.3.4 SUCCESSOR IN INTEREST. Is disclosed to any permitted assignee
of this Agreement, provided that such assignee agrees in writing to be bound by
the provisions of this Agreement; or
4.3.5 INDEPENDENTLY DEVELOPED. Is independently developed by the
receiving Party without reference to the Confidential Information received from
the disclosing Party or its Subsidiaries.
4.4 PERMITTED DISCLOSURES. The provisions of Sections 4.1 and 4.2
notwithstanding, in exercising the rights granted under this Agreement, any
Party may disclose Confidential Information to others for purpose of
sublicensing, provided that any sublicenses pursuant to which any Confidential
Information is disclosed shall have first entered into a written confidentiality
and non-use obligation at least as stringent as that imposed on the Parties
pursuant to this Agreement.
4.5 SUBPOENA OR DEMAND. The provisions of Sections 4.1 and 4.2
notwithstanding, a Party may disclose Confidential Information if compelled to
do so pursuant to a subpoena or
5.
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similar demand for production of documents in connection with any suit or
arbitration proceeding, any administrative procedure or before a governmental or
administrative agency or instrumentality thereof or any legislative hearing or
other similar proceeding, provided that (a) the receiving Party shall promptly
notify the disclosing Party or its appropriate Subsidiary of the subpoena or
demand, (b) the receiving Party shall assert in good faith prior to making such
disclosure any available evidentiary privilege, and (c) the receiving Party
shall use its best efforts to maintain the confidential nature of the
Confidential Information by protective order or other means.
4.6 PROTECTION OF RIGHTS. The provisions of Sections 4.1 and 4.2
notwithstanding, any Party hereto may disclose Confidential Information to
others as may be necessary in a bona fide attempt to protect or enforce its
rights and privileges under this Agreement.
5. DURATION AND TERMINATION.
5.1 TERM OF AGREEMENT. This Agreement shall become effective on the
Effective Date, and shall continue in full force for ten years from the
Effective Date, at which time it shall terminate unless renewed by written
agreement of the Parties. After expiration of the Agreement pursuant to this
Section 5.1, the rights and obligations set forth in Sections 2, 3, 4, and 9
shall survive.
5.2 TERMINATION FOR MATERIAL BREACH. If either Party or a Subsidiary of
either Party commits a material breach with respect to any of such entity's
obligations hereunder, the other Party may give written notice to the allegedly
breaching Party or Subsidiary, specifying the alleged material breach and an
intention to terminate this Agreement and all extant licenses. The Party or
Subsidiary, charged with the alleged material breach shall have sixty (60) days
from the date of receipt of such written notice to cure the alleged material
breach. If the alleged material breach is not cured within said sixty (60)-day
period, the other Party may terminate this Agreement and any license still in
force that was granted to the breaching Party by sending a written notice of
termination to the Party who breached or whose Subsidiary breached and in this
event, neither Party waives any legal rights to recover damages resulting from
the termination of this Agreement.
5.3 INSOLVENCY. In the event that either Party shall: (i) become
insolvent or go into liquidation or receivership or be admitted to the benefits
of any procedure for the settlement or postponement of debts or be the subject
of bankruptcy proceedings filed against it, which proceedings are not terminated
within ninety (90) days of filing; or (ii) become party to dissolution
proceedings; then this Agreement and any and all obligations assumed hereby
(except as otherwise expressly provided for herein) may be terminated by the
other Party, if permitted by law, by giving written notice of such termination
on a date specified therein. [Expand]
6. RIGHTS UPON TERMINATION OTHER THAN UNDER SECTION 6.1.
6.1 TERMINATION OF LICENSES. Notwithstanding the foregoing, the licenses
granted under Section 3 to the Party committing a material breach as
contemplated by Section 5.2 may
6.
<PAGE>
be canceled immediately by the Party terminating this Agreement and such
breaching Party shall promptly forward to the other Party all copies of
Confidential Information, blue prints, drawings and data which it may have in
written or graphic or machine readable form and which have been proposed or
reproduced by it from the Confidential Information received from the other
Party. The termination of this Agreement pursuant to Section 5.2 shall not
affect the rights and licenses previously granted to the non-breaching Party,
which shall continue in full force and effect.
6.2 OBLIGATIONS SURVIVING TERMINATION. Upon termination pursuant to
Sections 5.2 or 5.3, the obligations of each Party to the other shall cease
except, subject to Section 6.1, the obligations set forth in Sections 3, 4 and 9
shall continue in full force and effect until completely discharged.
7. FORCE MAJEURE.
7.1 ACTS CONSTITUTING FORCE MAJEURE. Neither Party shall be liable to the
other arising out of a delay in its performance of this Agreement arising from
causes beyond its reasonable control. Without limiting the generality of the
foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
Party shall be required to resolve labor disputes, but shall use commercially
reasonable efforts to seek alternative sources to the extent practicable.
7.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either Party under this Agreement, whether or not such
circumstances are excused pursuant to Section 7.1 above, such Party shall, when
it first becomes aware of such circumstances, promptly notify the other Party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either Party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other Party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
8. GUARANTEES, LIABILITIES AND INDEMNITIES.
8.1 LAWFUL POSSESSION. Each Party represents that to the best of its
knowledge and belief, it will be in the lawful possession of any Confidential
Information when disclosed by it pursuant to this Agreement and that the
disclosure of said Confidential Information shall not in any way violate any
agreement to hold such Confidential Information in confidence.
9. EXPORT CONTROL.
Each Party, for itself and on behalf of its Subsidiaries, agrees not to
export or reexport, or cause to be exported or reexported, any Confidential
Information furnished hereunder by the other Party or any of such other Party's
Subsidiaries or any Products designed or manufactured using any such
Confidential Information to any country to which, under the laws of the country
7.
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of origin of the Confidential Information, it is or may be prohibited from
exporting such Confidential Information or the direct product thereof.
10. ASSIGNMENT.
10.1 LIMITATIONS ON ASSIGNMENT. This Agreement shall not be assigned by
either Party to a third party without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, except to: a Subsidiary
of a Party, or a successor to the business of such Party to which this Agreement
relates, or a successor to all or substantially all of the assets of such Party,
provided that the successor agrees in writing to accept the rights and to be
bound by the obligations of the assigning Party, any other assignment being
void.
10.2 VIOLATION. Any assignment in violation of this Section 10 shall be
void and any attempt to assign or actual assignment in derogation of this
prohibition shall be a material breach of this Agreement.
11. MISCELLANEOUS.
11.1 COMPLETE AGREEMENT. This Agreement and the Distribution Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
11.2 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
11.3 NOTICES. All notices and other communications hereunder shall be in
writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a Party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
with a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
8.
<PAGE>
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
11.4 WAIVERS. The failure of either Party to require strict performance by
the other Party of any provision in this Agreement will not waive or diminish
that Party's right to demand strict performance thereafter of that or any other
provision hereof.
11.5 AMENDMENTS. Subject to the terms of Sections 5 and 6 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the Parties.
11.6 SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such Party at
the time such performance is anticipated to occur in order to carry out the
intent of this Agreement.
11.7 THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the Parties hereto and their respective Subsidiaries and should not be deemed
to confer upon third parties any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
11.8 ATTORNEY FEES. Except as contemplated by the third to the last
sentence of Section 12.2 hereof, a Party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other Party hereto for and against all
out-of-pocket expenses, including, without limitation, legal fees, that are
finally awarded to and incurred by such other Party by reason of the enforcement
and protection of its rights under this Agreement. The payment of such expenses
is in addition to any other relief to which such other Party may be entitled
hereunder or otherwise.
11.9 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
11.10 SPECIFIC PERFORMANCE. Each of the Parties hereto acknowledges that
there is no adequate remedy at law for failure by such Party to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages, and therefore agree that
its agreements contained herein may be specifically enforced without the
requirement of posting a bond or other security, in addition to all other
remedies available to the other Party under this Agreement.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS SUCH LAWS ARE APPLIED TO
AGREEMENTS BETWEEN CALIFORNIA RESIDENTS ENTERED INTO AND PERFORMED ENTIRELY IN
CALIFORNIA.
9.
<PAGE>
11.12 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The Parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
12. DISPUTE RESOLUTION.
12.1 ALTERNATIVE DISPUTE RESOLUTION. In the event of a controversy,
dispute or claim (other than controversies, disputes or claims related to
infringement, validity or enforceability of Intellectual Property) arising out
of, in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, including, without limitation, any
claim based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), such matters shall be resolved in accordance with the provisions of
Article 4 of the Distribution Agreement between the Parties dated as of the
Effective Date.
12.2 CONSENT TO JURISDICTION. This Section 12.2 shall not limit the
provisions of Sections 12.1 hereof. Each Party irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each Party agrees to commence any action, suit or proceeding relating
hereto either to the United States District Court for the Northern District of
California located in San Francisco, California or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Superior Court for the City and County of San Francisco, California. Each Party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party's address set forth above shall be effective
service of process for any action, suit or proceeding in California with respect
to any matters to which it has submitted to jurisdiction in this Section 12.2.
Each Party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Superior Court for the city and
County of San Francisco, California, or (ii) the United States District Court
for the Northern District of California located in San Francisco, California,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
12.3 CONTINUING OBLIGATIONS. It is expressly agreed that the failure of
the Parties to resolve a dispute on any issue to be resolved hereunder shall not
relieve either Party from any obligation set forth in this Agreement. In
addition, notwithstanding the pendency of any such dispute, neither Party will
be excused of its obligations hereunder to cooperate with the other to
effectuate the purposes of this Agreement.
10.
<PAGE>
IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be
executed in duplicate as of the date first written above.
BEI ELECTRONICS, INC. BEI TECHNOLOGIES, INC.
By: By:
------------------------ ------------------------
Name: Name:
---------------------- ----------------------
Title: Title:
--------------------- ---------------------
11.
<PAGE>
EXHIBIT 2.6
TRADEMARK ASSIGNMENT AND CONSENT AGREEMENT
THIS TRADEMARK ASSIGNMENT AND CONSENT AGREEMENT (the "Agreement") is
executed as of ____________________ ("Effective Date") by and between BEI
ELECTRONICS, INC. ("Electronics") a Delaware corporation having its principal
place of business at One Post Street, San Francisco, CA 94104, and BEI
TECHNOLOGIES, INC. ("Technologies"), a Delaware corporation having its principal
place of business at One Post Street, San Francisco, CA 94104.
RECITALS
Electronics and its wholly-owned subsidiary, BEI Sensors & Systems Company,
Inc. have adopted, are using or intend to use certain trade names and trademarks
in connection with sensors, engineered subsystems and associated components used
for the control of precision machinery and equipment, and Electronics and its
majority-owned subsidiary, BEI Medical Systems Company, Inc., have adopted, are
using or intend to use certain trade names and trade marks in connection with
medical equipment instruments and supplies, some of which, in each case, contain
or comprise the term BEI alone or in combination with other words or designs.
Technologies has been created to independently assume and through
subsidiaries to conduct the portion of Electronics' business related to sensors,
engineered subsystems and associated components used for the control of
precision machinery and equipment.
Electronics desires to grant, and Technologies desires to acquire, rights
in certain of Electronics' trade names and trademarks, some of which contain or
comprise the term BEI alone or in combination with other words or designs.
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<PAGE>
Electronics and Technologies further desire to delineate their respective
trademark rights on a worldwide basis.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties hereby agree as follows.
1. ASSIGNMENT OF MARKS.
Electronics hereby assigns to Technologies all right, title, and
interest which it may have in and to the marks set forth in Schedule A (the
"Marks"), together with the goodwill of the business symbolized by the Marks.
Electronics will, at Technologies' expense, execute such further instruments and
take such further actions as may be necessary or appropriate to further effect,
evidence and record such assignments as necessary with governmental agencies.
2. DISCLAIMER OF WARRANTY.
All Marks assigned pursuant to this Agreement are assigned "as-is"
with respect to any trademark, service mark, trade name, or other designation
subject to this Agreement. Electronics makes no representation or warranty, and
disclaims all representations and warranties as to: (1) the validity of any
trademark or service mark registration; (2) its right to use any trademark,
service mark, trade name or other designation; (3) the registrability of any
term, designation, or other symbol as a trademark or service mark; (4) non-
infringement; or (5) any other right or interest pertaining to any trademark,
service mark, trade name, or other designation.
3. CONSENT TO OTHER PARTY'S USE OF BEI MARKS AND NAMES.
3.1 Technologies may use or register, or attempt to register any
trademark, service mark, trade name, or other designation containing or
comprising the term BEI, or any
2
<PAGE>
transliteration or translation thereof, throughout the world in connection with
(1) electronic devices and equipment used in non-medical applications and (2)
services related to the sale or use of those goods (the "Technologies
Business").
3.2 Electronics may use, register, or attempt to register any
trademark, service mark, trade name, or other designation containing or
comprising the term BEI, or any transliteration or translation thereof,
throughout the world in connection with (1) medical equipment, instruments and
other goods specifically used for medical care and (2) services related to the
sale or use of those goods (the "Electronics Medical Business").
3.3 Technologies will not use, register or attempt to register
anywhere in the world:
The BEI Triangular logo shown in Schedule B or any mark, logo or
designation confusingly similar thereto, provided that it may use the BEI
Rectangular logo shown in Schedule C without restriction;
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI in combination with the word "Medical" or
other term connoting the medical or health care fields or any transliteration or
translation thereof; or
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI, or any transliteration or translation
thereof, in connection with the Electronics Medical Business.
3.4 Electronics will not use, register or attempt to register:
The BEI Rectangular logo shown in Schedule C or any mark, logo or
designation confusingly similar thereto, provided that it may use the BEI
triangular logo shown in Schedule B without restriction;
3
<PAGE>
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI in combination with the word
"Technologies" or "Technology" or any transliteration or translation thereof;
provided that Electronics may use the words "technology" or "technologies" in
their ordinary descriptive sense in identifying its goods, services or business;
or
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI, or any transliteration or translation
thereof, in connection with the Technologies Business.
3.5 Technologies will not challenge Electronics' use of, registration
of, or attempt to register, any trademark, service mark, trade name, or other
designation comprising or containing the term BEI or any transliteration or
translation thereof in connection with the Electronics Medical Business, unless
such use, registration, or attempt to register violates the terms of paragraph
3.4 herein.
3.6 Electronics will not challenge Technologies' use of, registration
of, or attempt to register, any trademark, service mark, trade name, or other
designation comprising or containing the term BEI or any transliteration or
translation thereof in connection with the Technologies Business, unless such
use, registration, or attempt to register violates the terms of paragraph 3.3
herein.
3.7 Neither party may use any trade name comprising the term BEI or
any transliteration or translation thereof solely in combination with any
geographic term to identify its business, goods, or services where doing so
would be likely to cause confusion with the other party.
4
<PAGE>
3.8 The parties will cooperate with each other as needed in providing
evidence of the consents given herein or otherwise in effecting trademark,
service mark, or business name registration or for other purposes for which such
evidence may be needed consistent with the terms of this Agreement.
3.9 The parties believe that there is not likely to be confusion as
to their respective products or businesses if each party complies with the
foregoing terms governing use or registration of marks and names. In the event
such confusion occurs, the parties will cooperate as necessary and use all
commercially reasonable efforts to promptly resolve any such confusion and, if
appropriate, to direct third parties to the correct party. The parties agree to
use all commercially reasonable efforts to correct mistakes appearing in the
communications media regarding their respective corporate or trade names,
trademarks, or service marks and to respond to oral inquiries regarding the
parties' corporate or trade names, trademarks, or service marks by stating, to
the extent necessary to correct mistakes or respond to an inquiry, accurate
information about the parties' respective businesses or products.
4. TERM AND TERMINATION.
4.1 This Agreement shall be effective on the Effective Date. The
consent provisions as set forth in Section 3 shall continue in perpetuity unless
terminated in accordance with the provisions of this Agreement.
4.2 If either party discontinues all use of the mark BEI in the
ordinary course of trade everywhere in the world, including all use by
subsidiaries, affiliates, or licensees for the benefit of that party, for a
period of three consecutive years, the limitations on the other party's use of
the mark BEI in Paragraph 3.3 or Paragraph 3.4 of this Agreement, as the case
may be, shall terminate.
5
<PAGE>
5. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the trademark laws of the United States as they apply to trademark matters and
in accordance with the laws of the State of California as applied to contracts
entered into between California residents and to be performed entirely within
the State of California.
6. BREACH AND OPPORTUNITY TO CURE.
6.1 In the event that either party breaches any of its obligations
under this Agreement, the party claiming breach shall give notice in writing to
the other party. If the breach is curable, the party claimed to have breached
the Agreement shall have 45 days to cure the breach before the party claiming
the breach may bring legal action. Any statute of limitation governing such
claim shall be tolled pending the cure period. Notwithstanding the foregoing,
where a party reasonably believes that a breach of an obligation under this
Agreement may result in immediate, irreparable harm, the party shall be entitled
to seek injunctive relief first.
7. ATTORNEYS' FEES AND COSTS.
In the event either party hereto shall bring any action to enforce any
rights hereunder, the prevailing party in such action shall be entitled, in
addition to any other relief awarded by the court, to recover its reasonable
attorneys' fees and litigation expenses.
8. DISPUTE RESOLUTION.
8.1 ALTERNATIVE DISPUTE RESOLUTION. In the event of a controversy,
dispute or claim (other than controversies, disputes or claims related to
infringement, validity or enforceability of the Marks) arising out of, in
connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, including, without limitation, any
claim
6
<PAGE>
based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), such matters shall be resolved in accordance with the provisions of
Article 4 of the Distribution Agreement between the parties dated as of the
Effective Date.
8.2 CONSENT TO JURISDICTION. This Section 8.2 shall not limit the
provisions of Sections 8.1 hereof. Each party irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each party agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the Northern District of
California located in San Francisco, California or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Superior Court for the City and County of San Francisco, California. Each party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party's address set forth above shall be effective
service of process for any action, suit or proceeding in California with respect
to any matters to which it has submitted to jurisdiction in this Section 8.2.
Each party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Superior Court for the City and
County of San Francisco, California, or (ii) the United States District Court
for the Northern District of California located in San Francisco, California,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
7
<PAGE>
9. NOTICES.
All notices and other communications hereunder shall be in writing and
hand delivered or mailed by registered or certified mail (return receipt
requested) or sent by any means of electronic message transmission with delivery
confirmed (by voice or otherwise) to the parties at the following addresses (or
at such other addresses for a party as shall be specified by like notice) and
will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
Prior to the Effective Time:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
After the Effective Time:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
With a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
10. ENTIRE AGREEMENT.
This Agreement constitutes the complete, final and exclusive agreement
between the parties with respect to the subject matter hereof and shall
supersede any and all prior oral
8
<PAGE>
or written representations, conditions, warranties, understandings, proposals or
agreements between the parties regarding the subject matter hereof.
11. AMENDMENT AND WAIVER.
No provision of this Agreement may be amended or waived except by a
writing signed by both parties.
12. SEVERABILITY.
In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
13. ASSIGNMENT.
13.1 LIMITATIONS ON ASSIGNMENT. This Agreement shall not be assigned
by either party to a third party without the prior written consent of the other
party, which consent shall not be unreasonably withheld, except to: a Subsidiary
of a party, or a successor to the business of such party to which this Agreement
relates, or a successor to all or substantially all of the assets of such party,
provided that the successor agrees in writing to accept the rights and to be
bound by the obligations of the assigning party, any other assignment being
void.
13.2 VIOLATION. Any assignment in violation of this Section 13 shall
be void and any attempt to assign or actual assignment in derogation of this
prohibition shall be a material breach of this Agreement.
9
<PAGE>
14. THIRD PARTY BENEFICIARIES.
This Agreement is solely for the benefit of the parties hereto and
their respective Subsidiaries and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
15. FORCE MAJEURE.
15.1 ACTS CONSTITUTING FORCE MAJEURE. Neither party shall be liable to
the other for a delay in its performance of this Agreement arising from causes
beyond its reasonable control. Without limiting the generality of the foregoing,
such events include any act of God; accident; explosion; fire; earthquake;
flood; strikes; labor disputes; riots; sabotage; embargo; equipment failure;
federal, state, or local legal restriction or limitation. Neither party shall be
required to resolve labor disputes, but shall use commercially reasonable
efforts to seek alternative sources to the extent practicable.
15.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either party under this Agreement, whether or not such
circumstances are excused pursuant to Section 15.1 above, such party shall, when
it first becomes aware of such circumstances, promptly notify the other party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BEI TECHNOLOGIES, INC. BEI ELECTRONICS, INC.
a Delaware corporation a Delaware corporation
By: ___________________________ By: _______________________
Its: ___________________________ Its: _______________________
Address: One Post Street, Suite 2500 Address: One Post Street, Suite 2500
San Francisco, CA 94104 San Francisco, CA 94104
11
<PAGE>
SCHEDULE A
ELECTRONICS' COMMON-LAW, PENDING OR REGISTERED TRADEMARKS
TO BE ASSIGNED
<TABLE>
<CAPTION>
MARK APPLICATION/REGISTRATION NO. COUNTRY
<S> <C> <C>
BEI 1,109,920 United States
BEI and CODE DISK DESIGN 1,097,296 United States
BEI and ROCKET DESIGN 1,107,102 United States
BEI THE ENCODER COMPANY 1,223,228 United States
COMTRAC United States
DIGILINE 925,506 United States
DIGISEC 757,742 United States
EDCLIFF 705,558 United States
EXPRESS ENCODER United States
GYROCHIP 1,787,945 United States
HORIZON 75/267,840 United States
INSTAMOUNT United States
MICRO-LOC 1,142,345 United States
MICROSERIES United States
MODEL H2O 75/087,544 United States
MODEL H25 75/087,396 United States
MOTIONPAK 1,898,649 United States
OPTICAL RESOLVER 1,128,865 United States
SLIDELINE 951,891 United States
ULTRA-LOC 1,102,029 United States
WAVELABS 917,159 United States
BEI TMA290,044 Canada
BEI and DESIGN 94520745 France
BEI and DESIGN 1238124 France
BEI and DESIGN 1062171 Germany
BEI and DESIGN 2077915 Germany
BEI and DESIGN 420908 Italy
BEI and DESIGN 2042047 Japan
BEI and DESIGN 1202771 United Kingdom
</TABLE>
12
<PAGE>
SCHEDULE B
BEI TRIANGULAR LOGO
[THE LETTERS "BEI" ON A DARK BACKGROUND
WITH A TRIANGULAR BORDER]
13
<PAGE>
SCHEDULE C
BEI RECTANGULAR LOGO
[THE LETTERS "BEI" ON A DARK BACKGROUND
WITH A LOZENGE-SHAPED BORDER]
14
<PAGE>
EXHIBIT 10.3
Draft of September 18, 1997
================================================================================
BEI TECHNOLOGIES, INC.
ASSUMPTION AGREEMENT
Dated as of September 15, 1997
Re: $13,440,000 7.23% Series A Senior Notes
Due October 1, 2000
and
$8,960,000 7.23% Series B Senior Notes
Due November 15, 2000
of
BEI TECHNOLOGIES, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT........................ 2
Section 1.1. Description of Notes...................................... 2
Section 1.2. Commitment, Closing Date.................................. 3
Section 1.3. Several Obligations....................................... 3
SECTION 2. PREPAYMENT OF NOTES........................................ 3
Section 2.1. Required Prepayments...................................... 3
Section 2.2. Optional Prepayment with Premium.......................... 4
Section 2.3. Notice of Optional Prepayments............................ 4
Section 2.4. Application of Prepayments................................ 4
Section 2.5. Direct Payment............................................ 5
SECTION 3. REPRESENTATIONS............................................ 5
Section 3.1. Representations of the Company............................ 5
Section 3.2. Representations of the Purchasers......................... 5
SECTION 4. CLOSING CONDITIONS......................................... 6
Section 4.1. Conditions................................................ 6
Section 4.2. Waiver of Conditions...................................... 7
SECTION 5. COMPANY COVENANTS.......................................... 7
Section 5.1. Corporate Existence, Etc.................................. 7
Section 5.2. Insurance................................................. 7
Section 5.3. Taxes, Claims for Labor and Materials, Compliance
with Laws................................................ 8
Section 5.4. Maintenance, Etc.......................................... 8
Section 5.5. Nature of Business........................................ 8
Section 5.6. Consolidated Adjusted Tangible Net Worth.................. 8
Section 5.7. Limitations on Total Debt................................ 9
Section 5.8. Fixed Charges Coverage Ratio.............................. 9
Section 5.9. Limitation on Liens....................................... 10
Section 5.10. Limitation on Sale and Leasebacks........................ 11
Section 5.11. Restricted Payments....................................... 11
Section 5.12. Investments............................................... 12
Section 5.13. Mergers, Consolidations and Sales of Assets............... 14
Section 5.14. Guaranties................................................ 16
Section 5.15. Repurchase of Notes....................................... 16
Section 5.16. Transactions with Affiliates.............................. 16
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Section 5.17. Termination of Pension Plans............................. 16
Section 5.18. Reports and Rights of Inspection......................... 16
Section 5.19. Certain Changes in Accounting Principles................. 20
Section 5.20. Fiscal Year.............................................. 21
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR................... 21
Section 6.1. Events of Default........................................ 21
Section 6.2. Notice to Holders........................................ 23
Section 6.3. Acceleration of Maturities............................... 23
Section 6.4. Rescission of Acceleration............................... 23
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.......................... 24
Section 7.1. Consent Required......................................... 24
Section 7.2. Solicitation of Holders.................................. 24
Section 7.3. Effect of Amendment or Waiver............................ 24
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.................. 25
Section 8.1. Definitions.............................................. 25
Section 8.2. Accounting Principles.................................... 32
Section 8.3. Directly or Indirectly................................... 32
SECTION 9. MISCELLANEOUS............................................. 32
Section 9.1. Registered Notes......................................... 32
Section 9.2. Exchange of Notes........................................ 33
Section 9.3. Loss, Theft, Etc. of Notes............................... 33
Section 9.4. Expenses, Stamp Tax Indemnity............................ 33
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative........ 34
Section 9.6. Notices.................................................. 34
Section 9.7. Successors and Assigns................................... 35
Section 9.8. Survival of Covenants and Representations................ 35
Section 9.9. Severability............................................. 35
Section 9.10. Governing Law............................................ 35
Section 9.11. Captions................................................. 35
Signature Page............................................................ 36
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<PAGE>
ATTACHMENTS TO ASSUMPTION AGREEMENT:
Schedule I - Note Purchasers and Amounts of Commitments
Exhibit A-1 - Form of 7.23% Series A Senior Note due October 1, 2000
Exhibit A-2 - Form of 7.23% Series B Senior Note due November 15, 2000
Exhibit B - Representations and Warranties of the Company
Exhibit C - Description of Special Counsel's Closing Opinion
Exhibit D - Description of Closing Opinion of Counsel to the Company
-iii-
<PAGE>
BEI TECHNOLOGIES, INC.
ONE POST STREET - SUITE 2500
SAN FRANCISCO, CALIFORNIA 94104
ASSUMPTION AGREEMENT
Re: $13,440,000 7.23% Series A Senior Notes
Due October 1, 2000
and
$8,960,000 7.23% Series B Senior Notes
Due November 15, 2000
------------------------------------------
Dated as of
September 15, 1997
To the Purchasers named in Schedule I
to this Agreement
Gentlemen:
Reference is made to the Note Agreement dated as of August 15, 1993 (the
"Original Note Agreement"), among BEI Electronics, Inc., a Delaware corporation
("Electronics"), and each of you (the "Purchasers"), as amended by First
Amendment to Note Agreement dated as of April 1, 1994, Second Amendment to Note
Agreement dated as of September 30, 1994, Third Amendment to Note Agreement
dated as of December 29, 1995, and Fourth Amendment to Note Agreement dated as
of March 27, 1997 (as so amended, the "Note Agreement"), under and pursuant to
which Electronics issued and sold and you (and your predecessor as a holder of
some of the Original Notes referred to below) purchased an aggregate original
principal amount of $16,800,000 6.73% Series A Senior Notes due October 1, 2000,
and an aggregate original principal amount of $11,200,000 6.73% Series B Senior
Notes due November 15, 2000 (respectively, the "Original Series A Notes" and the
"Original Series B Notes" and collectively, the "Original Notes").
Electronics has now formed a new subsidiary, the undersigned BEI
Technologies, Inc., a Delaware corporation ("Technologies" or the "Company"),
which will principally operate Electronics' established sensors and systems
business, and Electronics intends to distribute all of the common stock of
Technologies to the holders of the common stock of Electronics on a pro rata
basis, all as described in the Preliminary Registration Statement on Form 10
filed by Electronics with the Securities and Exchange Commission on July 2,
1997,
<PAGE>
BEI Technologies, Inc. Assumption Agreement
as amended (the "Preliminary Registration Statement"). The transaction
described in the Preliminary Registration Statement is herein sometimes referred
to as the "Spin-off".
Electronics and Technologies have proposed that, concurrently with the
consummation of the Spin-off, the Note Agreement will be amended and restated as
herein set forth; the Original Notes will be amended to increase the interest
rate thereon to 7.23% per annum; Technologies will assume the indebtedness
evidenced by the Original Notes, as so amended, and the obligations of
Electronics under the Note Agreement, as so amended and restated; Technologies
will issue its Notes described in Section 1 hereof in exchange for the surrender
by you for cancellation of the Original Notes; and Electronics will be released
and discharged from its obligations and liabilities under the Note Agreement and
the Original Notes. Based on the representations and warranties and subject to
the satisfaction of the conditions precedent hereinafter set forth, by your
execution and delivery hereof you accept such proposition of Electronics and
Technologies and you further waive any Default or Event of Default arising under
the Note Agreement as a result of the Spin-off.
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize the issue
---------------------------------
and delivery of:
(a) $13,440,000 aggregate principal amount of its 7.23% Series A Senior
Notes (the "Series A Notes") to be dated the date of issue, to bear interest
from such date at the rate of 7.23% per annum, payable semiannually on the
first day of each April and October in each year (commencing October 1, 1997)
and at maturity and to bear interest on overdue principal (including any
overdue required or optional prepayment of principal) and premium, if any, and
(to the extent legally enforceable) on any overdue installment of interest at
the rate of 9.23% per annum after the date due, whether by acceleration or
otherwise, until paid, to be expressed to mature on October 1, 2000, and to be
substantially in the form attached hereto as Exhibit A-1.
(b) $8,960,000 aggregate principal amount of its 7.23% Series B Senior
Notes (the "Series B Notes") to be dated the date of issue, to bear interest
from such date at the rate of 7.23% per annum, payable semiannually on the
fifteenth day of each May and November in each year (commencing November 15,
1997) and at maturity and to bear interest on overdue principal (including any
overdue required or optional prepayment of principal) and premium, if any, and
(to the extent legally enforceable) on any overdue installment of interest at
the rate of 9.23% per annum after the date due, whether by acceleration or
otherwise, until paid, to be expressed to mature on November 15, 2000, and to
be substantially in the form attached hereto as Exhibit A-2.
The terms "Series A Notes" and "Series B Notes", as used herein shall include
each Series A Note and Series B Note, respectively, delivered pursuant to this
Agreement; the Series A Notes and the Series B Notes are hereinafter
collectively referred to as the "Notes"; and the term "Series" shall include all
of the Series A Notes, or as the case may be, all of the
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BEI Technologies, Inc. Assumption Agreement
Series B Notes. Interest on the Notes shall be computed on the basis of a 360-
day year of twelve 30-day months. The Notes are not subject to prepayment or
redemption at the option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with the premium, if
any, set forth in (S)2 of this Agreement.
Section 1.2. Commitment, Closing Date. Subject to the terms and
--------------------------------------
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and deliver to each
Purchaser, and such Purchaser agrees to accept from the Company, Notes of the
Series and in the principal amount set forth opposite such Purchaser's name in
Schedule I hereto in exchange for the surrender for cancellation of Original
Series A Notes or, as the case may be, Original Series B Notes in an unpaid
principal amount equal to 100% of the principal amount thereof on the Closing
Date hereafter mentioned, all as specified in Schedule I hereto.
Delivery of the Notes will be made at the offices of Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, against surrender for
cancellation of Original Notes at 10:00 a.m., San Francisco time, on September
26, 1997 or such later date as shall mutually be agreed upon by the Company and
the Purchasers (the "Closing Date"). The Notes delivered to each Purchaser on
the Closing Date will be delivered to such Purchaser in the form of a single
registered Note in the form attached hereto as Exhibit A-1 or Exhibit A-2, as
the case may be, in the full amount to be acquired by such Purchaser (unless
different denominations are specified by such Purchaser), registered in such
Purchaser's name or in the name of such Purchaser's nominee, all as such
Purchaser may specify at any time prior to the date fixed for delivery.
Section 1.3. Several Obligations. The obligations of each Purchaser shall be
---------------------------------
several and not joint and no Purchaser shall be liable or responsible for the
acts of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. Required Prepayments.
----------------------------------
(a) Series A Notes. On October 1 in each year, commencing October 1, 1997
--------------
and ending October 1, 1999, both inclusive, the Company will prepay and apply
and there shall become due and payable on the principal indebtedness evidenced
by the Series A Notes an amount equal to the lesser of (i) $3,360,000 and (ii)
the principal amount of the Series A Notes then outstanding. The entire
remaining principal amount of the Series A Notes shall become due and payable
on October 1, 2000.
(b) Series B Notes. On November 15 in each year, commencing November 15,
--------------
1997 and ending November 15, 1999, both inclusive, the Company will prepay and
apply and there shall become due and payable on the principal indebtedness
evidenced by the Series B Notes an amount equal to the lesser of (i)
$2,240,000 and (ii) the principal amount of the Series B Notes then
outstanding.
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BEI Technologies, Inc. Assumption Agreement
The entire remaining principal amount of the Series B Notes shall become due
and payable on November 15, 2000.
No premium shall be payable in connection with any required prepayment made
pursuant to this (S)2.1. For purposes of this (S)2.1, any prepayment of less
than all of the outstanding Notes of any Series pursuant to (S)2.2 shall be
deemed to be applied first, to the amount of principal scheduled to remain
unpaid at the maturity of such Series, and then to the remaining scheduled
principal payments on the Notes of such Series in inverse chronological order.
In the event of any purchase or other acquisition by the Company or
Electronics or by any Subsidiary or Affiliate of the Company or Electronics of
less than all of the Notes of either Series, the amount of the payments required
at maturity and each prepayment required to be made pursuant to this (S)2.1 on
the Notes of such Series shall be reduced in the proportion that the principal
amount of such purchase or other acquisition bears to the unpaid principal
amount of the Notes of such Series immediately prior to such purchase or other
acquisition (after giving effect to any prepayment of the Notes of such Series
made pursuant to this (S)2.1 on the date of such purchase or other acquisition).
Section 2.2. Optional Prepayment with Premium. In addition to the payments
----------------------------------------------
required by (S)2.1, upon compliance with (S)2.3 the Company shall have the
privilege, at any time and from time to time, of prepaying the outstanding
Notes, either in whole or in part (but if in part then in a minimum principal
amount of $100,000) by payment of the principal amount of the Notes, or portion
thereof to be prepaid, and accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Amount, determined
as of three business days prior to the date of such prepayment pursuant to this
(S)2.2.
Section 2.3. Notice of Optional Prepayments. The Company will give notice of
--------------------------------------------
any prepayment of the Notes pursuant to (S)2.2 to each Holder not less than 30
days nor more than 60 days before the date fixed for such optional prepayment
specifying (i) such date, (ii) the principal amount of the Holder's Notes to be
prepaid on such date, (iii) that a premium may be payable, (iv) the date when
such premium will be calculated, (v) the estimated premium, and (vi) the accrued
interest applicable to the prepayment. Such notice of prepayment shall also
certify all facts, if any, which are conditions precedent to any such
prepayment. Notice of prepayment having been so given, the aggregate principal
amount of the Notes specified in such notice, together with accrued interest
thereon and the premium, if any, payable with respect thereto shall become due
and payable on the prepayment date specified in said notice. Not later than two
business days prior to the prepayment date specified in such notice, the Company
shall provide each Holder written notice of the premium, if any, payable in
connection with such prepayment and, whether or not any premium is payable, a
reasonably detailed computation of the Make-Whole Amount.
Section 2.4. Application of Prepayments. All partial prepayments of the Notes
---------------------------------------
of either Series pursuant to (S)2.1 shall be allocated among all of the Notes of
such Series in accordance with the unpaid principal amounts thereof, and all
partial prepayments pursuant
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BEI Technologies, Inc. Assumption Agreement
to (S)2.2 shall be applied on all outstanding Notes of both Series ratably in
accordance with the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
----------------------------
contained in this Agreement or the Notes, in the case of any Note owned by any
Holder that is a Purchaser or any other Institutional Holder which has given
written notice to the Company requesting that the provisions of this (S)2.5
shall apply, the Company will punctually pay when due the principal thereof,
interest thereon and Make-Whole Amount, if any, due with respect to said
principal, without any presentment thereof, directly to such Holder at its
address set forth herein or such other address as such Holder may from time to
time designate in writing to the Company or, if a bank account with a United
States bank is so designated for such Holder, the Company will make such
payments in immediately available Federal funds to such bank account, marked for
attention as indicated, or in such other manner or to such other account in any
United States bank as such Holder may from time to time direct in writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents and
-------------------------------------------
warrants that all representations and warranties set forth in Exhibit B are true
and correct as of the date hereof and are incorporated herein by reference with
the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchasers. Each Purchaser (i) represents
----------------------------------------------
that it is an insurance company regulated as an insurer under the laws of a
jurisdiction within the United States of America, (ii) represents and in
entering into this Agreement the Company understands, that such Purchaser is
acquiring the Notes for the purpose of investment and not with a view to the
distribution thereof, and that such Purchaser has no present intention of
selling, negotiating or otherwise disposing of the Notes and (iii) acknowledges
that this Note has not been registered under the Securities Act of 1933, as
amended, or any state securities law, and may not be sold, assigned, transferred
or otherwise disposed of in the absence of an effective registration statement
under the Securities Act of 1933, as amended, and applicable state securities
laws, or an exemption from such registration; it being understood, however, that
the disposition of such Purchaser's property shall at all times be and remain
within its control. Such Purchaser further represents that the Original Notes to
be surrendered by it for cancellation are held in, and the Notes being acquired
by it are being acquired for, an "insurance company general account" within the
meaning of Department of Labor Prohibited Transaction Exemption 95-60 (issued
July 12, 1995) and there is no employee benefit plan, treating as a single plan,
all plans maintained by the same employer or employee organization, with respect
to which the amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceeds ten percent (10%) of the
total reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual Statement
filed with such Purchaser's state of domicile. As used in this (S)3.2, the terms
"employee benefit plan" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
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BEI Technologies, Inc. Assumption Agreement
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. The obligation of each Purchaser to acquire the Notes
-----------------------
on the Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Closing Certificates. Such Purchaser shall have received
--------------------
(1) a certificate dated the Closing Date, signed by the President or a
Vice President of Technologies, the truth and accuracy of which shall be a
condition to such Purchaser's obligation to acquire the Notes proposed to be
delivered to such Purchaser on the Closing Date, to the effect that (i) the
representations and warranties of the Company set forth in Exhibit B hereto
are true and correct on and with respect to the Closing Date, (ii) the Company
has performed all of its obligations hereunder which are to be performed on or
prior to the Closing Date, (iii) no Default or Event of Default has occurred
and is continuing and (iv) the Spin-off has been consummated; and
(2) a certificate dated the Closing Date, signed by the President or a
Vice President of Electronics, the truth and accuracy of which shall be a
condition to such Purchaser's obligation to acquire the Notes to be delivered
to such Purchaser on the Closing Date, to the effect that (i) neither the
Preliminary Registration Statement nor any other written statement furnished
by Electronics to such Purchaser in connection with the negotiation of the
issuance of the Notes contains any untrue statement of a material fact or
omits a material fact necessary to make the statements contained therein not
misleading, (ii) there are no proceedings pending or, to the knowledge of
Electronics, threatened in any court or before any governmental authority or
arbitration board or tribunal, which challenge the Spin-off or the other
transactions contemplated by this Agreement, and (iii) neither Electronics,
directly or indirectly, nor any agent on its behalf, has offered or will offer
the Notes or any similar Security or has solicited or will solicit an offer to
acquire the Notes or any similar Security from, or has otherwise approached or
negotiated or will approach or negotiate in respect to the Notes or any
similar Security with any Person other than the Purchasers, and further
undertaking that neither Electronics, directly or indirectly, nor any agent on
its behalf, has offered or will offer the Notes or any similar Security or has
solicited or will solicit an offer to acquire the Notes or any similar
Security from any Person so as to bring the issuance and sale of the Notes
within the provisions of Section 5 of the Securities Act of 1933, as amended.
(b) Legal Opinions. On the Closing Date, such Purchaser shall have
--------------
received from Chapman and Cutler, who are acting as special counsel to the
Purchasers in this transaction, and from Cooley Godward LLP, counsel to the
Company, their respective
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<PAGE>
BEI Technologies, Inc. Assumption Agreement
opinions dated the Closing Date, in form and substance satisfactory to such
Purchaser, and covering the matters set forth in Exhibits C and D, respectively,
hereto.
(c) Payment of Counsel Fees. The Company shall have paid all reasonable
-----------------------
fees and expenses of special counsel to the Purchaser to the extent that such
fees and expenses are known as of the Closing Date and are reflected in
appropriate bills or invoices delivered by such special counsel.
(d) Related Transactions. On the Closing Date the Company shall have
--------------------
consummated the delivery of the entire principal amount of the Notes scheduled
to be delivered on the Closing Date pursuant to this Agreement to the other
Purchasers.
(e) Interest on Original Notes. Electronics shall have paid all accrued
--------------------------
and unpaid interest on the Original Notes to and including the Closing Date.
(f) Satisfactory Proceedings. All proceedings taken in connection with
------------------------
the transactions contemplated by this Agreement on the Closing Date, and all
documents necessary to the consummation thereof, shall be satisfactory in form
and substance to such Purchaser, and such Purchaser shall have received a copy
(executed or certified as may be appropriate) of all legal documents or
proceedings taken in connection with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the
----------------------------------
Company fails to tender to any Purchaser the Notes to be issued to such
Purchaser on such date or if the conditions specified in (S)4.1 have not been
fulfilled, such Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement. Without limiting the foregoing, if the
conditions specified in (S)4.1 have not been fulfilled, such Purchaser may waive
compliance by the Company with any such condition to such extent as such
Purchaser may in its sole discretion determine. Nothing in this (S)4.2 shall
operate to relieve the Company of any of its obligations hereunder or to waive
any Purchaser's rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date and continuing so long as any amount
remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and keep in
-------------------------------------
full force and effect, and will cause each Restricted Subsidiary to preserve and
keep in full force and effect, its corporate existence and all licenses and
permits necessary to the proper conduct of its business; provided, however, that
-------- -------
the foregoing shall not prevent any transaction permitted by (S)5.13.
Section 5.2. Insurance. The Company will maintain, and will cause each
----------------------
Restricted Subsidiary to maintain, insurance coverage by financially sound and
reputable insurers accorded a rating by A. M. Best Company, Inc. ("Best") of
A:XII or higher at the time of issuance of any such policy and in such forms and
amounts and against such risks as are
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BEI Technologies, Inc. Assumption Agreement
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties; provided, however,
that if during the term of any such insurance policy, the rating accorded the
insurer shall be less than A:XII, the Company, on the date of renewal of any
such policy (or, if such change in rating shall occur within 90 days prior to
such renewal date, within 90 days of the date of such change in rating), will
obtain such insurance policy from an insurer accorded such a rating; provided
--------
further, however, that (i) the Company's directors' and officers' liability
- ------- -------
insurance may be maintained with a syndicate of Lloyds of London, plc and (ii)
the Company's aircraft products liability insurance may be maintained with a
consortium of insurers so long as each member of such consortium is accorded a
rating by Best of A or higher at the time of issuance or renewal of any such
policy.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws. The
------------------------------------------------------------------------
Company will promptly pay and discharge, and will cause each Restricted
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Restricted
Subsidiary, respectively, or upon or in respect of all or any part of the
property or business of the Company or such Restricted Subsidiary, all trade
accounts payable in accordance with usual and customary business terms, and all
claims for work, labor or materials, which if unpaid might become a Lien upon
any property of the Company or such Restricted Subsidiary; provided, however,
-------- -------
that the Company or such Restricted Subsidiary shall not be required to pay any
such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale of
any property of the Company or such Restricted Subsidiary or any material
interference with the use thereof by the Company or such Restricted Subsidiary,
and (ii) the Company or such Restricted Subsidiary shall set aside on its books,
reserves deemed by it to be adequate with respect thereto. The Company will
promptly comply and will cause each Subsidiary to comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, ERISA and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable jurisdictions, the
violation of which could materially and adversely affect the properties,
business, prospects, profits or condition of the Company and its Restricted
Subsidiaries or would result in any Lien not permitted under (S)5.9.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and keep,
-----------------------------
and will cause each Restricted Subsidiary to maintain, preserve and keep, its
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any
--------------------------------
Restricted Subsidiary will engage in any business (other than any activities
which are ancillary, incidental or necessary to the business engaged in by the
Company and its Restricted Subsidiaries on the date of the Spin-off) if, as a
result, the general nature of the business, taken on a
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BEI Technologies, Inc. Assumption Agreement
consolidated basis, which would then be engaged in by the Company and its
Restricted Subsidiaries would be substantially changed from the general nature
of the business engaged in by the Company and its Restricted Subsidiaries on the
date of the Spin-off.
Section 5.6. Consolidated Adjusted Tangible Net Worth. The Company will at all
-----------------------------------------------------
times keep and maintain a Consolidated Adjusted Tangible Net Worth at an amount
not less than the Benchmark Amount for the fiscal quarter of the Company
beginning September 28, 1997, and for each fiscal quarter thereafter, the
greater of (i) the Benchmark Amount and (ii) the sum of (x) the amount required
to be maintained during the immediately preceding fiscal quarter of the Company,
(y) an amount equal to 75% of Consolidated Net Income for such preceding fiscal
quarter, and (z) the amount by which the aggregate net cash proceeds to the
Company from the issue or sale of shares of capital stock of the Company or
warrants, rights or options to purchase or acquire any shares of its capital
stock after September 27, 1997 exceeds $5,000,000. "Benchmark Amount" means an
amount equal to 90% of the Consolidated Adjusted Tangible Net Worth of the
businesses to comprise the Company, determined as at September 27, 1997, as if
the Spin-off had occurred on that date.
Section 5.7. Limitations on Total Debt.
----------------------------------------
(a) The Company will not at any time during any period set forth below
permit Total Debt of the Company and its Restricted Subsidiaries to exceed the
percentage of Total Capitalization set forth below opposite such period:
PERIOD PERCENTAGE
Fiscal year ending October 3, 1998 57%
Fiscal year ending October 2, 1999 53%
Fiscal year ending September 30, 52%
2000 and thereafter
(b) The Company will not permit any Restricted Subsidiary to create,
assume or incur or in any manner be or become liable in respect of any Current
Debt or Funded Debt, except:
(1) Current Debt and Funded Debt of the Company and its Restricted
Subsidiaries outstanding as of the Closing Date (after giving effect to the
Spin-off) and reflected in Section 5.7(b)(1) of the Disclosure Letter;
(2) Current Debt or Funded Debt of a Restricted Subsidiary to the
Company or to a Wholly-owned Restricted Subsidiary; and
(3) Additional Current Debt or Funded Debt of Restricted
Subsidiaries; provided, however, that at the time of issuance thereof and
-------- -------
after giving effect thereto
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BEI Technologies, Inc. Assumption Agreement
and to the application of the proceeds thereof, Priority Obligations will not
exceed 15% of Consolidated Adjusted Tangible Net Worth.
(c) Any corporation which becomes a Restricted Subsidiary after the date
hereof shall for all purposes of this (S)5.7 be deemed to have created, assumed
or incurred at the time it becomes a Restricted Subsidiary all Current Debt and
Funded Debt of such corporation existing immediately after it becomes a
Restricted Subsidiary.
Section 5.8. Fixed Charges Coverage Ratio. The Company will keep and maintain
-----------------------------------------
the ratio of Net Income Available for Fixed Charges to Fixed Charges for each
period of four consecutive fiscal quarters at not less than 2.0 to 1.0.
Section 5.9. Limitation on Liens. The Company will not, and will not permit
--------------------------------
any Restricted Subsidiary to, create or incur, or suffer to be incurred or to
exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its or their general creditors, or acquire or agree
to acquire, or permit any Restricted Subsidiary to acquire, any property or
assets upon conditional sales agreements or other title retention devices,
except:
(a) Liens for property taxes and assessments or governmental charges or
levies and Liens securing claims or demands of mechanics and materialmen,
provided payment thereof is not at the time required by (S)5.3;
(b) Liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Restricted Subsidiary shall at any time in
good faith be prosecuting an appeal or proceeding for a review and in respect
of which a stay of execution pending such appeal or proceeding for review
shall have been secured;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including, without limitation, Liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorneys' liens and statutory landlords' liens) and Liens
to secure the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of like general
nature incurred in the ordinary course of business and not in connection with
the borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings;
(d) Liens relating to advance or progress payments under United States
Government contracts, provided that any such Lien encumbers only the inventory
--------
purchased with such advance or progress payments.
(e) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar
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BEI Technologies, Inc. Assumption Agreement
purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Restricted Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly
situated and which do not in any event materially impair their use in the
operation of the business of the Company and its Restricted Subsidiaries;
(f) Liens securing Indebtedness of a Restricted Subsidiary to the Company
or to another Restricted Subsidiary;
(g) Liens existing as of the Closing Date (after giving effect to the
Spin-off) and reflected in Section 5.9(g) of the Disclosure Letter;
(h) Liens incurred after the Closing Date given to secure the payment of
the purchase price incurred in connection with the acquisition of fixed assets
useful and intended to be used in carrying on the business of the Company or a
Restricted Subsidiary, including Liens existing on such fixed assets at the
time of acquisition thereof or at the time of acquisition by the Company or a
Restricted Subsidiary of any business entity then owning such fixed assets,
whether or not such existing Liens were given to secure the payment of the
purchase price of the fixed assets to which they attach so long as they were
not incurred, extended or renewed in contemplation of such acquisition,
provided that (i) the Lien shall attach solely to the fixed assets acquired or
purchased, (ii) at the time of acquisition of such fixed assets, the aggregate
amount remaining unpaid on all Indebtedness secured by Liens on such fixed
assets whether or not assumed by the Company or a Restricted Subsidiary shall
not exceed an amount equal to the lesser of the total purchase price or fair
market value at the time of acquisition of such fixed assets (as determined in
good faith by the Board of Directors of the Company), and (iii) all such
Indebtedness shall have been incurred within the applicable limitations
provided in (S)5.7;
(i) any extension, renewal or replacement of any Lien permitted by the
preceding clauses (g) and (h) hereof in respect of the same property
theretofore subject to such Lien in connection with the extension, renewal or
refunding of the Indebtedness secured thereby, provided that (x) such Lien
--------
shall attach solely to the same such property, and (y) such extension, renewal
or refunding of such Indebtedness shall be without increase in the principal
remaining unpaid as of the date of such extension, renewal or refunding; and
(j) Liens incurred after the Closing Date in addition to the Liens
permitted by the preceding clauses (a) through (i) hereof, provided that,
--------
after giving effect to the incurrence of the Indebtedness secured by such
Liens and to the application of the proceeds thereof, (i) Priority Obligations
will not exceed 15% of Consolidated Adjusted Tangible Net Worth and (ii)
Priority Obligations secured by Liens granted by the Company and its
Restricted Subsidiaries will not exceed 5% of Consolidated Adjusted Tangible
Net Worth.
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BEI Technologies, Inc. Assumption Agreement
Section 5.10. Limitation on Sale and Leasebacks. The Company will not, and
------------------------------------------------
will not permit any Restricted Subsidiary to, enter into any arrangement whereby
the Company or any Restricted Subsidiary shall sell or transfer any property
owned by the Company or any Restricted Subsidiary to any Person other than the
Company or a Restricted Subsidiary and thereupon the Company or any Restricted
Subsidiary shall lease or intend to lease, as lessee, the same property.
Section 5.11. Restricted Payments. The Company will not except as hereinafter
---------------------------------
provided:
(a) declare any dividends, either in cash or property, on any shares of
its capital stock of any class (except dividends or other distributions
payable solely in shares of capital stock of the Company);
(b) directly or indirectly, or through any Subsidiary, purchase, redeem
or retire any shares of its capital stock of any class or any warrants, rights
or options to purchase or acquire any shares of its capital stock (other than
in exchange for other shares of capital stock of the Company or warrants,
rights or options to purchase or acquire any shares of its capital stock);
(c) make any other payment or distribution, either directly or indirectly
or through any Subsidiary, in respect of its capital stock;
(d) make, or permit any Restricted Subsidiary to make, any Restricted
Investment; or
(e) permit any Restricted Subsidiary to declare any dividends, either in
cash or property, on any shares of the capital stock of such Restricted
Subsidiary (except for dividends which are payable solely to the Company or to
the Company and one or more Wholly-owned Restricted Subsidiaries);
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions and such Restricted Investments being herein
collectively called "Restricted Payments"), if after giving effect thereto any
Event of Default shall have occurred and be continuing or the sum of the
aggregate amount of Restricted Payments made during the period from and after
September 28, 1997 to and including the date of the making of the Restricted
Payment in question would exceed the sum of (i) $1,500,000 plus (ii) 50% of
Consolidated Net Income (less 100% thereof in case of a deficit) for each fiscal
year commencing after September 27, 1997, plus (iii) the aggregate net cash
proceeds received by the Company from the sale of its capital stock or warrants,
rights or options to purchase or acquire any shares of its capital stock during
said period, plus (iv) the aggregate net proceeds received during such period
from the sale of any Restricted Investments made during such period up to but
not exceeding the original cost thereof.
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BEI Technologies, Inc. Assumption Agreement
The Company will not declare any dividend which constitutes a Restricted
Payment payable more than 60 days after the date of declaration thereof.
For the purposes of this (S)5.11, the amount of any Restricted Payment
declared, paid or distributed in property shall be deemed to be the greater of
the book value or fair market value (as determined in good faith by the Board of
Directors of the Company) of such property at the time of the making of the
Restricted Payment in question.
Section 5.12. Investments. The Company will not, and will not permit any
-------------------------
Restricted Subsidiary to, make any Investments, other than:
(a) Investments by the Company and its Restricted Subsidiaries in and to
Restricted Subsidiaries, including any Investment in a corporation which,
after giving effect to such Investment, will become a Restricted Subsidiary;
(b) Investments in commercial paper maturing in 270 days or less from the
date of issuance which, at the time of acquisition by the Company or any
Restricted Subsidiary, is accorded a rating of A-2 or better by Standard &
Poor's Corporation or a rating of P2 or better by Moody's Investors Service,
Inc.;
(c) Investments in direct obligations of the United States of America or
any agency or instrumentality of the United States of America, the payment or
guarantee of which constitutes a full faith and credit obligation of the
United States of America, in either case, maturing in twelve months or less
from the date of acquisition thereof;
(d) Investments in certificates of deposit maturing within one year from
the date of issuance thereof, issued by a bank or trust company organized
under the laws of the United States or any state thereof, having capital,
surplus and undivided profits aggregating at least $100,000,000 and whose
long-term certificates of deposit are, at the time of acquisition thereof by
the Company or a Restricted Subsidiary, rated A or better by Standard & Poor's
Corporation or A2 or better by Moody's Investors Service, Inc.;
(e) loans or advances in the usual and ordinary course of business to
officers, directors and employees for expenses (including moving expenses
related to a transfer) incidental to carrying on the business of the Company
or any Restricted Subsidiary;
(f) receivables arising from the sale of goods and services in the
ordinary course of business of the Company and its Restricted Subsidiaries;
(g) Investments in shares of capital stock or securities acquired in
satisfaction or enforcement of any Indebtedness or Liens, in either case,
created in the ordinary course of business;
(h) Investments as set forth in Section 5.12(h) of the Disclosure Letter;
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BEI Technologies, Inc. Assumption Agreement
(i) Investments constituting deposits with vendors representing advance
payments made in the ordinary course of business; and
(j) Restricted Investments made within the limitations of (S)5.11.
In valuing any Investments for the purpose of applying the limitations set
forth in (S)5.11 or this (S)5.12, such Investments shall be taken at the
original cost thereof, without allowance for any subsequent write-offs or
appreciation or depreciation therein, but less any amount repaid or recovered on
account of capital or principal.
For purposes of this (S)5.12, at any time when a corporation becomes a
Restricted Subsidiary by designation or otherwise, all Investments of such
corporation at such time shall be deemed to have been made by such corporation,
as a Restricted Subsidiary, at such time.
Section 5.13. Mergers, Consolidations and Sales of Assets. (a) The Company
---------------------------------------------------------
will not, and will not permit any Restricted Subsidiary to, (i) consolidate with
or be a party to a merger with any other corporation or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d) of
this (S)5.13) of the assets of the Company and its Restricted Subsidiaries;
provided, however, that:
- -------- -------
(1) any Restricted Subsidiary may merge or consolidate with or into the
Company or any Wholly-owned Restricted Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation;
(2) the Company may consolidate or merge with any other corporation if
(i) either (x) the Company shall be the surviving or continuing corporation or
(y) the surviving or continuing corporation shall (A) be a corporation
incorporated and existing under the laws of any state of the United States,
(B) have substantially all of its assets and conduct substantially all of its
business within the United States, and (C) expressly assume, by written
agreement delivered to each holder of the Notes and satisfactory in form and
substance to the Holders of a majority in principal amount of the Notes, all
of the obligations of the Company under this Agreement, and (ii) at the time
of such consolidation or merger and after giving effect thereto no Default or
Event of Default shall have occurred and be continuing; and
(3) any Restricted Subsidiary may sell, lease or otherwise dispose of
all or any substantial part of its assets to the Company or any Wholly-owned
Restricted Subsidiary.
(b) The Company will not permit any Restricted Subsidiary to issue or
sell any shares of stock of any class (including as "stock" for the purposes of
this (S)5.13, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Restricted Subsidiary to any Person other than the Company or a Wholly-owned
Restricted Subsidiary, except (i) the sale of
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BEI Technologies, Inc. Assumption Agreement
stock described in Section 5.13(b) and Section B-1 of the Disclosure Letter,
(ii) for the purpose of qualifying directors, or (iii) in satisfaction of the
validly pre-existing preemptive rights of minority shareholders in connection
with the simultaneous issuance of stock to the Company and/or a Restricted
Subsidiary whereby the Company and/or such Restricted Subsidiary maintain their
same proportionate interest in such Restricted Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Restricted Subsidiary (except to qualify directors) or
any Indebtedness of any Restricted Subsidiary, and will not permit any
Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the
Company or a Wholly-owned Restricted Subsidiary) any shares of stock or any
Indebtedness of any other Restricted Subsidiary, unless:
(1) simultaneously with such sale, transfer, or disposition, all
shares of stock and all Indebtedness of such Restricted Subsidiary at the time
owned by the Company and by every other Restricted Subsidiary shall be sold,
transferred or disposed of as an entirety;
(2) the Board of Directors of the Company shall have determined, as
evidenced by a resolution thereof, that the proposed sale, transfer or
disposition of said shares of stock and Indebtedness is in the best interests
of the Company;
(3) said shares of stock and Indebtedness are sold, transferred or
otherwise disposed of to a Person, for a cash consideration or other
consideration which shall be treated as a Restricted Investment and on terms
reasonably deemed by the Board of Directors to be adequate and satisfactory;
(4) the Restricted Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Restricted Subsidiary not
being simultaneously disposed of; and
(5) such sale or other disposition does not involve a substantial part
(as hereinafter defined) of the assets of the Company and its Restricted
Subsidiaries.
(d) As used in this (S)5.13, a sale, lease or other disposition of assets
shall be deemed to be a "substantial part" of the assets of the Company and its
Restricted Subsidiaries if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
and its Restricted Subsidiaries (other than in the ordinary course of business)
during the 12-month period ending with the date of such sale, lease or other
disposition, exceeds 10% of consolidated assets, determined as of the end of the
immediately preceding fiscal year. For purposes of making any determination of
"substantial part", the net proceeds of a sale, lease or other disposition of
assets (in an amount not exceeding the book value of such assets) shall be
excluded from any computation thereof to the extent that the net proceeds of
such sale, lease or other disposition, when added to the book value of all other
assets sold, leased or otherwise disposed of by the Company and its Restricted
Subsidiaries (other than in the ordinary course of business) during the 12-month
period ending with the date of such sale, lease or other disposition,
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BEI Technologies, Inc. Assumption Agreement
exceed 10% of consolidated assets, determined as of the end of the immediately
preceding fiscal year, are deposited within 90 days after such sale, lease or
other disposition in an account which is segregated from all other accounts and
funds of the Company and identified as holding such proceeds, provided that such
proceeds are applied within one year after such sale, lease or other disposition
to either (i) purchase a business enterprise, a line of business or fixed or
capital assets useful and intended to be used in the business of the Company or
a Restricted Subsidiary, or (ii) prepay the Notes in accordance with (S)2.2.
(e) The Company will not, and will not permit any Restricted Subsidiary
to, sell any bills, notes, accounts receivable, installment notes, credit
claims, chooses in action or securities from time to time owned by the Company
or any Restricted Subsidiary for less than face value or in any manner or on any
terms whereby there may be imposed upon the Company or any Restricted Subsidiary
any liability by way of endorsement, guaranty or agreement to repurchase, or any
direct or indirect liability on any contractual or other obligation of others.
Section 5.14. Guaranties. The Company will not, and will not permit any
------------------------
Restricted Subsidiary to, become or be liable in respect of any Guaranty except
Guaranties by the Company which either (a) are limited in amount to a stated
maximum dollar exposure or (b) constitute Guaranties of obligations incurred by
any Restricted Subsidiary, in either case, in compliance with the provisions of
this Agreement.
Section 5.15. Repurchase of Notes. Neither the Company nor any Restricted
---------------------------------
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase Notes,
pro rata, from all Holders at the same time and upon the same terms. In case the
Company repurchases or otherwise acquires any Notes, such Notes shall
immediately thereafter be cancelled and no Notes shall be issued in substitution
therefor. Without limiting the foregoing, upon the repurchase or other
acquisition of any Notes by the Company, any Restricted Subsidiary or any
Affiliate (or upon the agreement of the Company, any Restricted Subsidiary or
any Affiliate to purchase or otherwise acquire any Notes), such Notes shall no
longer be outstanding for purposes of any section of this Agreement relating to
the taking by the Holders of any actions with respect hereto, including, without
limitation, (S)6.3, (S)6.4 and (S)7.1.
Section 5.16. Transactions with Affiliates. Except as set forth in the
-------------------------------------------
Preliminary Registration Statement and in Section 5.16 of the Disclosure Letter,
the Company will not, and will not permit any Restricted Subsidiary to, enter
into or be a party to any transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange of
property with, or the rendering of any service by or for, any Affiliate), except
in the ordinary course of and pursuant to the reasonable requirements of the
Company's or such Restricted Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Restricted Subsidiary than would
obtain in a comparable arm's-length transaction with a Person other than an
Affiliate.
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BEI Technologies, Inc. Assumption Agreement
Section 5.17. Termination of Pension Plans. The Company will not and
-------------------------------------------
will not permit any Subsidiary to withdraw from any Multiemployer Plan
or permit any employee benefit plan maintained by it to be terminated if such
withdrawal or termination could result in withdrawal liability (as described in
Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any
property of the Company or any Subsidiary pursuant to Section 4068 of ERISA.
Section 5.18. Reports and Rights of Inspection. The Company will keep,
----------------------------------------------
and will cause each Restricted Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Restricted Subsidiary, in accordance with GAAP consistently applied (except
for changes disclosed in the financial statements furnished to the Holders
pursuant to this (S)5.18 and concurred in by the independent public accountants
referred to in (S)5.18(b) hereof), and will furnish to each Institutional Holder
(in duplicate if so specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any event within
--------------------
60 days after the end of each quarterly fiscal period (except the last) of each
fiscal year, copies of:
(1) consolidated and consolidating balance sheets of the Company and
its Restricted Subsidiaries as of the close of such quarterly fiscal period,
setting forth in comparative form the consolidated figures for the fiscal year
then most recently ended,
(2) consolidated and consolidating statements of income of the Company
and its Restricted Subsidiaries for such quarterly fiscal period and for the
portion of the fiscal year ending with such quarterly fiscal period, in each
case setting forth in comparative form the consolidated figures for the
corresponding periods of the preceding fiscal year, and
(3) consolidated and consolidating statements of cash flows of the
Company and its Restricted Subsidiaries for the portion of the fiscal year
ending with such quarterly fiscal period, setting forth in comparative form
the consolidated figures for the corresponding period of the preceding fiscal
year,
all in reasonable detail and certified as complete and correct by an authorized
financial officer of the Company;
(b) Annual Statements. As soon as available and in any event within 120
-----------------
days after the close of each fiscal year of the Company, copies of:
(1) consolidated and consolidating balance sheets of the Company and
its Restricted Subsidiaries as of the close of such fiscal year, and
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BEI Technologies, Inc. Assumption Agreement
(2) consolidated and consolidating statements of income and retained
earnings and cash flows of the Company and its Restricted Subsidiaries for
such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by a report
thereon of a firm of independent public accountants of recognized national
standing selected by the Company to the effect that the consolidated financial
statements present fairly, in all material respects, the consolidated financial
position of the Company and its Restricted Subsidiaries as of the end of the
fiscal year being reported on and the consolidated results of the operations and
cash flows for said year in conformity with GAAP and that the examination of
such accountants in connection with such financial statements has been conducted
in accordance with generally accepted auditing standards and included such tests
of the accounting records and such other auditing procedures as said accountants
deemed necessary in the circumstances;
(c) Management Letters Promptly upon receipt thereof, a copy of the
------------------
management letter submitted to the audit committee of the board of directors of
the Company by independent certified public accountants in connection with each
annual audit of the financial statements of the Company and its Restricted
Subsidiaries made by such accountants;
(d) SEC and Other Reports. Promptly upon their becoming available, one
---------------------
copy of each financial statement, report, notice or proxy statement sent by the
Company to stockholders generally and of each regular or periodic report, and
any registration statement or prospectus filed by the Company or any Subsidiary
with any securities exchange or the Securities and Exchange Commission or any
successor agency, and copies of any orders in any proceedings to which the
Company or any of its Subsidiaries is a named party, issued by the United States
Government Accounting Office or by any court or tribunal of any other
governmental agency, Federal or state, having jurisdiction over the Company or
any of its Subsidiaries;
(e) ERISA Reports. Promptly upon the occurrence thereof, written notice
-------------
of (i) a Reportable Event with respect to any Plan; (ii) the institution of any
steps by the Company, any ERISA Affiliate, the PBGC or any other person to
terminate any Plan; (iii) the institution of any steps by the Company or any
ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA in connection with any
Plan; (v) any material increase in the contingent liability of the Company or
any Restricted Subsidiary with respect to any post-retirement welfare liability;
or (vi) the taking of any action by, or the threatening of the taking of any
action by, the Internal Revenue Service, the Department of Labor or the PBGC
with respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in paragraphs
----------------------
(a) and (b) above, a certificate of an authorized financial officer of the
Company stating that such officer has reviewed the provisions of this Agreement
and setting forth: (i) the
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BEI Technologies, Inc. Assumption Agreement
information and computations (in sufficient detail) required in order to
establish whether the Company was in compliance with the requirements of (S)5.6
through (S)5.16 at the end of the period covered by the financial statements
then being furnished, and (ii) whether there existed as of the date of such
financial statements and whether, to the best of such officer's knowledge, there
exists on the date of the certificate or existed at any time during the period
covered by such financial statements any Default or Event of Default and, if any
such condition or event exists on the date of the certificate, specifying the
nature and period of existence thereof and the action the Company is taking and
proposes to take with respect thereto;
(g) Accountant's Certificates. Within the period provided in paragraph
-------------------------
(b) above, a certificate of the accountants who render an opinion with respect
to such financial statements, stating that they have reviewed this Agreement and
stating further whether, in making their audit, such accountants have become
aware of any Default or Event of Default under any of the terms or provisions of
this Agreement insofar as any such terms or provisions pertain to or involve
accounting matters or determinations, and if any such condition or event then
exists, specifying the nature and period of existence thereof;
(h) Unrestricted Subsidiaries. Within the respective periods provided in
-------------------------
paragraphs (a) and (b) above, financial statements of the character and for the
dates and periods as in said paragraphs (a) and (b) provided covering each
Unrestricted Subsidiary (or groups of Unrestricted Subsidiaries on a
consolidated basis); and
(i) Requested Information. With reasonable promptness, such other data
---------------------
and information as any Institutional Holder may reasonably request and the
Company may provide to such Holder without any violation of law, governmental
rule or regulation, or any contractual obligation entered into in the ordinary
course of business; provided, however, that each Holder, by its acceptance of a
-----------------
Note, agrees that with respect to any data and information obtained by such
Holder pursuant to this Agreement which has theretofore been designated as
confidential to such Holder in writing by the Company (which shall in no event
include information contained in any Form 10-K, Form 10-Q or Form 8-K or other
publicly filed documents), such Holder will use its reasonable efforts
(consistent with its established policies) to reasonably maintain the
confidential nature of the data and information therein contained; provided
--------
further, however, that anything herein contained to the contrary
- ----------------
notwithstanding, such Holder may, to the extent necessary, disclose or
disseminate such data and information to: (i) its employees, agents, attorneys,
and accountants who would ordinarily have access to such data and information in
the normal course of the performance of their duties; (ii) such third parties as
it may, in its reasonable discretion, deem reasonably necessary or desirable in
connection with or in response to (x) compliance with any law, ordinance or
governmental order, regulation, rule, policy, subpoena, investigation,
regulatory authority request or request, or (y) any order, decree, judgment,
subpoena, notice of discovery or similar ruling or pleading issued, filed,
served or purported on its face to be issued, filed or served (A) by or under
authority of any court, tribunal, arbitration board of any governmental or
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BEI Technologies, Inc. Assumption Agreement
industry agency, commission, authority, board or similar entity or (B) in
connection with any proceeding, case or matter pending (or on its face
purported to be pending) before any court, tribunal, arbitration board or
any governmental agency, commission, authority, board or similar entity;
(iii) any prospective purchaser, securities broker or dealer or investment
banker in connection with the resale or proposed resale by such Holder of
any portion of the Notes bound by a like obligation of confidentiality; (iv)
any Person holding debt Securities of such Holder who shall have requested
to inspect such information subject to the provisions of this paragraph (i);
(v) the National Association of Insurance Commissioners; and (vi) any entity
utilizing such information to rate or classify such Holder's debt or equity
Securities or to report to the public concerning the industry of which such
Holder is a part; and, provided still further, that such Holder shall not
----------------------
be liable to the Company or any other Person for damages for any failure by
such Holder, despite such Holder's reasonable efforts so to do, to comply
with the provisions of this paragraph (i).
Without limiting the foregoing, the Company will permit each Institutional
Holder (or such Persons as such Institutional Holder may designate), to visit
and inspect, under the Company's guidance, any of the properties of the Company
or any Restricted Subsidiary not requiring any level of official United States
Government security clearance, to examine all of their books of account, records
and reports, to make copies and extracts therefrom and to discuss their
respective affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with any Institutional Holder the finances and
affairs of the Company and its Restricted Subsidiaries) all at such reasonable
times and upon reasonable notice and as often as may be reasonably requested.
The Company shall not be required to pay or reimburse any such Institutional
Holder for expenses which any such Institutional Holder may incur in connection
with any such visitation or inspection, except that if such visitation or
inspection is made during any period when a Default or an Event of Default shall
have occurred and be continuing, the Company agrees to reimburse such
Institutional Holder for all such expenses promptly upon demand.
Section 5.19. Certain Changes in Accounting Principles. In the
-------------------------------------------------------
event a change after the date of this Agreement in (i) GAAP or (ii) any
regulation issued by the Securities and Exchange Commission (either such event
being referred to herein as an "Accounting Change"), which results in a material
change in the calculations of any financial covenant contained in (S)5 (the
"Affected Computation") in such a manner and to such an extent that, in the good
faith judgment of the Chief Financial Officer of the Company or the Holder or
Holders of not less than 50% of the unpaid principal amount of the Notes, as
evidenced by notice in writing from such Holder or Holders to the Company
(collectively, the "Holder Notice"), the application of the Accounting Change to
the Affected Computation would no longer reflect the intention of the parties to
the Agreements, then and in any such event:
(a) the Company shall give written notice of such determination to the
Holders promptly after making such determination or receiving a Holder Notice,
which notice shall be accompanied by a copy of such Holder Notice or an
officer's
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<PAGE>
BEI Technologies, Inc. Assumption Agreement
certificate signed by the President, the Treasurer or any Vice President of
the Company:
(i) describing the Accounting Change in question and the particular
covenant or covenants which will be affected by such Accounting Change;
(ii) setting forth in reasonable detail (including detailed
calculations) the manner and extent to which the covenant or covenants listed
in the officer's certificate are affected by such Accounting Change; and
(iii) setting forth in reasonable detail (including detailed
calculations) the information required in order to establish that the Company
would be in compliance with the requirements of the covenant or covenants
listed in the officer's certificate if such Accounting Change was not
effective.
(b) each Holder will enter into good faith negotiations with the Company
for an equitable amendment of such covenant or covenants pursuant to (S)7 so
as to place the parties, insofar as possible, in the same relative position as
if such Accounting Change had not occurred; and
(c) for the period from the date on which such Accounting Change becomes
effective (the "Effective Date") to the effective date of an amendment to this
Agreement pursuant to (S)7, the Company shall be deemed to be in compliance
with the covenant or covenants listed in the officer's certificate if and so
long as the Company would be in compliance with such covenant or covenants if
such Accounting Change had not occurred, and if no amendment to this Agreement
has become effective within 90 days after the Effective Date of such
Accounting Change, then all accounting computations required to be made for
purposes of this Agreement thereafter shall be done in accordance with GAAP as
in effect immediately prior to that Effective Date.
Section 5.20. Fiscal Year. The Company shall not change its fiscal year
-------------------------
without the prior, written consent of the Holders.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following shall
------------------------------
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note when the
same shall have become due and such default shall continue for more than five
business days; or
(b) Default shall occur in the making of any required prepayment on any
of the Notes as provided in (S)2.1; or
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BEI Technologies, Inc. Assumption Agreement
(c) Default shall occur in the making of any other payment of the
principal of any Note or premium, if any, thereon at the expressed or any
accelerated maturity date or at any date fixed for prepayment; or
(d) Default shall be made in the payment when due (whether by lapse of
time, by declaration, by call for redemption or otherwise) of the principal of
or interest on any Funded Debt or Current Debt (other than the Notes) of the
Company or any Restricted Subsidiary having an aggregate unpaid principal amount
exceeding $500,000, and such default shall continue beyond the period of grace,
if any, allowed with respect thereto; or
(e) Default or the happening of any event shall have occurred and be
continuing under one or more indentures, agreements or other instruments under
which Funded Debt or Current Debt of the Company or any Restricted Subsidiary in
an aggregate unpaid principal amount exceeding $500,000 is outstanding (for
purposes of this (S)6.1(e) any undrawn amounts under a revolving credit or other
bank facility shall be deemed to be outstanding), and such default or event
shall continue, without having been effectively waived by the requisite holders
of such Funded Debt or Current Debt, for a period of time sufficient to permit
the acceleration of the maturity of any Funded Debt or Current Debt of the
Company or any Restricted Subsidiary in an aggregate amount exceeding $500,000
outstanding under all such indentures, agreements or other instruments,
regardless of whether such default or event continues after such period of time
passes or whether such acceleration occurs; or
(f) Default shall occur in the observance or performance of any covenant
or agreement contained in (S)5.6 through (S)5.13; or
(g) Default shall occur in the observance or performance of any other
provision of this Agreement which is not remedied within 30 days after the
earlier of (i) the day on which the Company first obtains knowledge of such
default, or (ii) the day on which written notice thereof is given to the Company
by any Holder; or
(h) Any representation or warranty made by Technologies herein, or made
by Electronics or Technologies in any statement or certificate furnished by
Electronics or Technologies in connection with the consummation of the issuance
an d delivery of the Notes or furnished by Technologies pursuant hereto, is
untrue in any material respect as of the date of the issuance or making thereof;
or
(i) Final judgment or judgments for the payment of money aggregating in
excess of $2,000,000 is or are outstanding against the Company or any Restricted
Subsidiary or against any property or assets of either and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of 30 days from the date of its entry; or
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BEI Technologies, Inc. Assumption Agreement
(j) A custodian, liquidator, trustee or receiver is appointed for the
Company or any Restricted Subsidiary or for the major part of the property of
either and is not discharged within 30 days after such appointment; or
(k) The Company or any Restricted Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Restricted
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Restricted Subsidiary
or for the major part of the property of either; or
(l) Bankruptcy, reorganization, arrangement or insolvency proceedings, or
other proceedings for relief under any bankruptcy or similar law or laws for
the relief of debtors, are instituted by or against the Company or any
Restricted Subsidiary and, if instituted against the Company or any Restricted
Subsidiary, are consented to or are not dismissed within 90 days after such
institution.
Section 6.2. Notice to Holders. When any Event of Default described in the
------------------------------
foregoing (S)6.1 has occurred, or if any Holder or the holder of any other
evidence of Funded Debt or Current Debt of the Company gives any notice or takes
any other action with respect to a claimed default, the Company agrees to give
notice within three business days of such event to all Holders.
Section 6.3. Acceleration of Maturities. When any Event of Default described
---------------------------------------
in paragraph (a), (b) or (c) of (S)6.1 has happened and is continuing, any
Holder may by notice to the Company, declare the entire principal and all
accrued interest on the Notes held by such Holder to be, and all such Notes
shall thereupon become, forthwith due and payable, without any presentation,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. When any Event of Default described in paragraphs (a) through (j),
inclusive, of said (S)6.1 has happened and is continuing, the Holder or Holders
of 25% or more of the principal amount of Notes at the time outstanding may, by
notice to the Company, declare the entire principal and all interest accrued on
all Notes to be, and all Notes shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived. When any Event of Default described in
paragraph (k) or (l) of (S)6.1 has occurred, then all outstanding Notes shall
immediately become due and payable without presentment, demand or notice of any
kind. Upon the Notes becoming due and payable as a result of any Event of
Default as aforesaid, the Company will forthwith pay to the Holders the entire
principal and interest accrued on the Notes and, to the extent not prohibited by
applicable law, an amount as liquidated damages for the loss of the bargain
evidenced hereby (and not as a penalty) equal to the Make-Whole Amount,
determined as of the date on which the Notes shall so become due and payable. No
course of dealing on the part of a Holder nor any delay or failure on the part
of any Holder to exercise any right shall operate as a waiver of such right or
otherwise prejudice such Holder's rights, powers and remedies. The Company
further agrees, to the extent permitted by law, to pay to each Holder all costs
and expenses incurred by it in the collection of any Notes upon any default
hereunder or thereon, including
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BEI Technologies, Inc. Assumption Agreement
reasonable compensation to such Holder's attorneys for all services rendered in
connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of (S)6.3 are subject
---------------------------------------
to the condition that (i) in the case of an acceleration pursuant to the first
sentence of (S)6.3, such Holder may, by written notice filed with the Company,
rescind and annul such declaration and the consequence thereof and (ii) in the
case of an acceleration pursuant to the second sentence of (S)6.3, Holders
holding 66-2/3% in aggregate principal amount of the Notes then outstanding may,
by written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, in either case provided that at the time such
declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any principal,
interest or premium on the Notes which has become due and payable solely by
reason of such declaration under (S)6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
made good, cured or waived pursuant to (S)7.1;
and provided further, that no such rescission and annulment shall extend to or
----------------
affect any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or
------------------------------
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of Holders holding at least 66-2/3% in aggregate
principal amount of outstanding Notes; provided that without the written consent
--------
of all of the Holders, no such amendment or waiver shall be effective (i) which
will change the time or priority of payment (including any prepayment required
by (S)2.1) of the principal of or the interest on any Note or change the
principal amount thereof or change the rate of interest thereon, or (ii) which
will change any of the provisions with respect to optional prepayments, or (iii)
which will change the percentage of Holders required to consent to any such
amendment or waiver of any of the provisions of this (S)7 or (S)6.
Section 7.2. Solicitation of Holders. So long as there are any
-------------------------------------
Notes outstanding, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each Holder (irrespective of the amount of
Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied
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BEI Technologies, Inc. Assumption Agreement
by the Company with sufficient information to enable it to make an informed
decision with respect thereto. The Company will not, directly or indirectly, pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any Holder as consideration for or as
an inducement to entering into by such Holder of any waiver or amendment of any
of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to all Holders.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or waiver
-------------------------------------------
shall apply equally to all of the Holders and shall be binding upon them, upon
each future Holder and upon the Company, whether or not such Note shall have
been marked to indicate such amendment or waiver. No such amendment or waiver
shall extend to or affect any obligation not expressly amended or waived or
impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires, the terms
------------------------
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Acquired Technology" of any Person shall mean as of the date of any
determination thereof, the book value of technology acquired under license
agreement (less amortization) as shown on the most recent consolidated balance
sheet of such Person.
"Adjusted Intangible Assets" shall mean, as of the date of any
determination thereof, all amounts included in "Other Non Current Assets" on the
consolidated financial statements of the Company and its Restricted
Subsidiaries, including all goodwill, patents, trademarks and tradenames but
excluding Acquired Technology, land and buildings held for expansion,
investments in stock of other companies, long-term deposits and any other
tangible assets.
"Affiliate" shall mean any Person (other than a Restricted Subsidiary) (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (iii) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Agreement" shall mean this Assumption Agreement.
"Benchmark Amount" is defined in (S)5.6.
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BEI Technologies, Inc. Assumption Agreement
"Capitalized Lease" shall mean any lease the obligation for Rentals with
respect to which is required to be capitalized on a consolidated balance sheet
of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Closing Date" shall have the meaning set forth in (S)1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean BEI Technologies, Inc., a Delaware corporation, and
any Person who succeeds to all, or substantially all, of the assets and business
of BEI Technologies, Inc.
"Consolidated Adjusted Tangible Net Worth" shall mean, as of the date of
any determination thereof, the stockholders' equity of the Company and its
Restricted Subsidiaries determined on a consolidated basis less all Adjusted
Intangible Assets plus the lesser of (i) the aggregate amount of Adjusted
Intangible Assets acquired by the Company and its Subsidiaries after September
27, 1997 and (ii) $2,000,000.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company and
its Restricted Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Net Income" shall mean the net income of the Company and its
Restricted Subsidiaries before extraordinary items determined on a consolidated
basis in accordance with GAAP.
"Current Debt" of any Person shall mean as of the date of any determination
thereof (i) all Indebtedness of such Person for borrowed money other than Funded
Debt of such Person and (ii) Guaranties by such Person of Current Debt of
others.
"Default" shall mean any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"Disclosure Letter" shall mean the disclosure letter dated September __,
1997, delivered by Electronics and Technologies to each of the Purchasers.
"Electronics" shall mean BEI Electronics, Inc., a Delaware corporation, and
any Person who succeeds to all, or substantially all, of the assets and business
of BEI Electronics, Inc.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations
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BEI Technologies, Inc. Assumption Agreement
thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in (S)6.1.
"Fixed Charges" for any period shall mean on a consolidated basis the sum
of (i) all Rentals under Long-Term Leases (other than Capitalized Leases)
payable during such period by the Company and its Restricted Subsidiaries, and
(ii) all Interest Charges on all Indebtedness (including the interest component
of Rentals on Capitalized Leases) of the Company and its Restricted
Subsidiaries. The determination of Fixed Charges for any period commencing
prior to the date of the Spin-off shall be made on a pro forma basis for the
businesses to comprise the Company as if the Spin-off had occurred on the last
day prior to the commencement of such period.
"Funded Debt" of any Person shall mean (i) all Indebtedness of such Person
for borrowed money or which has been incurred in connection with the acquisition
of assets in each case having a final maturity of one or more than one year from
the date of origin thereof (or which is renewable or extendible at the option of
the obligor for a period or periods more than one year from the date of origin),
excluding all payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt, (ii) all Capitalized
Rentals of such Person, and (iii) all Guaranties by such Person of Funded Debt
of others.
"GAAP" shall mean generally accepted accounting principles at the time in
the United States.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any
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BEI Technologies, Inc. Assumption Agreement
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Holder" shall mean any Person which is, at the time of reference, the
registered holder of any Note.
"Indebtedness" of any Person shall mean and include all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as liabilities of such Person, and in any event shall include all
(i) obligations of such Person for borrowed money or which has been incurred in
connection with the acquisition of property or assets (excluding any obligation
with respect to covenants not to compete to the extent that such obligations are
not reflected as debt on the balance sheet of the Company and its Restricted
Subsidiaries or considered debt for income tax purposes), (ii) obligations
secured by any Lien upon property or assets owned by such Person, even though
such Person has not assumed or become liable for the payment of such
obligations, (iii) obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the event of default are limited to
repossession or sale of property, (iv) Capitalized Rentals and (v) Guaranties of
obligations of others of the character referred to in this definition.
"Institutional Holder" shall mean any Holder which is a Purchaser or an
insurance company, bank, savings and loan association, trust company, investment
company, charitable foundation, employee benefit plan (as defined in ERISA) or
other institutional investor or financial institution.
"Interest Charges" for any period shall mean all interest and all
amortization of debt discount and expense on any particular Indebtedness for
which such calculations are being made.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock,
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BEI Technologies, Inc. Assumption Agreement
stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Restricted Subsidiary shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement, Capitalized Lease or other arrangement pursuant to which title
to the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.
"Long-Term Lease" shall mean any lease of real or personal property (other
than a Capitalized Lease) having a remaining term at the date of determination,
including any period for which the lease may be renewed or extended at the
option of the lessor, of more than three years.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes of any Series the excess, if any, of (i) the aggregate
present value as of the date of such prepayment of each dollar of principal
being prepaid (taking into account the application of such prepayment required
by (S)2.1) and the amount of interest (exclusive of interest accrued to the date
of prepayment) that would have been payable in respect of such dollar if such
prepayment had not been made, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the outstanding Notes of such
Series being prepaid. If the Reinvestment Rate is equal to or higher than
7.23%, the Make-Whole Amount shall be zero. For purposes of any determination
of the Make-Whole Amount:
"Reinvestment Rate" shall mean .50%, plus the Treasury Rate.
"Treasury Rate" shall mean the yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (with maturities equal
to the remaining Weighted Average Life to Maturity (rounded to the nearest
month) of the principal being prepaid (taking into account the application of
such prepayment or payment required by (S)2.1 as of the date of the proposed
prepayment of the Notes), as set forth on page "USD" of the Bloomberg
Financial Markets Service (or, if not available, any other nationally
recognized trading screen reporting on-line intraday trading in United States
government securities) at 10:00 a.m. (New York time) three business days
immediately preceding the prepayment date or as of the business day of
acceleration. In the event that no such nationally recognized trading screen
reporting on-line trading in U.S. Treasury fixed interest rate securities is
available, "Treasury Rate" shall mean the arithmetic mean of the yields
published in the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity corresponding to the remaining Weighted Average
Life to Maturity (rounded to the nearest month) of the principal being prepaid
taking into account the application of such prepayment required by (S)2.1. If
no maturity exactly corresponds to such rounded Weighted Average Life to
Maturity, yields for the published maturity next longer than the Weighted
Average Life to Maturity and for the published maturity next shorter than the
Weighted Average Life to Maturity shall be interpolated from such yields on a
straight-line basis, rounding in each of such relevant periods to the nearest
month.
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BEI Technologies, Inc. Assumption Agreement
For the purposes of calculating the Treasury Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole Amount
shall be used.
"Statistical Release" shall mean the then most recently published
statistical release designated "H.15(519)" or any successor publication which
is published weekly by the Federal Reserve System and which establishes yields
on actively traded U.S. Government Securities adjusted to constant maturities
or, if such statistical release is not published at the time of any
determination hereunder, then such other reasonably comparable index which
shall be designated by the Holders of 66-2/3% in aggregate principal amount of
the outstanding Notes.
"Weighted Average Life to Maturity" of the principal amount of the Notes
being prepaid shall mean, as of the time of any determination thereof, the
number of years obtained by dividing the then Remaining Dollar-Years of such
principal by the aggregate amount of such principal. The term "Remaining
Dollar-Years" of such principal shall mean the amount obtained by (i)
multiplying (x) the remainder of (1) the amount of principal that would have
become due on each scheduled payment date if such prepayment had not been
made, less (2) the amount of principal on the Notes scheduled to become due on
such date after giving effect to such prepayment and the application thereof
in accordance with the provisions of (S)2.1, by (y) the number of years
(calculated to the nearest one-twelfth) which will elapse between the date of
determination and such scheduled payment date, and (ii) totalling the products
obtained in (i).
"Material Adverse Effect" shall mean any material and adverse effect on the
properties, business, prospects, profits or condition (financial or otherwise)
of the Company and its Restricted Subsidiaries, taken as a whole.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Income Available for Fixed Charges" for any period shall mean the sum
of (i) Consolidated Net Income during such period plus (to the extent deducted
in determining Consolidated Net Income), (ii) all provisions for any Federal,
state or other income taxes made by the Company and its Restricted Subsidiaries
during such period, (iii) Fixed Charges of the Company and its Restricted
Subsidiaries during such period and (iv) amortization as reported in the
published financial statements prepared using GAAP. The determination of Net
Income Available for Fixed Charges for any period commencing prior to the date
of the Spin-off shall be made on a pro forma basis for the businesses to
---------
comprise the Company as if the Spin-off had occurred on the last day prior to
the commencement of such period.
"Note Agreement" shall have the meaning set forth in the introductory
paragraphs of this Agreement.
"Original Note Agreement" shall have the meaning set forth in the
introductory paragraphs of this Agreement.
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BEI Technologies, Inc. Assumption Agreement
"Original Notes" shall have the meaning set forth in the introductory
paragraphs of this Agreement.
"Original Series A Notes" shall have the meaning set forth in the
introductory paragraphs of this Agreement.
"Original Series B Notes" shall have the meaning set forth in the
introductory paragraphs of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Preliminary Registration Statement" shall have the meaning set forth in
the introductory paragraphs of this Agreement.
"Priority Obligations" shall mean the aggregate principal amount of (i) all
Indebtedness secured by Liens on property of the Company or any Restricted
Subsidiary other than Liens permitted by paragraphs (a) through (i) of (S)5.9
and (ii) all Current Debt or Funded Debt of Restricted Subsidiaries other than
Indebtedness permitted by clauses (1) and (2) of (S)5.7(b).
"Purchasers" shall have the meaning set forth in (S)1.1.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Restricted Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of
any amounts required to be paid by the Company or a Restricted Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Restricted Investment" shall mean all Investments other than Investments
described in clauses (a) through (i) of (S)5.12.
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BEI Technologies, Inc. Assumption Agreement
"Restricted Subsidiary" shall mean any Subsidiary which is designated as a
Restricted Subsidiary on Annex A to Exhibit B hereto or any newly created or
acquired Subsidiary (i) which is organized under the laws of the United States
or any State thereof, and (ii) which conducts substantially all of its business
and has substantially all of its assets within the United States and (iii) which
is designated by the Company as a Restricted Subsidiary.
"Security" shall have the same meaning as in Section 2(1) of the Securities
Act of 1933, as amended.
"Spin-off" shall have the meaning set forth in the introductory paragraphs
of this Agreement.
The term "subsidiary" shall mean as to any particular parent corporation
any corporation, association or partnership of which more than 50% (by number of
votes) of the Voting Stock shall be beneficially owned, directly or indirectly,
by such parent corporation. The term "Subsidiary" shall mean a subsidiary of
the Company.
"Technologies" shall mean BEI Technologies, Inc., a Delaware corporation,
and any Person who succeeds to all, or substantially all, of the assets and
business of BEI Technologies, Inc.
"Total Capitalization" shall mean the sum of Consolidated Adjusted Tangible
Net Worth and Total Debt.
"Total Debt" of the Company shall mean as of the date of any determination
thereof the sum of all Current Debt of the Company and its Restricted
Subsidiaries and all Consolidated Funded Debt as of such date determined on a
consolidated basis eliminating intercompany items.
"Unrestricted Subsidiary" shall mean any Subsidiary which is not a
Restricted Subsidiary.
"Voting Stock" shall mean Securities of any class or classes, the Holders
of which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and Current
Debt shall be owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of
-----------------------------------
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the
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BEI Technologies, Inc. Assumption Agreement
same shall be done in accordance with GAAP, to the extent applicable, except
where such principles are inconsistent with the requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this Agreement
------------------------------------
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept at its
------------------------------
principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register") and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time any Holder which has been duly registered
as hereinabove provided may transfer its Note upon surrender thereof at the
principal office of the Company duly endorsed or accompanied by a written
instrument of transfer duly executed by such Holder or its attorney duly
authorized in writing.
The Person in whose name any registered Note shall be registered shall be
deemed and treated as the owner and holder thereof and a Holder for all purposes
of this Agreement. Payment of or on account of the principal, premium, if any,
and interest on any registered Note shall be made to or upon the written order
of such Holder.
Section 9.2. Exchange of Notes. At any time and from time to time, upon
-------------------------------
not less than ten days' notice to that effect given by the Holder of any Notes
initially delivered or of any Notes substituted therefor pursuant to (S)9.1,
this (S)9.2 or (S)9.3, and, upon surrender of such Notes at its office, the
Company will deliver in exchange therefor, without expense to such Holder,
except as set forth below, Notes (a) of the same Series as the Notes so tendered
for exchange and (b) for the same principal amount as the then unpaid principal
amount of each of the Notes so surrendered or Notes in the denomination of not
less than 5% of the unpaid principal amount of the outstanding Notes or any
amount in excess thereof as such Holder shall specify. Each Holder agrees that
in the event it shall make any transfer of Notes, such Holder shall transfer a
ratable portion of the Series A Notes held by such Holder and Series B Notes
held by such Holder. Each exchanged Note will be dated as of the date to which
interest has been paid on the Notes so surrendered or, if such surrender is
prior to the payment of any interest thereon, then dated as of the date of
issue, registered in the name of such Person or Persons as may be designated by
such Holder, and otherwise of the same form and tenor as the Notes so
surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge imposed upon such
exchange or transfer. For purposes of this (S)9.2, (x) any affiliated Holder or
Holders or (y) any Holder or Holders who acquire Notes pursuant to an advisory
agreement with a single advisor who has discretion to act on behalf of such
Holder or Holders shall, in each case (x) and (y), be treated as a single
Holder.
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BEI Technologies, Inc. Assumption Agreement
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
----------------------------------------
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the Holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If an Institutional Holder is the owner of any such lost, stolen
or destroyed Note, then the affidavit of an authorized officer of such owner,
setting forth the fact of loss, theft or destruction and of its ownership of
such Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Note other than the written
agreement of such owner to indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the transactions
-------------------------------------------
herein contemplated shall be consummated, the Company agrees to pay directly all
of the Purchasers' reasonable out-of-pocket expenses in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of special counsel to the Purchasers, duplicating and printing
costs and charges for shipping the Notes, adequately insured to each Purchaser's
home office or at such other place as such Purchaser may designate, and all such
expenses of the Holders relating to any amendment, waivers or consents pursuant
to the provisions hereof, including, without limitation, any amendments,
waivers, or consents resulting from any work-out, renegotiation or restructuring
relating to the performance by the Company of its obligations under this
Agreement and the Notes. The Company also agrees that it will pay and save each
Purchaser harmless against any and all liability with respect to stamp and other
taxes, if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Agreement or the Notes,
whether or not any Notes are then outstanding. The Company agrees to protect and
indemnify each Purchaser against any liability for any and all brokerage fees
and commissions payable or claimed to be payable to any Person in connection
with the transactions contemplated by this Agreement. The Company agrees, to the
extent permitted by applicable law, to pay and indemnify each Holder against any
reasonable costs and expenses, including attorneys' fees and disbursements,
incurred by such Holder in evaluating (in connection with any investigation,
litigation or other proceeding involving the Company (including, without
limitation, any threatened investigation or proceeding) relating to this
Agreement or the Notes) and enforcing any rights or remedies under this
Agreement or the Notes or in responding to any subpoena or other legal process
issued in connection with this Agreement or the transactions contemplated hereby
or by reason of any Holder's having acquired any Note, including without
limitation costs and expenses incurred in any bankruptcy case. Without limiting
the foregoing, to the extent permitted by applicable law, the Company also will
pay the reasonable fees, expenses and disbursements of an investment bank or
other firm acting as financial adviser to the Holders of the Notes following the
occurrence and during the continuance of a Default or an Event of Default or in
connection with any such amendment or waiver proposed in connection with any
potential Default or Event of Default or any workout, restructuring or similar
negotiations relating to the Notes.
-34-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
The obligations of the Company under this (S)9.4 shall survive the transfer of
any Note or portion thereof or interest therein by any Holder and the payment of
any Note.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No delay or
--------------------------------------------------------------
failure on the part of any Holder in the exercise of any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of the
same preclude any other or further exercise thereof, or the exercise of any
other power or right, and the rights and remedies of each Holder are cumulative
to, and are not exclusive of, any rights or remedies any such Holder would
otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall be in
---------------------
writing and, if to a Holder, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in each
case addressed to such Holder at its address appearing beneath its signature at
the foot of this Agreement or such other address as any Holder may designate to
the Company in writing, and if to the Company, delivered or mailed by registered
or certified mail or overnight air courier, or by facsimile communication, to
the Company at the address beneath its signature at the foot of this Agreement
or to such other address as the Company may in writing designate to the Holders;
provided, however, that a notice to a Holder by overnight air courier shall only
- -----------------
be effective if delivered to such Holder at a street address designated for such
purpose in accordance with this Section, and a notice to such Holder by
facsimile communication shall only be effective if made by confirmed
transmission to such Holder at a telephone number designated for such purpose in
accordance with this Section and promptly followed by the delivery of such
notice by registered or certified mail or overnight air courier, as set forth
above.
Section 9.7. Successors and Assigns. This Agreement shall be binding upon the
-----------------------------------
Company and its successors and assigns and shall inure to the benefit of each
Purchaser and its successor and assigns, including each successive Holder or
Holders.
Section 9.8. Survival of Covenants and Representations. All covenants,
-------------------------------------------------------
representations and warranties made by Technologies herein and by Electronics
and Technologies in any certificates delivered pursuant hereto, whether or not
in connection with the Closing Date, shall survive the closing and the delivery
of this Agreement and the Notes.
Section 9.9. Severability. Should any part of this Agreement for any reason be
-------------------------
declared invalid or unenforceable, such decision shall not affect the validity
or enforceability of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Agreement without including therein any such part, parts or portion which
may, for any reason, be hereafter declared invalid or unenforceable.
Section 9.10. Governing Law. This Agreement and the Notes issued and sold
---------------------------
hereunder shall be governed by and construed in accordance with Illinois law.
-35-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
Section 9.11. Captions. The descriptive headings of the various
-----------------------
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
-36-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
The execution hereof by the Purchasers shall constitute a contract among
the Company and the Purchasers for the uses and purposes hereinabove set forth.
This Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
Dated as of September 15, 1997.
BEI TECHNOLOGIES, INC.
By________________________________________
Its Senior Vice President and Chief
Financial Officer
By_______________________________________
Its Treasurer, Secretary and Controller
BEI TECHNOLOGIES, INC.
One Post Street - Suite 2500
San Francisco, California 94104
Attention: Chief Financial Officer
-37-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
Accepted as of September 15, 1997:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By________________________________________
Its
By________________________________________
Its
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department - Securities Division
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
With respect to the Series A Notes:
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Mutual Life Insurance Company
Account No. 014752
OBI PFGSE(S)24800()[BEI Technologies, Inc. 7.23% Series A Senior Notes due
October 1, 2000]
With respect to the Series B Notes:
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Mutual Life Insurance Company
Account No. 014752
OBI PFGSE(S)24801()
-38-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
In each case with sufficient information (including interest rate, maturity
date, interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds.
Notices
All notices with respect to payments to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment-Accounting & Treasury-Securities
Telefacsimile: (515) 248-2643
Confirmation: (515) 248-9610
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Tax Identification No.: 42-0127290
-39-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
Accepted as of September 15, 1997:
BERKSHIRE LIFE INSURANCE COMPANY
By___________________________________
Its
BERKSHIRE LIFE INSURANCE COMPANY
700 South Street
Pittsfield, Massachusetts 01201
Attention: Securities Department
Telefacsimile: (413) 443-9397
Telephone: (413) 499-4321
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "BEI
Technologies, Inc., 7.23% Series A Senior Notes due October 1, 2000, PPN 05538P
A*5 or 7.23% Series B Senior Notes due November 15, 2000, PPN 05538P A@3, as the
case may be, principal or interest") to:
The Chase Manhattan Bank, N.A. (ABA #021000021)
One Chase Manhattan Plaza
New York, New York 10081
for credit to: Berkshire Life Insurance Company
Account Number 002-4-020877
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 04-1083480
-40-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
Accepted as of September 15, 1997:
TMG LIFE INSURANCE COMPANY
By: THE MUTUAL GROUP, its Agent
By______________________________
Name:
Title:
By______________________________
Name:
Title:
TMG LIFE INSURANCE COMPANY
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "BEI
Technologies, Inc., 7.23% Series A Senior Notes due October 1, 2000, PPN 05538P
A*5 or 7.23% Series B Senior Notes due November 15, 2000, PPN 05538P A@3, as the
case may be, principal, premium or interest") to:
Federal Reserve Bank Minneapolis
Norwest Bank MN/Trust (ABA #091000019)
Credit Account Number: 08-40-245
For credit to: TMG Life Universal
Account Number 12250600
Contact: Michael Eiynck
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
-41-
<PAGE>
BEI Technologies, Inc. Assumption Agreement
Lisa Harris
The Mutual Group (U.S.)
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Telephone Number: (414) 797-2305
Facsimile Number: (414) 797-2318
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 45-0208990
-42-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NOTES TO BE ACQUIRED
NAMES AND ADDRESSES --------------------------
OF PURCHASERS SERIES A SERIES B
------------------- ----------- ----------
<S> <C> <C>
Principal Mutual Life Insurance
Company $12,000,000 $8,000,000
Berkshire Life Insurance Company $ 960,000 $ 640,000
The Mutual Group $ 480,000 $ 320,000
----------- ----------
Total $13,440,000 $8,960,000
=========== ==========
</TABLE>
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN EXEMPTION FROM SUCH REGISTRATION.
BEI TECHNOLOGIES, INC.
7.23% Series A Senior Note
Due October 1, 2000
PPN: 05538P A/*/5
No. AR-
$_________________ $____________, 19__
BEI Technologies, Inc., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to
or registered assigns
on the first day of October, 2000
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 7.23% per annum from the date hereof until maturity, payable
semiannually on the first day of each April and October in each year (commencing
on the first of such dates after the date hereof) and at maturity. The Company
agrees to pay interest on overdue principal (including any overdue required or
optional prepayment of principal) and premium, if any, and (to the extent
legally enforceable) on any overdue installment of interest, at the rate of
9.23% per annum after the due date, whether by acceleration or otherwise, until
paid. Both the principal hereof and interest hereon are payable at the principal
office of The First National Bank of Chicago, Chicago, Illinois, in coin or
currency of the United States of America which at the time of payment shall be
legal tender for the payment of public and private debts.
This Note is one of the 7.23% Series A Senior Notes due October 1,
2000 of the Company in the aggregate principal amount of $13,440,000 (the
"Series A Notes") issued or to be issued together with the 7.23% Series B Senior
Notes due November 15, 2000 of the
EXHIBIT A-1
[to Assumption Agreement)
<PAGE>
Company in the aggregate principal amount of $8,960,000 (the "Series B Notes")
(the Series A Notes and the Series B Notes are hereinafter collectively referred
to as the "Notes"), under and pursuant to the terms and provisions of the
Assumption Agreement dated as of September 15, 1997 (the "Assumption
Agreement"), entered into by the Company with the original Purchasers therein
referred to, and this Note and the holder hereof are entitled equally and
ratably with the holders of all other Notes outstanding under the Assumption
Agreement to all the benefits provided for thereby or referred to therein.
Reference is hereby made to the Assumption Agreement for a statement of such
rights and benefits.
This Note and the other Notes outstanding under the Assumption
Agreement may be declared due prior to their expressed maturity dates and
certain prepayments are required to be made thereon, all in the events, on the
terms and in the manner and amounts as provided in the Assumption Agreement.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Assumption Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder.
BEI TECHNOLOGIES, INC.
By
-------------------------------
Its
By
-------------------------------
Its
A-1-2
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN EXEMPTION FROM SUCH REGISTRATION.
BEI TECHNOLOGIES, INC.
7.23% Series B Senior Note
Due November 15, 2000
PPN: 05538P A@ 3
No. BR-
$_________________ $____________, 19__
BEI Technologies, Inc., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to
or registered assigns
on the fifteenth day of November, 2000
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 7.23% per annum from the date hereof until maturity, payable
semiannually on the fifteenth day of each May and November in each year
(commencing on the first of such dates after the date hereof) and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 9.23% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of The First National Bank of Chicago, Chicago, Illinois, in
coin or currency of the United States of America which at the time of payment
shall be legal tender for the payment of public and private debts.
This Note is one of the 7.23% Series B Senior Notes due November 15,
2000 of the Company in the aggregate principal amount of $8,960,000 (the "Series
B Notes") issued or to be issued together with the 7.23% Series A Senior Notes
due October 1, 2000 of the
EXHIBIT A-2
[to Assumption Agreement)
<PAGE>
Company in the aggregate principal amount of $13,440,000 (the "Series A Notes")
(the Series B Notes and the Series A Notes are hereinafter collectively referred
to as the "Notes"), under and pursuant to the terms and provisions of the
Assumption Agreement dated as of September 15, 1997 (the "Assumption
Agreement"), entered into by the Company with the original Purchasers therein
referred to, and this Note and the holder hereof are entitled equally and
ratably with the holders of all other Notes outstanding under the Assumption
Agreement to all the benefits provided for thereby or referred to therein.
Reference is hereby made to the Assumption Agreement for a statement of such
rights and benefits.
This Note and the other Notes outstanding under the Assumption
Agreement may be declared due prior to their expressed maturity dates and
certain prepayments are required to be made thereon, all in the events, on the
terms and in the manner and amounts as provided in the Assumption Agreement.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Assumption Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder.
BEI TECHNOLOGIES, INC.
By
-------------------------------
Its
By
-------------------------------
Its
A-2-2
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Purchaser as follows:
1. Subsidiaries. Section B-1 of the Disclosure Letter states
------------
the name of each of the Company's Subsidiaries, its jurisdiction of
incorporation and the percentage of its Voting Stock owned by the Company and/or
its Subsidiaries. Those Subsidiaries listed in paragraph 1 of Section B-1
constitute Restricted Subsidiaries. The Company and each Subsidiary has good
and marketable title to all of the shares it purports to own of the stock of
each Subsidiary, free and clear in each case of any Lien. All such shares have
been duly issued and are fully paid and non-assessable.
2. Corporate Organization and Authority. The Company, and
------------------------------------
each Restricted Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be conducted,
except where the failure of which would not have a Material Adverse
Effect; and
(c) is duly licensed or qualified and is in good standing as
a foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary, except where the
failure of which would not have a Material Adverse Effect.
3. Business and Property. Each Purchaser has heretofore been
---------------------
furnished with a copy of the Preliminary Registration Statement, which generally
sets forth the business conducted and proposed to be conducted by the Company
and its Subsidiaries and the principal properties of the Company and its
Subsidiaries.
4. Financial Statements. (a) The combined balance sheets of
--------------------
the businesses to comprise the Company as of September 28, 1996 and September
30, 1995 and related combined statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 28, 1996,
accompanied by a report thereon containing an opinion unqualified as to scope
limitations imposed by the Company and otherwise without qualification except as
therein noted, by Ernst & Young, LLP, have been prepared in accordance with GAAP
consistently applied except as therein noted, are correct and complete and
present fairly the financial position of the businesses to comprise the Company
and its Subsidiaries as of such dates and the results of their operations and
changes in their financial position or cash flows for such periods. The selected
unaudited pro forma condensed combined statement of operations and balance sheet
--- -----
of the businesses to comprise the Company and its Subsidiaries as of March 29,
1997 and for the six-month period ended
EXHIBIT B
[to Assumption Agreement)
<PAGE>
on said date prepared by the Company have been prepared in accordance with GAAP
consistently applied, are correct and complete and present fairly the financial
position of the businesses to comprise the Company and its Subsidiaries as of
such date and the results of results of their operations and changes in their
financial position or cash flows for such period.
(b) Since September 28, 1996, there has been no change in
the condition, financial or otherwise, of the businesses to comprise the
Company and its consolidated Subsidiaries as shown on the combined
balance sheet as of such date except changes in the ordinary course of
business, none of which individually or in the aggregate has had a
Material Adverse Effect.
5. Indebtedness. Sections 5.7(b)(1) and B-5 of the Disclosure
------------
Letter correctly describe all Current Debt, Funded Debt, Capitalized Leases and
Long-Term Leases of the Company and its Restricted Subsidiaries outstanding on
the Closing Date, giving effect to the consummation of the Spin-off.
6. Full Disclosure. Neither the financial statements referred
---------------
to in paragraph 4 hereof nor the Agreement, the Preliminary Registration
Statement or any other written statement furnished by Electronics or
Technologies to such Purchaser in connection with the negotiation of the
issuance of the Notes, contains any untrue statement of a material fact or omits
a material fact necessary to make the statements contained therein or herein not
misleading. There is no fact peculiar to the Company or its Subsidiaries which
Electronics or Technologies has not disclosed to such Purchaser in writing which
materially affects adversely nor, so far as Technologies can now foresee, will
have a Material Adverse Effect.
7. Pending Litigation. Except as disclosed in Section B-7 of
------------------
the Disclosure Letter, there are no proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company or any Restricted
Subsidiary in any court or before any governmental authority or arbitration
board or tribunal which would reasonably be expected to result in a Material
Adverse Effect.
8. Title to Properties. The Company and each Restricted
-------------------
Subsidiary has good and marketable title in fee simple (or its equivalent under
applicable law) to all material parcels of real property and has good title to
all the other material items of property it purports to own, including that
reflected in the most recent balance sheet referred to in paragraph 4 hereof,
except as sold or otherwise disposed of in the ordinary course of business and
except for Liens permitted by the Agreement.
9. Patents and Trademarks. The Company and each Restricted
----------------------
Subsidiary owns or possesses all the patents, trademarks, trade names, service
marks, copyright, licenses and rights with respect to the foregoing necessary
for the present and planned future conduct of its business, without any known
conflict with the rights of others, which failure to own or possess would have a
Material Adverse Effect.
-2-
<PAGE>
10. Sale is Legal and Authorized. The issuance of the Notes by
----------------------------
the Company and compliance by the Company with all of the provisions of the
Agreement and the Notes --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order
of any court or governmental authority or agency and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Certificate of
Incorporation or By-laws of the Company or any indenture or other
agreement or instrument to which the Company is a party or by which it
may be bound or result in the imposition of any Liens or encumbrances on
any property of the Company; and
(c) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the Company
being required by law, by the Certificate of Incorporation or By-laws of
the Company or otherwise). The Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation, contract and agreement of the Company enforceable in
accordance with its terms. On the Closing Date the Notes will have been
duly executed and delivered by the Company and will constitute the
legal, valid and binding obligations of the Company enforceable in
accordance with their respective terms.
11. No Defaults. No Default or Event of Default has occurred
-----------
and is continuing. The Company is not in default in the payment of principal or
interest on any Funded Debt or Current Debt and is not in default under any
instrument or instruments or agreements under and subject to which any Funded
Debt or Current Debt has been issued, and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
12. Governmental Consent. No approval, consent or withholding
--------------------
of objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the Spin-off or the execution and delivery by the
Company of the Agreement or the Notes or compliance by the Company with any of
the provisions of the Agreement or the Notes.
13. Taxes. All tax returns required to be filed by the Company
-----
or any Restricted Subsidiary and their respective predecessors in any
jurisdiction have, in fact, been filed, and all taxes, assessments, fees and
other governmental charges upon the Company or any Restricted Subsidiary or
their respective predecessors or upon any of their respective properties, income
or franchises, which are shown to be due and payable in such returns have been
paid. For all taxable years ending on or before ______________, the Federal
income tax liability of Electronics and its Subsidiaries has been satisfied and
either the period of limitations on assessment of additional Federal income tax
has expired or Electronics and its Subsidiaries have entered into an agreement
with the Internal Revenue Service closing conclusively the total tax liability
for the taxable year. Technologies does
-3-
<PAGE>
not know of any proposed additional tax assessment against it for which adequate
provision has not been made on its accounts, and no material controversy in
respect of additional Federal or state income taxes due since said date is
pending or to the knowledge of the Company threatened. The provisions for taxes
on the books of the Company and each Restricted Subsidiary are adequate for all
open years, and for its current fiscal period.
14. Private Offering. Neither the Company, directly or
----------------
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar Security or has solicited or will solicit an offer to acquire the
Notes or any similar Security from or has otherwise approached or negotiated or
will approach or negotiate in respect of the Notes or any similar Security with
any Person other than the Purchasers. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar Security or has solicited or will solicit an offer to acquire the
Notes or any similar Security from any Person so as to bring the issuance and
sale of the Notes within the provisions of Section 5 of the Securities Act of
1933, as amended.
15. ERISA. The consummation of the Spin-off and of the
-----
transactions provided for in the Agreement and compliance by the Company with
the provisions thereof and the Notes issued thereunder will not involve any
prohibited transaction within the meaning of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended. Each Plan complies in all material
respects with all applicable statutes and governmental rules and regulations,
and (a) no Reportable Event has occurred and is continuing with respect to any
Plan, (b) neither the Company nor any ERISA Affiliate has withdrawn from any
Plan or Multiemployer Plan or instituted steps to do so, and (c) no steps have
been instituted to terminate any Plan. No condition exists or event or
transaction has occurred in connection with any Plan which could result in the
incurrence by the Company or any ERISA Affiliate of any material liability, fine
or penalty. No Plan maintained by the Company or any ERISA Affiliate, nor any
trust created thereunder, has incurred any "accumulated funding deficiency" as
defined in Section 302 of ERISA nor does the present value of all benefits
vested under all Plans exceed, as of the last annual valuation date, the value
of the assets of the Plans allocable to such vested benefits by an amount
greater than (i) $1,000,000 in the aggregate. Neither the Company nor any ERISA
Affiliate has any contingent liability with respect to any post-retirement
"welfare benefit plan" (as such term is defined in ERISA) except as has been
disclosed to the Purchasers or which would not have a Material Adverse Effect.
16. Compliance with Law. Neither the Company nor any Restricted
-------------------
Subsidiary (a) is in violation of any law, ordinance, franchise, governmental
rule or regulation to which it is subject; or (b) has failed to obtain any
license, permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business, which violation or
failure to obtain would have a Material Adverse Effect or impair the ability of
the Company to perform its obligations contained in the Agreement or the Notes.
Neither the Company nor any Restricted Subsidiary is in default with respect to
any order of any court or governmental authority or arbitration board or
tribunal.
17. Compliance with Environmental Laws. Except as set forth in
----------------------------------
paragraph 6 of Section B-7 of the Disclosure Letter, the Company is not in
violation of any applicable
-4-
<PAGE>
Federal, state, or local laws, statutes, rules, regulations or ordinances
relating to public health, safety or the environment, including, without
limitation, relating to releases, discharges, emissions or disposals to air,
water, land or ground water, to the withdrawal or use of ground water, to the
use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances which
violation could have a material adverse effect on the business, prospects,
profits, properties or condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole. The Company does not know of any
liability or class of liability of the Company or any Restricted Subsidiary
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource
-- ---
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et
--
seq.) which would have a Material Adverse Effect.
- ---
-5-
<PAGE>
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by (S)4.1 of the Assumption Agreement in connection with
the Closing Date, shall be dated the Closing Date and addressed to the
Purchasers, shall be satisfactory in form and substance to the Purchasers and
shall be to the effect that:
1. The Company is a corporation, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power and the corporate authority to execute and deliver the
Assumption Agreement and to issue the Notes.
2. The Assumption Agreement has been duly authorized by
all necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes the legal, valid
and binding agreement of the Company enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being
delivered on the Closing Date have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
4. The issuance and delivery of the Notes issued on the
Closing Date under the circumstances contemplated by the Assumption
Agreement do not, under existing law, require the registration of the
Notes under the Securities Act of 1933, as amended, or the qualification
of an indenture under the Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Cooley Godward LLP is satisfactory in scope and form to Chapman and Cutler and
that, in their opinion, the Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely solely upon an examination of the Certificate of Incorporation
of the Company certified by, and a certificate of good standing of the Company
from, the Secretary of State of the State of Delaware and the By-laws of the
Company.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company.
EXHIBIT C
(to Assumption Agreement)
<PAGE>
DESCRIPTION OF CLOSING OPINION
OF COUNSEL TO THE COMPANY
The closing opinion of Cooley Godward LLP, counsel for the Company,
which is called for by (S)4.1 of the Assumption Agreement in connection with
the Closing Date, shall be dated the Closing Date and addressed to the
Purchasers, shall be satisfactory in scope and form to the Purchasers and shall
be to the effect that:
We have acted as counsel to BEI Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the Assumption Agreement and the
Notes. This opinion is rendered to you in compliance with Section 4.1(b) of the
Assumption Agreement. Capitalized terms used herein without definition have the
same meanings as in the Assumption Agreement.
In our capacity as such counsel, we have examined originals, or copies
identified to our satisfaction as being true copies, of such records, documents
or other instruments as in our judgment are necessary or appropriate to enable
us to render the opinions expressed below. These records, documents and
instruments included the following:
A. The Certificate of Incorporation of the Company, as
amended to date;
B. The Bylaws of the Company, as amended to date;
C. The records of proceedings and actions of the Board
of Directors of the Company relating to the Assumption Agreement and the
transactions contemplated thereby;
D. The Assumption Agreement;
E. The Notes; and
F. The contracts, agreements and instruments involving
the borrowing of money to which the Company is subject or by which the
Company or any of its assets are bound, identified to us by responsible
officers of the Company as being all of such agreements material to the
Company (the "Material Agreements").
With your consent, in connection with this opinion, we have examined
and relied upon the representations and warranties of the Purchasers as to
factual matters contained in and made pursuant to the Assumption Agreement and
upon originals or copies certified to our satisfaction of such records,
documents, certificates, opinions, memoranda and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expressed below.
In rendering this opinion, we have assumed the genuineness and
authenticity of all signatures on original documents (other than the signatures
of the Company on the Assumption Agreement and the Notes); the authenticity of
all documents submitted to us as
EXHIBIT D
(to Assumption Agreement)
<PAGE>
originals; the conformity to originals of all documents submitted to us as
copies; the accuracy, completeness and authenticity of certificates of public
officials; and the due authorization, execution and delivery of all documents
(except the due authorization, execution and delivery by the Company of the
Assumption Agreement and the Notes) where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed
that all individuals executing and delivering documents in their individual
capacity had the legal capacity to so execute and deliver; that the Assumption
Agreement is an obligation binding upon you; and that there are no extrinsic
agreements or understandings among the parties to the Assumption Agreement that
would modify or interpret the terms of the Assumption Agreement or the
respective rights or obligations of the parties thereunder.
Our opinion is expressed with respect only to United States federal
law, the laws of the State of California (without regard to laws regarding
choice of applicable law) and the General Corporation Law of the State of
Delaware. We express no opinion as to whether the laws of any particular
jurisdiction apply.
With regard to our opinion in paragraph III below, we have, with your
permission, assumed that Illinois law is same in all material respects as
California law.
Except as set forth in paragraphs IV and VI, we express no opinion
relative to the applicability or effect of any law, rule or regulation relating
to securities or to the sale or issuance thereof.
With regard to our opinion in paragraph V below with respect to
conflicts, breaches or defaults under the Material Agreements, we have relied
solely upon (a) inquiries of officers of the Company, (b) a list supplied to us
by the Company, a copy of which has been supplied to your counsel, Chapman and
Cutler, of the Material Agreements, and (c) an examination of the items on the
aforementioned list; we have made no further investigation.
We express no opinion as to the applicability or effect of any rule or
regulation relating to fraudulent transfers.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that:
I. The Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to execute and perform the
Assumption Agreement and to issue the Notes and to own and operate its
properties and to carry on business and is duly qualified as a foreign
corporation to do business in California.
II. The Assumption Agreement and the Notes have been duly
authorized by all necessary corporate action on the part of the Company,
and have been duly executed and delivered by the Company and constitute
the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as
enforceability may be subject to or limited by (i) general
D-2
<PAGE>
equity principles and to limitations on the availability of equitable
relief including specific performance; (ii) the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the rights of creditors generally; and (iii)
limitations on a borrower's ability to waive rights or benefits given by
statute or otherwise, but in our view such limitations will not, subject
to the other exceptions, qualifications and limitations in this letter,
render the Assumption Agreement or the Notes invalid as a whole or
substantially interfere with the realization of the principal benefits
provided by the Assumption Agreement and the Notes.
III. No governmental consents, approvals, authorizations,
registrations, declarations or filings on the part of the Company are
required under United States federal law or the laws of the State of
California for the due execution and delivery by the Company of the
Assumption Agreement or the Notes.
IV. The issuance of the Notes issued on the date hereof and
the execution, delivery and performance by the Company of the Assumption
Agreement do not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the creation or
imposition of any Lien upon any of the property of the Company pursuant
to the provisions of its Certificate of Incorporation or bylaws or any
of the Material Agreements.
VI. The offer and issuance of the Notes is exempt from the
registration requirements of the Securities Act of 1933, as amended, and
does not require the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
VII. The Spin-off has been consummated.
This opinion is rendered only to the Purchasers and is solely for
their benefit in connection with the above transactions. This opinion may not
be relied upon by any other person, firm or corporation for any purpose without
our prior written consent. You may, however, deliver a copy of this opinion to
transferees of the Notes in connection with such transfer and they may rely upon
it as if it were addressed and had been delivered to them on the date hereof.
D-3
<PAGE>
EXHIBIT 10.4
EXECUTION VERSION
CREDIT AGREEMENT
DATED AS OF SEPTEMBER 27, 1997
AMONG
BEI TECHNOLOGIES, INC.
AS BORROWER
BEI SENSORS & SYSTEMS COMPANY, INC.,
AS BORROWER
DEFENSE SYSTEMS COMPANY, INC.,
AS SUBSIDIARY GUARANTOR
THE LENDERS LISTED HEREIN,
AS LENDERS
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
AS AGENT
CANADIAN IMPERIAL BANK OF COMMERCE,
AS DESIGNATED ISSUER
AND
CIBC WOOD GUNDY SECURITIES CORP.,
AS ARRANGER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1 Defined Terms..................................................... 1
1.2 Other Definitional Provisions..................................... 14
ARTICLE II
THE LOANS
2.1 The Revolving Loans............................................... 15
2.2 Repayment......................................................... 17
2.3 Interest Rate and Payment Dates................................... 18
2.4 Continuation and Conversion Options............................... 19
2.5 Letters of Credit................................................. 20
</TABLE>
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
<TABLE>
<CAPTION>
<C> <S> <C>
3.1 Use of Proceeds.................................................. 25
3.2 Post Maturity Interest........................................... 25
3.3 Computation of Interest.......................................... 25
3.4 Payments......................................................... 25
3.5 Payment on Non-Business Days..................................... 26
3.6 Reduced Return................................................... 26
3.7 Indemnities...................................................... 27
3.8 Funding Sources.................................................. 28
3.9 Taxes............................................................ 28
3.10 Sharing of Payments Etc.......................................... 31
3.11 Inability to Determine Interest Rate............................. 31
3.12 Illegality....................................................... 32
3.13 Change of Booking Office......................................... 32
3.14 Right to Replace Lender.......................................... 32
</TABLE>
ARTICLE IV
CONDITIONS OF LENDING
<TABLE>
<CAPTION>
<S> <C> <C>
4.1 Conditions Precedent to Initial Loans............................ 33
4.2 Conditions Precedent to Each Borrowing........................... 34
4.3 Conditions Precedent to Each Letter of Credit.................... 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.................................... 35
</TABLE>
1.1-i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
COVENANTS
<S> <C> <C>
6.1 Affirmative Covenants............................................. 38
6.2 Negative Covenants................................................ 42
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default................................................. 47
</TABLE>
ARTICLE VIII
GUARANTEE
<TABLE>
<CAPTION>
<S> <C> <C>
8.1 Guarantee......................................................... 50
8.2 No Subrogation, Contribution, Reimbursement or
Indemnity......................................................... 50
8.3 Amendments Etc., with Respect to the Obligations.................. 51
8.4 Guarantee Absolute and Unconditional.............................. 51
8.5 Reinstatement..................................................... 53
</TABLE>
ARTICLE IX
THE AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
9.1 Authorization and Action.......................................... 53
9.2 Agent's Reliance, Etc............................................. 54
9.3 Canadian Imperial Bank of Commerce. and Affiliates................ 54
9.4 Lender Credit Decision............................................ 54
9.5 Indemnification................................................... 55
9.6 Successor Agent................................................... 55
</TABLE>
ARTICLE X
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C> <C>
10.1 Amendment. Etc.................................................... 56
10.2 Notices. Etc...................................................... 56
10.3 Right of Setoff; Deposit Accounts................................. 56
10.4 No Waiver; Remedies............................................... 57
10.5 Costs and Expenses................................................ 57
10.6 Additional Lenders; Assignments: Participations................... 57
10.7 Effectiveness; Binding Effect; Governing Law...................... 59
10.8 Waiver of Jury Trial.............................................. 60
10.9 Consent to Jurisdiction; Venue; Agent for Service of Process...... 60
10.10 Entire Agreement.................................................. 61
10.11 Separability of Provisions........................................ 61
10.12 Obligations Several............................................... 61
</TABLE>
1.1-ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.13 Survival of Certain Agreements................................... 61
10.14 Execution in Counterparts........................................ 61
EXHIBIT A [FORM OF PROMISSORY NOTE]........................................ A-1
EXHIBIT B [FORM OF NOTICE OF BORROWING].................................... B-1
EXHIBIT C [FORM OF NOTICE OF CONVERSION/CONTINUATION]...................... C-1
EXHIBIT D [FORM OF COMPLIANCE CERTIFICATE]................................. D-1
EXHIBIT E [FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT].................... E-1
</TABLE>
1.1-iii
<PAGE>
CREDIT AGREEMENT
----------------
This Credit Agreement dated as of September 27, 1997 and effective as
of the Effective Date is entered into among BEI Technologies, Inc., a Delaware
corporation and BEI Sensors & Systems Company, Inc., a Delaware corporation
(each a "Borrower" and collectively the "Borrowers"), Defense Systems Company,
-------- ---------
Inc., a Delaware corporation (the "Subsidiary Guarantor"), the financial
--------------------
institution named on the signature pages hereof (each a "Lender" and
------
collectively the "Lenders"), Canadian Imperial Bank of Commerce, New York
-------
Agency, as Agent for the Lenders (the "Agent"), and Canadian Imperial Bank of
-----
Commerce, as the designated issuer of letters of credit hereunder.
RECITALS
The Borrowers desire that the Lenders extend certain credit facilities
to the Borrowers for working capital and other general corporate purposes; and
WHEREAS, the Lenders desire to extend certain credit facilities to the
Borrowers on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrowers, the Lenders, the Agent
and Canadian Imperial Bank of Commerce agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
have the following meanings:
"Acquisition": As defined in Section 6.2(i).
-----------
"Adjusted Consolidated Net Losses": For any period, the sum of the
--------------------------------
amounts for such period of (i) Consolidated Net Loss, plus (ii) any expenses or
----
charges related to the discontinued operations of Defense Systems Company, Inc.,
but not in excess of $3,500,000, all of the foregoing as determined on a
consolidated basis for BEI and its consolidated Subsidiaries in accordance with
GAAP.
"Affiliate": As applied to any Person, any Person directly or
---------
indirectly controlling, controlled by or under common control with, that Person.
For the purposes of this definition, "control" (including with the correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"),
<PAGE>
as applied to any Person, means the possession, directly or indirectly, of power
to direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agent": As defined in the introductory paragraph of this Agreement.
-----
"Agreement": This Credit Agreement, as amended, supplemented or
---------
modified from time to time.
"Applicable Margin": With respect to any Eurodollar Rate Loan at any
-----------------
time, the per annum margin which is determined pursuant to the Pricing Grid and
added to the Eurodollar Rate with respect to each Eurodollar Rate Loan. The
Applicable Margins shall be determined as provided in the Pricing Grid and may
change for each Pricing Period.
"Assignment and Acceptance Agreement": An Assignment and Acceptance
-----------------------------------
Agreement substantially in the form of Exhibit E.
"Available Revolving Commitment: At any time, the Revolving Loan
------------------------------
Commitment minus the sum of (i) the aggregate principal amount of outstanding
Revolving Loans, plus (ii) the Letter of Credit Usage plus (iii) the aggregate
---- ----
principal amount outstanding under the Prior Credit Agreement.
"Base Rate": The higher of (i) the rate of interest announced from
---------
time to time by Canadian Imperial Bank of Commerce in New York, New York as its
Prime Commercial Lending Rate or (ii) the sum of one-half of one percent (1/2 of
1%) plus the Federal Funds Rate on the day prior to the date on which the Base
----
Rate is to be determined. The Prime Commercial Lending Rate is a reference
rate; the Agent and Canadian Imperial Bank of Commerce may make loans at, above
or below the Prime Commercial Lending Rate.
"Base Rate Loans": Loans hereunder at such time as they accrue
---------------
interest at a rate based upon the Base Rate.
"BEI": BEI Technologies, Inc., a Delaware corporation.
---
"Borrower" and "Borrowers": As defined in the introductory paragraph
-------- ---------
of this Agreement.
"Borrowing": As defined in Section 2.1.
---------
"Business Day": A day other than a Saturday, Sunday or day on which
------------
commercial banks in New York, New York are authorized or required by law to
close.
"Capital Lease": As applied to any Person, any lease of any property
-------------
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be
2
<PAGE>
accounted for as a capital lease on the balance sheet of that Person.
"Cash Equivalents" shall mean:
----------------
(a) Direct obligations of, or obligations the principal and
interest on which are unconditionally guaranteed by, the United States
of America or obligations of any agency of the United States of America
to the extent such obligations are backed by the full faith and credit
of the United States of America, in each case maturing within one year
from the date of acquisition thereof;
(b) Certificates of deposit maturing within one year from the date
of acquisition thereof issued by a commercial bank or trust company
organized under the laws of the United States of America or a state
thereof or that is a Lender, provided that (A) such deposits are
denominated in Dollars, (B) such bank or trust company has capital,
surplus and undivided profits of not less than $100,000,000 and (C)
such bank or trust company has certificates of deposit or other debt
obligations rated at least A-1 (or its equivalent) by Standard and
Poor's Ratings Group or P-1 (or its equivalent) by Moody's Investors
Service, Inc.;
(c) Open market commercial paper maturing within 270 days from the
date of acquisition thereof issued by a corporation organized under the
laws of the United States of America or a state thereof, provided such
commercial paper is rated at least A-1 (or its equivalent) by Standard
and Poor's Ratings Group or P-1 (or its equivalent) by Moody's
Investors Service, Inc.; and
(d) Any repurchase agreement entered into with a commercial bank
or trust company organized under the laws of the United States of
America or a state thereof or that is a Lender, provided that (A) such
bank or trust company has capital, surplus and undivided profits of not
less than $100,000,000, (B) such bank or trust company has certificates
of deposit or other debt obligations rated at least A-1 (or its
equivalent) by Standard and Poor's Ratings Group or P-1 (or its
equivalent) by Moody's Investors Service, Inc., (C) the repurchase
obligations of such bank or trust company under such repurchase
agreement are fully secured by a perfected security interest in a
security or instrument of the type described in clause (i), (ii) or
-------------------
(iii) above and (D) such security or instrument so securing the
-----
repurchase obligations has a fair market value at the time such
repurchase agreement is entered into of not less than 100% of such
repurchase obligations.
3
<PAGE>
"Closing Date": The date, after the Effective Date, on which the
------------
initial Loans are made.
"Commitment": The obligation of each Lender to make Loans to the
----------
Borrowers, and to reimburse the Issuing Bank for the unreimbursed portion of
Letters of Credits, each pursuant to Article II in the amount or amounts
referred to therein.
"Commitment Fee Percentage": With respect to the daily unused portion
-------------------------
of the Revolving Commitment, a per annum rate which is determined pursuant to
the Pricing Grid.
"Compliance Certificate": A Compliance Certificate substantially in
----------------------
the form of Exhibit C.
"Consolidated Capital Expenditures": For any period, the dollar amount
---------------------------------
of purchases of property, plant and equipment reflected in the consolidated
statement of cash flow of BEI and its consolidated Subsidiaries for such period,
excluding, however, expenditures of insurance proceeds received as the result of
drainage or destruction of the property being replaced.
"Consolidated EBITDA": For any period, the sum of the amounts for such
-------------------
period of four consecutive fiscal quarters, without duplication, (i)
Consolidated Net Income (or Consolidated Net Losses), plus (ii) Consolidated
----
Interest Expense, plus (iii) provisions for taxes based on income, plus (iv)
---- ----
depreciation expense, plus (v) amortization expense, plus (vi) the lesser of
---- ----
(A) all out-of-pocket expenses incurred during calendar year 1997 in connection
with the creation of BEI and the divestiture of BEI Sensors & Systems Company,
Inc. and Defense Systems Company from BEI Electronics, Inc. and (B) $1,250,000.
"Consolidated Interest Expense": For any period, all interest expense
-----------------------------
(including that attributable to Capital Leases in accordance with GAAP) of BEI
and its consolidated Subsidiaries during such period with respect to all Debt of
BEI and its consolidated Subsidiaries, excluding all capitalized interest.
"Consolidated Net Income": For any period, the net income (or loss)
-----------------------
after income taxes for such period of BEI and its consolidated Subsidiaries on a
consolidated basis determined in accordance with GAAP.
"Consolidated Net Losses": For any period, the net loss after income
-----------------------
taxes for such period of BEI and its consolidated Subsidiaries on a consolidated
basis determined in accordance with GAAP.
"Consolidated Tangible Net Worth": For any period, the sum of
-------------------------------
stockholders' equity of BEI and its consolidated Subsidiaries less Intangible
----
Assets as shown on the consolidated balance sheet of BEI and its consolidated
Subsidiaries; provided, however that Intangible Assets acquired after
-------- -------
September 27, 1997
4
<PAGE>
in an aggregate amount not to exceed $2,000,000 shall not be included in the
calculation of Intangible Assets.
"Contingent Obligation": As applied to any Person, any direct or
---------------------
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Debt, lease, dividend or other obligation of another Person if the primary
purpose or intent thereof by the Person including the Contingent Obligation is
to provide assurance that such obligation of another will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such obligation will be protected (in whole or in part) against loss
in respect thereof, (ii) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, or (iii) with respect to any Interest Rate Agreements
or Currency Agreements. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payment if required regardless of nonperformance by any
other party or parties to an agreement, and (c) any liability of that Person for
the obligation of another through any agreement (contingent or otherwise) (x) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclause (x) or (y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Currency Agreement": As applied to any Person, any foreign exchange
------------------
contract, currency swap agreement, futures contract, option contract, synthetic
cap or other similar agreement or arrangement designed to protect that Person
against fluctuations in currency values.
"Debt": As applied to any Person, (i) all indebtedness for borrowed
----
money, (ii) that portion of obligations with respect to Capital leases which is
properly classified as a liability on a balance sheet in accordance with GAAP,
(iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
which purchase price is (a) due more than twelve months from the date of
incurrence of the obligation in respect hereof, or (b) evidenced by a note or
similar written
5
<PAGE>
instrument and (v) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non recourse to the credit
of that Person.
"Debt/Consolidated EBITDA Ratio": As applied to BEI and its
------------------------------
consolidated Subsidiaries at the end of any fiscal quarter of BEI, the ratio,
determined on a consolidated basis in accordance with GAAP, of (a) the Debt of
BEI and its Consolidated Subsidiaries at such time to (b) the Consolidated
EBITDA for the consecutive four-quarter period which ended on the last day of
such fiscal quarter.
"Designated Issuer": Canadian Imperial Bank of Commerce, or such other
-----------------
Lender as is designated by BEI and approved by Agent.
"Disclosure Letter": The Disclosure Letter dated as of September 27,
-----------------
1997 delivered by the Borrowers and the Subsidiary Guarantor to the Agent and
each Lender prior to the execution and delivery of this Agreement.
"Dollars and $": Dollars in lawful currency of the United States of
-------------
America.
"Effective Date": The day after the date of distribution of the stock
--------------
of the Borrowers to the shareholders of BEI Electronics, Inc.
"Employee Benefit Plan": Any Pension Plan, any employee welfare
---------------------
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of any of the Borrowers or
any ERISA Affiliate of any of the Borrowers.
"Equity Issuance": As applied to any Person, the sale or issuance by
---------------
such Person of (i) any capital stock of such Person, (ii) any options, warrants
or other similar rights exercisable in respect of such capital stock, or (iii)
any other security or instrument representing an equity interest (or the right
to obtain an equity interest) in such Person.
"ERISA": The Employee Retirement Income Security Act of 1974, as
-----
amended from tone to time and any successor statute.
"ERISA Affiliate": As applied to any Person, (i) any corporation which
---------------
is, or was at any time, a member of a controlled group of corporations within
the meaning of Section 414(b) of the Internal Revenue Code of which that Person
is, or was at any time, a member; (ii) any trade or business (whether or not
incorporated) which is, or was at any time, a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the
Internal Revenue Code of which that Person is, or was at any time, a member; and
(iii) any
6
<PAGE>
member of an affiliated service group within the meaning of Section 414(m) or
(o) of the Internal Revenue Code of which that Person, any corporation described
in clause (i) above or any trade or business described in clause (ii) above is,
or was at any time, a member.
"ERISA Event": (i) The occurrence of an act or omission which could
-----------
give rise to the imposition on BEI or any of its ERISA Affiliates of fines,
penalties, taxes or related charges under Chapter 43 of the Internal Revenue
Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of
any Employee Benefit Plan; (ii) the assertion of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against BEI or any of its ERISA
Affiliates in connection with any such Employee Benefit Plan; or (iii) receipt
from the Internal Revenue Service of notice of the failure of any Employee
Benefit Plan intended to be qualified under Section 401(a) of the Internal
Revenue Code to qualify under Section 401(a) of the Internal Revenue Code, or
the failure of any trust forming part of any Employee Benefit Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code.
"Eurodollar Business Day": A day which is a Business Day and a day on
-----------------------
which dealings in Dollar deposits may be carried out in the London interbank
market.
"Eurodollar Rate": For each Interest Period, the rate equal to (a)(i)
---------------
the rate of interest per annum determined by the Agent to be the rate of
interest per annum appearing on the Telerate display page 3750 (or such other
display page on the Telerate System as may replace such page) for Dollar
deposits in an amount substantially equal to the proposed Eurodollar Rate Loan
to be made, continued or converted by the Agent, in its individual capacity, and
having a maturity comparable to such Interest Period, at approximately 11:00
a.m. (London time) two (2) Eurodollar Business Days prior to the commencement of
such Interest Period, subject to clause (ii) below; or (ii) if for any reason
the rate is not available as provided in the preceding clause (i), the
"Eurodollar Rate" instead means the rate of interest per annum determined by the
Agent, on the basis of quotations furnished to it by the Lenders to be the
average (rounded upward, if necessary, to the nearest 1/16 of 1 percent) of the
rates in which deposits in Dollars are offered to prime banks by the principal
office of such Lenders in the London interbank market, at approximately 11:00
a.m. (London time), two (2) Eurodollar Business Days before the first day of
such Interest Period, in an approximate amount of the Eurodollar Rate Loan to be
made by the Lenders and for a period of time comparable to such Interest Period,
divided by (B) a number equal to 100 minus the aggregate (but without
-----
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Eurodollar Business Days
7
<PAGE>
following such payment (including basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect thereto,
as in effect at the time the Agent quotes the rate to the Borrowers) for the
Eurocurrency funding of domestic assets (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) which are required to be maintained
by a member bank of such System (such rate to be adjusted to the next higher
1/16 of 1%). If a Lender does not provide its offered quotation to the Agent,
the Eurodollar Rate shall be determined on the basis of the rates quoted by the
remaining Lenders. The determination of the Eurodollar Rate by the Agent shall
be conclusive in the absence of manifest error.
"Eurodollar Rate Loans": Loans hereunder at such time as they accrue
---------------------
interest at a rate based upon the Eurodollar Rate.
"Eurodollar Reinvestment Rate": In the event of a claim under clause
----------------------------
(iv) of Section 3.7(b) as a result of payment of a Eurodollar Rate Loan on a day
other than the last day of the Interest Period for such Loan, (i) the rate of
interest determined by the Agent to be the interest rate per annum at which U.S.
dollar deposits for the period of time approximately equal to the period
remaining on the then applicable Interest Period and in the approximate amount
of the payment made pursuant to clause (iv) would be offered by the Agent to
prime banks in the interbank Eurodollar market as of 11:00 A.M., New York time,
on the day which is two (2) Eurodollar Business Days following such payment,
divided by (ii) a number equal to 100 minus the aggregate (but without
- ---------- -----
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Eurodollar Business Days
following such payment (including basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect thereto,
as in effect at the time the Agent quotes the rate to the Borrowers) for the
Eurocurrency funding of domestic assets (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) which are required to be maintained
by a member bank of such System (such rate to be adjusted to the next higher
1/16 of 1%).
"Federal Funds Rate": On any day, a fluctuating interest rate per
------------------
annual equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
8
<PAGE>
"GAAP": Generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession and as reflected in the audited financial statements of BEI and its
consolidated Subsidiaries accompanied by an unqualified report and opinion
thereon of nationally recognized independent certified public accountants.
"Guarantor": As defined in Section 8.1.
---------
"Intangible Assets": At any date of determination, all amount included
-----------------
in Other Non Current Assets on the consolidated financial statements of BEI and
its consolidated Subsidiaries, including all goodwill, patents, copyrights,
trademarks, tradenames, acquired technology or similar items, but excluding land
and buildings held for expansion, investments in stock of other companies, long
term deposits and any other tangible assets.
"Interest Payment Date": As to any Base Rate Loan until payment in
---------------------
full, the last day of each March, June, September and December, commencing on
the first of such days to occur after such Base Rate Loan is made, and the
Maturity Date. As to any Eurodollar Rate Loan with an Interest Period of three
months or less until payment in full, the last day of such Interest Period and
the Maturity Date, and as to any Eurodollar Rate Loan with an Interest Period in
excess of three months until payment in full, (i) the same day of each three
months following the beginning of such Interest Period, (ii) the last day of
such Interest Period and (iii) the Maturity Date.
"Interest Period": With respect to any Eurodollar Rate Loan:
---------------
(i) initially, the period commencing on, as the case may be, the
Borrowing or conversion date with respect to such Eurodollar Rate Loan and
ending one, two, three or six months thereafter as selected by the Borrower
requesting the Eurodollar Rate Loan in its Notice of Borrowing as provided in
Section 2.1(b) or its Notice of Conversion/Continuation as provided in Section
2.4; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Rate Loan and ending
one, two, three or six months thereafter as selected by the Borrower requesting
the Eurodollar Rate Loan in its Notice of Conversion/Continuation as provided in
Section 2.4; provided, that all of the foregoing provisions relating to Interest
--------
Periods are subject to the following:
9
<PAGE>
(a) if any Interest Period for a Eurodollar Rate Loan would
otherwise end on a day which is not a Eurodollar Business Day, that Interest
Period shall be extended to the next succeeding Eurodollar Business Day unless
the result of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the immediately
preceding Eurodollar Business Day;
(b) no Borrower may select an Interest Period with respect to
any portion of principal of a Eurodollar Rate Loan which extends beyond a date
on which such Borrower is required to make a scheduled payment of that portion
of principal; and
(c) there shall be no more than six Interest Periods with
respect to Eurodollar Rate Loans outstanding at any time.
"Interest Rate Agreement": As applied to any Person, an interest rate
-----------------------
swap, cap or collar agreement or solar arrangement designed to protect that
Person against fluctuations in interest rates.
"Internal Revenue Code": The Internal Revenue Code of 1986, as amended
---------------------
to the date hereof and from time to time thereafter.
"Investment": As applied to any Person, (i) any direct or indirect
----------
purchase or other acquisition of, or of a beneficial interest in, capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of, another Person, or (ii) any direct or indirect loan, extension of
credit, advance (other than advances to employees for moving, entertainment and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution to any other Person, including all
indebtedness and accounts receivable from the other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
investment plus the cost of all additions thereto, without any adjustment for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issuing Bank": The Designated Issuer as issuer of any Letter of
------------
Credit hereunder.
"Lender" and "Lenders": As defined in the introductory paragraph of
------ -------
this Agreement.
"Letter of Credit" or "Letters of Credit": Any standby letter of
---------------- -----------------
credit or similar instrument issued or to be issued by the Issuing Bank, in
Dollars, for the account of a Borrower pursuant to Section 2.5 for the purpose
of supporting performance
10
<PAGE>
bonds or other obligations incurred in the ordinary course of business.
"Letter of Credit Usage": At any date of determination, the sum of (i)
----------------------
the maximum aggregate amount that is or at any time thereafter may become
available for drawing under all Letters of Credit then outstanding and (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Issuing
Bank and not theretofore reimbursed by the Borrowers.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Loans": Revolving Loans, in Dollars, made to a Borrower pursuant to
-----
Section 2.1.
"Loan Documents": This Agreement, the Notes, the Letters of Credit and
--------------
each letter of credit application, guaranty and other document required by the
Agent or any Lender in connection with this Agreement and/or the credit extended
hereunder.
"Majority Lenders": As of any date of determination, Lenders owed at
----------------
least fifty-one percent (51%) of the then aggregate unpaid principal amount of
the Notes, or, if no unpaid principal amount of the Notes is outstanding, then
lenders having at least fifty-one percent (51%) of the Commitments.
"Maturity Date": September 27, 2000.
-------------
"Multi-employer Plan": A "multi employer plan" as defined in Section
-------------------
4001(a)(3) of ERISA which is maintained for employees of any Borrower or any
ERISA Affiliate of any Borrower.
"Net Proceeds": With respect to any Equity Issuance, the gross
------------
proceeds received by the issuer from the issuance less all legal and accounting
expenses, commissions and other fees and expenses incurred or to be incurred and
all federal, state, local and foreign taxes assessed in connection therewith.
"Notice of Borrowing": A notice substantially in the form of
-------------------
Exhibit B.
"Notice of Conversion/Continuation": A notice substantially in the
---------------------------------
form of Exhibit C.
"Note" and "Notes": The Revolving Notes.
---- -----
"Obligations": All obligations of the Borrowers from time to time owed
-----------
to the Agent, the Lenders or any of them under
11
<PAGE>
the Loan Documents, whether for principal, interest, fees, expenses,
indemnification or otherwise.
"Other Taxes": As defined in Section 3.9.
-----------
"Pension Plan": Any employee plan which is subject to Section 412 of
------------
the Internal Revenue Code and which is maintained for employees of any Borrower
or any ERISA Affiliate of any Borrower, other than a Multiemployer Plan.
"Permitted Liens": The following types of Liens (other than any such
---------------
Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue
Code or by ERISA):
(i) Liens for taxes, assessments or governmental charges or claims to
the extent not yet delinquent or being contested in good fain and for which
appropriate reserves have been made in accordance with GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehouse men,
mechanics and material men and other Liens imposed by law incurred in the
ordinary course of business securing obligations that are not yet delinquent or
are being contested in good faith and for which appropriate reserves have been
made in accordance with GAAP;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(iv) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not interfering in any material respect with the use or
value of such property;
(v) any attachment or judgment lien not constituting an Event of
Default under Section 7.1(h);
(vi) Liens which constitute rights of set-off of a customary nature or
bankers' Liens with respect to amounts on deposit, arising by operation of law;
and
(vii) Liens relating to advance or progress payments under government
contracts; provided any such Lien encumbers only the inventory purchased with
such advance or progress payments.
"Person": An individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated
12
<PAGE>
association, joint venture, governmental authority or other entity of whatever
nature.
"Potential Event of Default": A condition or event which, after notice
--------------------------
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Pricing Grid: Schedule 1.1.
------------
"Pricing Period": (a) The period commencing on the date of this
--------------
Agreement and ending on December 31, 1997, and (b) each of the following time
periods:
(i) January 1st through and including February 28th or 29th
(as applicable);
(ii) March 1st through and including May 31st;
(iii) June 1st through and including August 31st; and
(iv) September 1st through and including December 31st.
"Prior Credit Agreement": Credit Agreement dated as of June 1, 1993,
----------------------
(as amended), by and among the BEI Sensors & Systems Company, Inc., the lenders
named therein, CIBC Inc., and Canadian Imperial Bank of Commerce.
"Quick Ratio": As applied to BEI and its consolidated Subsidiaries at
-----------
any time, the ratio, determined on a consolidated basis in accordance with GAAP,
of:
(a) The sum at such time of all (i) cash of BEI and its
consolidated Subsidiaries; (ii) Cash Equivalents of BEI and its
consolidated Subsidiaries; and (iii) accounts receivable of BEI and its
consolidated Subsidiaries, less all reserves therefor; provided,
--------
however, that in computing the foregoing sum, there shall be excluded
-------
therefrom any cash, Cash Equivalent or accounts receivable subject to a
security interest in favor of any Person other than any Lender;
to
--
(b) The current liabilities of BEI and its consolidated
Subsidiaries as reported in the financial statements of BEI in
accordance with GAAP.
13
<PAGE>
"Regulations G, T, U and X": Regulations G, T, U and X, respectively,
-------------------------
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"Requirement": As defined in Section 3.6.
-----------
"Revolving Commitment": The amount of $25,000,000 as such amount may
--------------------
be reduced pursuant to Sections 2.1(c). The initial Commitment of each Lender
is set forth opposite such Lender's name on the signature page hereof. As of
the Maturity Date, the Lenders' obligation to make Revolving Loans after such
date shall expire and the amount of the Revolving Commitment shall be reduced to
an amount equal to the Letter of Credit Usage as at such date.
"Revolving Loans": As defined in Section 2.1(a).
---------------
"Revolving Note": As defined in Section 2.1(d).
--------------
"S.E.C.": The United States Securities and Exchange Commission and any
------
successor institution or body which performs the functions or substantially all
of the functions thereof.
"Subsidiary": A corporation, partnership, association, joint venture
----------
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of Person or Persons
(whether directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the management
and policies thereof are at the time owned, directly, or indirectly through one
or more intermediaries, or both, by any Borrower.
"Subsidiary Guarantor": As defined in the introductory paragraph of
--------------------
this Agreement.
"Taxes": As defined in Section 3.9.
-----
1.2 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
Section 1.1, and accounting terms partly defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this
14
<PAGE>
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.
(d) The terms defined in Section 1.1 include the plural as well as the
singular. Pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms. The terms "includes" and "including" shall not be
construed to imply any limitation.
ARTICLE II
THE LOANS
2.1 The Revolving Loans.
-------------------
(a) The Revolving Commitment. Each Lender agrees, severally and
------------------------
not jointly, on the terms and conditions hereinafter set forth, to make loans
("Revolving Loans") to the Borrowers from time to time during the period from
---------------
the date hereof to and including the Maturity Date in an aggregate amount not to
exceed the amount set opposite such Lenders name on the signature pages hereof,
as such amount may be reduced pursuant to Sections 2.1(c). Each borrowing under
this Section 2.1(a) (a "Borrowing") shall be in a minimum amount of $500,000 or
---------
in an integral multiple of $100,000 in excess hereof; provided that a Eurodollar
Rate Loan shall be in a minimum amount of $1,000,000 or in an integral multiple
of $1,000,000 in excess hereof. Each Borrowing shall be made on the same day by
the Lenders ratably according to their respective Commitments. Within the
limits of the Revolving Commitment and prior to the Maturity Date, the Borrowers
may borrow, repay pursuant to Section 2.2(b) and reborrow under this Section;
provided that at no time shall the sum of (i) the aggregate principal amount of
outstanding Revolving Loans plus (ii) the Letter of Credit Usage exceed the
----
Available Revolving Commitment at such time.
(b) Making the Revolving Loans.
--------------------------
(i) The Borrowers may borrow under the Revolving Commitment
on any Business Day if the Borrowing is to consist of a Base Rate Loan and on
any Eurodollar Business Day if the Borrowing is to consist of a Eurodollar Rate
Loan. Whenever the Borrowers desire that the Lenders make Revolving Loans
hereunder they shall deliver an irrevocable Notice of Borrowing to the Agent no
later than 12:30 P.M., New York time, (i) three (3) Eurodollar Business Days
prior to the requested Borrowing date in the case of a Eurodollar Rate Loan and
(ii) on or before the requested Borrowing date in the case of a Base Rate Loan,
specifying (A) the amount of the proposed Borrowing, (B) the requested date of
the Borrowing, (C) whether the Borrowing is to consist of a Eurodollar Rate Loan
or a Base Rate Loan, (D) if the
15
<PAGE>
Loan is to be a Eurodollar Rate Loan, the length of the Interest Period
therefor, (E) the Borrower or Borrowers that are to receive the proceeds of such
Borrowing and (F) the amount of proceeds to be received by each such Borrower.
Promptly following receipt of such notice, the Agent shall notify each Lender of
the date of the Loan, whether the Loan will be a Base Rate Loan or a Eurodollar
Rate Loan, the amount of that Lender's pro rata share of the Loan and, if the
Loan is a Eurodollar Rate Loan of the applicable Interest Period. Not later
than 2:00 P.M., New York time, on the date specified for any Loan, each Lender
shall deposit immediately available funds in the amount of its pro rata share of
the Loan to the account of the Agent set forth on the signature pages hereof.
Upon satisfaction of the applicable conditions set forth in Article IV, the
Agent will make available the proceeds of all such Loans to the applicable
Borrower or Borrowers by crediting the account of such Borrower or Borrowers on
the books of the Agent, or as otherwise directed by such Borrower or Borrowers.
(ii) The Notice of Borrowing may be given by telex or
facsimile transmission or telephonically; provided, however, that the Borrowers
shall promptly deliver to the Agent an original written Notice of Borrowing
initially given telephonically. Any conflict regarding a notice or between an
oral notice and a written notice applicable to the same Borrowing shall be
conclusively determined by the Agent's books and records. The Agent shall not
incur any liability to the Borrowers in acting upon any notice of Borrowing
which the Agent believes reasonably and in good faith to have been given by a
Person duly authorized to borrow on behalf of any of the Borrowers.
(iii) Unless the Agent shall have received notice from
a Lender prior to the date of any Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with subsection (1) of this Section
2.1(b) and the Agent may, in reliance upon such assumption, make available to
the applicable Borrower or Borrowers on such date a corresponding amount. If
and to the extent that such Lender shall not have so made such ratable portion
available to the Agent, such Lender and the applicable Borrower or Borrowers
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the applicable Borrower or Borrowers until the date such
amount is repaid to the Agent, at (i) in the case of a Borrower, the interest
rate applicable at the time to such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's pro
rata share of such Borrowing for purposes of this Agreement. The failure of any
Lender to make available its pro rata share of any
16
<PAGE>
Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder, to make available its pro rata share of such Borrowing on the date of
such Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make available its pro rata share of any Borrowing on the date of any
Borrowing.
(c) Voluntary Reduction of the Revolving Commitment. The Borrowers
-----------------------------------------------
shall have the right, upon at least two (2) Business Days' written notice to the
Agent, to terminate in whole or reduce in part the unused portion of the
Revolving Commitment, without premium or penalty, provided that each partial
--------
reduction shall be in the aggregate amount of $1,000,000 or in an integral
multiple of $1,000,000 in excess thereof and that such reduction shall not
reduce the Revolving Commitment to an amount less than the amount outstanding
hereunder on the effective date of the reduction.
(d) Revolving Notes. The Revolving Loans made by the Lenders pursuant
---------------
hereto shall be evidenced by promissory notes of the Borrowers, substantially in
the form of Exhibit A, with any appropriate insertions (the "Revolving Notes"),
---------------
payable to the order of each Lender and representing the obligation of the
Borrowers to pay the aggregate unpaid principal amount of all Revolving Loans
made by that Lender, with interest thereon as prescribed in Section 2.3. Each
Lender is hereby authorized to record in its books and records and on any
schedule annexed to its Revolving Note the date and amount of each Revolving
Loan made by that Lender, and the date and amount of each payment of principal
thereof, and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the information so recorded; provided that failure by any Lender to
--------
effect such recordation shall not affect the Borrowers' obligations hereunder.
(e) Commitment Fee. The Borrowers agree to pay to the Agent for the
--------------
ratable benefit of the Lenders a commitment fee on the average daily unused
portion of the Revolving Commitment from the date hereof until the Maturity Date
at a rate equal to the Commitment Fee Percentage. The Commitment Fee Percentage
shall be determined as provided in the Pricing Grid and may change for each
Pricing Period. Such commitment fees shall be payable on each Interest Payment
Date, commencing on the first such date occurring after the date of this
Agreement, and on the Maturity Date. For the purposes of calculating a
commitment fee, the Letter of Credit Usage shall be deemed a usage of the
Revolving Commitment. The commitment fee shall be calculated on the basis of a
365 or 366 day year, as the case may be, for the actual days elapsed.
(f) Other Fees. The Borrowers shall pay to the Agent such other fees
----------
at such times as have been separately agreed to in writing between the parties.
17
<PAGE>
2.2 Repayment.
---------
(a) Mandatory Repayments. The aggregate principal amount of the
--------------------
Revolving Loans outstanding on the Maturity Date, together with accrued interest
thereon, shall be due and payable in full on the Maturity Date.
(b) Optional Prepayments. Any Borrower may at its option prepay the
--------------------
Loans, in whole or in part, at any time and from time to time, provided that,
--------
with respect to the prepayment of any Eurodollar Rate Loan, the Agent shall have
received from such Borrower written notice of any such prepayment at least one
(1) Business Day prior to the date of the proposed prepayment if such date is
not the last day of the then current Interest Period for each Loan being
prepaid, in each case specifying the date and the amount of prepayment. Partial
prepayments hereunder shall be in an aggregate principal amount of the lesser of
(a) $1,000,000 or any integral multiple of $100,000 in excess thereof and (b)
the outstanding balance of the Loan being prepaid.
(c) Mandatory Prepayment. If, at any time, the sum of the aggregate
--------------------
principal amount of outstanding Revolving Loans plus the Letter of Credit Usage
exceeds the Revolving Commitment then in effect, the Borrowers shall immediately
repay Revolving Loans in an amount equal to the excess; provided, however, that
-------- -------
if after repayment pursuant to this subsection of all Revolving Loans then
outstanding, the Letter of Credit Usage shall exceed the Revolving Commitment
then in effect, the Borrowers shall immediately deliver to the Agent, to hold as
cash collateral as security for the obligations of the Borrowers to reimburse
the Issuing Bank for the amount of any drawings honored under any outstanding
Letters of Credit, an amount such that the Letter of Credit Usage minus that
-----
amount that is less than or equal to the Revolving Commitment then in effect;
provided that in lieu of furnishing such cash collateral as aforesaid, the
- --------
Borrowers may deliver outstanding Letters of Credit for cancellation, so that
the resulting Letter of Credit Usage is less than or equal to the Revolving
Commitment then in effect. If, at any time after such cash collateral is
delivered to the Agent, the Revolving Commitment then in effect exceeds (i) the
aggregate principal amount of Revolving Loans outstanding (ii) the Letter of
Credit Usage minus the cash collateral delivered to the Agent, then a portion of
-----
the cash collateral held by the Agent for the purposes described above shall be
paid to the Borrowers immediately, in the amount by which the Revolving
Commitment exceeds the sum of clauses (i) and (ii) specified above. Any amount
delivered to the Agent pursuant to this Section shall be held in an interest
bearing account established by the Agent and any interest paid on such account
shall be paid by the Agent to the Borrowers promptly following receipt thereof
by the Agent; provided, however, that noting herein shall require the Agent to
-------- -------
obtain any particular rate of interest on such account.
18
<PAGE>
2.3 Interest Rate and Payment Dates.
-------------------------------
(a) Payment of Interest. Interest with respect to each Loan shall be
-------------------
payable in arrears on each Interest Payment Date for such Loan, on the Maturity
Date and on the date of any prepayment of any Eurodollar Rate Loan.
(b) Interest Rates. The Borrowers shall pay interest on the unpaid
--------------
principal amount of each Loan from the date of such Loan until the maturity
thereof, at one of the following rates per annum:
(i) With respect to Base Rate Loans, at a rate per annum equal to
the Base Rate; and
(ii) With respect to Eurodollar Rate Loans, at a rate per annum
equal at all times during each Interest Period for such Eurodollar Rate Loan to
the Eurodollar Rate for such Interest Period plus the Applicable Margin
----
therefor, as the Applicable Margin shall change from time to time.
2.4 Continuation and Conversion Options. Any Borrower may elect from time
-----------------------------------
to time to convert its outstanding Loans from Loans bearing interest at a rate
determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis by giving the Agent (i)
irrevocable written notice in the form of a Notice of Conversion/Continuation of
an election to convert Eurodollar Rate Loans to Base Rate Loans and (ii) at
least three (3) Eurodollar Business Days' prior irrevocable written notice in
the form of a Notice of Conversion/Continuation of an election to convert Base
Rate Loans to Eurodollar Rate Loans, provided that any conversion of Eurodollar
--------
Rate Loans shall only be made on the last day of an Interest Period with respect
thereto, provided, further that no Loan may be converted to a Eurodollar Rate
-------- -------
Loan so long as an Event of Default or Potential Event of Default has occurred
and is continuing. Any Borrower may elect from time to time to continue its
outstanding Eurodollar Rate Loans upon the expiration of the Interest Period(s)
applicable thereto by giving to the Agent at least three (3) Eurodollar Business
Days' prior irrevocable written notice of continuation in the form of a Notice
of Conversion/Continuation of a Eurodollar Rate Loan and the succeeding Interest
Period(s) of such continued Loan or Loans will commence on the last day of the
Interest Period of the Loan to be continued, provided that no Loan may be
--------
continued as a Eurodollar Rate Loan so long as an Event of Default or Potential
Event of default has occurred and is continuing. Each notice electing to
convert or continue a Loan shall be in the form of a Notice of
Conversion/Continuation and shall specify: (i) the proposed
conversion/continuation date; (ii) the amount of the Loan to be
converted/continued; (iii) the nature of the proposed continuation/conversion;
(iv) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan,
the requested Interest
19
<PAGE>
Period; and (v) the Borrower electing to convert or continue the Loan; and shall
certify that no Event of Default or Potential Event of Default has occurred and
is continuing. On the date on which such conversion or continuation is being
made each Lender shall take such action as is necessary to effect such
conversion or continuation. In the event that no notice of continuation or
conversion is received by the Agent with respect to outstanding Eurodollar Rate
Loans, upon expiration of the Interest Period(s) applicable thereto, such Loans
shall convert to Base Rate Loans. Subject to the limitations set forth in this
Section and in the definition of Interest Period, all or any part of outstanding
Loans may be converted or continued as provided herein, provided that partial
---------
conversions or continuations with respect to Eurodollar Rate Loans shall be in
an aggregate minimum amount of $1,000,000 and in an integral multiple of
$1,000,000 in excess hereof.
2.5 Letters of Credit.
-----------------
(a) Letters of Credit. The Borrowers may request from time to time
-----------------
during the period from the date hereof through the Maturity Date that the
Issuing Bank issue Letters of Credit for the account of any of the Borrowers,
provided, however, as follows:
- -------- -------
(i) The aggregate amount available for drawing under all Letters
of Credit at any time outstanding shall not exceed the lesser of Three Million
Dollars ($3,000,000) or the Available Revolving Commitment at such time;
(ii) Each Letter of Credit issued hereunder shall be in Dollars;
(iii) Each Letter of Credit shall be governed by the Uniform
Customs and Practices for Documentary Credits as most recently published by the
International Chamber of Commerce (the "UCP") prior to the date of issuance of
---
such Letter of Credit and the terms of the UCP are hereby incorporated by
reference with respect to each Letter of Credit; and
(iv) In no event shall the Issuing Bank issue any Letter of Credit
having an expiration date beyond the lesser of one (1) year or the Maturity
Date.
(b) Request for Issuance: Payments Under Letters of Credit. Whenever
-------------------------------------------------------
any Borrower requests that the Issuing Bank issue a Letter of Credit, it shall
deliver to the Issuing Bank an executed application for such Letter of Credit in
the form customarily required by the Issuing Bank and the form of the Letter of
Credit requested, together with such other information or materials as the
Issuing Bank may request with respect to such Letter of Credit no later than
1:00 P.M., New York time, at least three (3) Business Days in advance of the
proposed date of issuance. IN DETERMINING WHETHER TO PAY UNDER
20
<PAGE>
ANY LETTER OF CREDIT, THE ISSUING BANK SHALL BE RESPONSIBLE ONLY TO DETERMINE
THAT THE DOCUMENTS AND CERTIFICATES REQUIRED TO BE DELIVERED UNDER THAT LETTER
OF CREDIT HAVE BEEN DELIVERED AND THAT THEY COMPLY ON THEIR FACE WITH THE
REQUIREMENTS OF THAT LETTER OF CREDIT.
(c) Issuance of Letters of Credit. If the Issuing Bank elects to
-----------------------------
issue the requested Letter of Credit and upon the satisfaction of all relevant
conditions set forth in Sections 4.1 and 4.3, the Issuing Bank shall issue a
Letter of Credit by delivering the Letter of Credit to the beneficiary, and
shall promptly notify the Agent and the Lenders of the amount and terms thereof.
Any Letter of Credit issued hereunder shall be governed by the terms and
provisions hereof as well as by the terms and provisions of the application
executed in connection therewith pursuant to Section 2.5(b). If the Issuing Bank
declines to issue the requested Letter of Credit it shall promptly so notify the
Borrower requesting such Letter of Credit and such Borrower shall withdraw its
application therefor.
(d) Participation by Lenders in Letters of Credit.
---------------------------------------------
(i) The Issuing Bank irrevocably agrees to grant and hereby
grants to each Lender, and, to induce the Issuing Bank to issue Letters of
Credit hereunder, each Lender irrevocably severally agrees to accept and
purchase and hereby severally accepts and purchases from the Issuing Bank, on
the terms and conditions hereinafter stated, for such Lender's own account and
risk an undivided interest equal to Lender's ratable share of the Revolving
Commitment in the Issuing Bank's obligations and rights under each Letter of
Credit issued hereunder by the Issuing Bank and each amount paid by the Issuing
Bank thereunder. Each Lender unconditionally and irrevocably severally agree
with the Issuing Bank that, if any amount is paid under any Letter of Credit for
which the Issuing Bank is not reimbursed in full by the Borrowers in accordance
with the terms of this Agreement, such Lender shall pay to the Agent, for the
account of the Issuing Bank, upon demand at the Agent's address for notices, an
amount equal to such Lender's pro rata share of such payment, or any part
thereof, which is not so reimbursed; such amount shall be due on the Business
Day upon which such demand shall be given, if such demand is given on or before
2:00 p.m., New York City time, on such day and, if such demand shall be given
later than such time, such amount shall be due on the next succeeding Business
Day. The Agent shall promptly pay over to the Issuing Bank all amounts so
received by it.
(ii) If any amount required to be paid by any Lender to the
Issuing Bank in respect of any unreimbursed portion of any payment made by the
Issuing Bank under any Letter of Credit is paid to the Agent for the account of
the Issuing Bank within three Business Days after the date such payment is due,
such Lender shall pay to the Issuing Bank on demand an
21
<PAGE>
amount equal to the product of (A) such amount, times (B) the Federal Funds Rate
during the period from and including the date such payment is required to the
date on which such payment is immediately available to the Issuing Bank, times
(C) a fraction the numerator of which is the number of days that elapsed during
such period and the denominator of which is 360. If any such amount required to
be paid by any Lender is not in fact made available to the Agent for the account
of the Issuing Bank after the date such payment is due, the Issuing Bank shall
be entitled to recover from such Lender, on demand, such amount with interest
thereon calculated from such due date at the rate per annum then applicable to
Base Rate Loans hereunder. A certificate of the Issuing Bank submitted to any
Lender with respect to any amounts owing under this section shall be conclusive
in the absence of manifest error.
(iii) Whenever, at any time after the Issuing Bank has made
payment under any Letter of Credit and has received from any Lender its pro rata
share of such payment in accordance with this section, the Issuing Bank receives
any payment relate to the Letter of Credit (whether directly from any Borrower
or otherwise), or any payment on interest on account thereof, the Issuing Bank
will pay to the Agent for distribution to such Lender its pro rata share
thereof; provided, however, that in the event that any such payment received by
-------- -------
the Issuing Bank shall be required to be returned by the Issuing Bank, such
Lender shall return to the Issuing Bank the portion thereof previously
distributed by the Issuing Bank to it.
(e) Reimbursement of Amounts Drawn Under Letter of Credit. The
-----------------------------------------------------
Issuing Bank shall notify the Borrowers and the Agent of a request for a drawing
under a Letter of Credit promptly after receipt thereof by the Issuing Bank;
provided, however, that the failure to so notify the Borrowers will not relieve
- -------- -------
the Borrowers from any obligation to reimburse the Issuing Bank hereunder, and
the Borrower for whose account the Letter of Credit was issued shall reimburse
the Issuing Bank for sum amount in immediately available funds prior to 3:00
P.M., New York time, on the date of the drawing. In the event that the
applicable Borrower shall fail to so reimburse the Issuing Bank, the Issuing
Bank shall promptly notify the Agent who shall promptly notify each Lender. The
Agent shall pay to the Issuing Bank the amount of the unpaid Letter of Credit
and, thereafter, the Borrower for whose account the Letter of Credit was issued
and the Lenders shall be obligated to reimburse the Agent in respect of such
Letter of Credit prior to 3;00 P.M., New York time, on the date of any such
notice, each Lender shall make a payment under its participation in such Letter
of Credit (which, except as provided in Section 2.5(f)(iii), shall constitute a
Revolving Loan to the Borrower for whose account the Letter of Credit was
issued) in an amount equal to that Lender's ratable share of the unreimbursed
amount of such drawing, by depositing immediately available funds in such amount
in the account of the Agent set forth on the signature pages hereof. The Agent
shall
22
<PAGE>
promptly pay to the Issuing Bank the proceeds of such Revolving Loans, which
shall be used by the Issuing Bank to repay the unreimbursed amount. Such
Revolving Loans shall be evidenced by the Revolving Notes and shall initially be
Base Rate Loans. The obligation of each Lender to reimburse the Issuing Bank is
absolute and unconditional and shall not be affected by the occurrence of an
Event of Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of the Borrower for whose account
the Letter of Credit was issued to reimburse the Issuing Bank for the amount of
any payment made by the Issuing Bank under such Letter of Credit as set forth
herein. If any Lender fails to make available to the Agent the amount of such
Lender's participation in such Letter of Credit as provided above, the Issuing
Bank shall be entitled to recover such amount on demand from such Lender
together with interest thereon, for each day from the date of notice to such
Lender to the date such amount is paid to the Issuing Bank at a rate which is at
all times equal to three percent (3%) per annum in excess of the Base Rate in
effect from time to time; provided that if the failure to pay is solely the
result of an administrative error (which determination shall be made by the
Agent in its sole discretion) or is solely the result of the Lender receiving
notice too late in the day to make payment to the Agent on that day, then the
interest rate for the first day of such delay shall be the Federal Funds Rate.
(f) Compensation. The Borrowers agree to pay the following amount to
------------
the Agent for the account of the Issuing Bank with respect to Letters of Credit:
(i) with respect to each Letter of Credit, payable on the date of
issuance of such Letter of Credit and on the date of any extension or amendment
to such Letter of Credit, a nonrefundable Letter of Credit fee for the account
of the Issuing Bank equal to one-quarter of one percent (1/4 of 1%) per annum of
the stated amount of such Letter of Credit;
(ii) with respect to each Letter of Credit, a Letter of Credit fee
for the ratable benefit of the Lenders at the rate of one percent (1%) per annum
on the stated amount of the letter of Credit for the period from and including
the date of issuance of the Letter of Credit to and including the date such
Letter of Credit is drawn in full, expires or is terminated, payable quarterly
in arrears on the last Business Day of each March, June, September and
December;
(iii) with respect to drawings made under any Letter of Credit, to
the extent a Revolving Loan is not made to reimburse the Issuing Bank for each
such drawing, interest, payable on demand, on the amount paid by the Issuing
Bank in respect of each such drawing from the date of the drawing through the
date such amount is reimbursed by the Borrower for whose account the Letter of
Credit was issued at a rate which is at all
23
<PAGE>
times equal to three percent (3%) per annum in excess of the Base Rate in effect
from time to time; and
(iv) with respect to the amendment or transfer of each Letter of
Credit and each drawing made thereunder documentary and processing charges for
the account of the Issuing Bank in accordance with the Issuing Bank's standard
schedule for such charges in effect at the time of amendment, transfer or
drawing, as the case may be, or other agreed upon rate.
(g) Obligations Absolute. The obligation of the Lenders under Section
--------------------
2.5(e) shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances including
the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other right
which any Borrower may have at any time against the beneficiary or any
transferee of the Letter of Credit (or any Persons for whom any such transferee
may be acting), the Issuing Bank, the Agent or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between any Borrower
and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect; or
(iv) payment against any draft, document or other demand for
payment that does not comply with the terns of the Letter of Credit, provided
that such payment does not constitute gross negligence or willful misconduct on
the part of the Issuing Bank as determined by a final judgment of a court of
competent jurisdiction; or
(v) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
(h) Payments Avoided. If any payment received on account of any
----------------
reimbursement obligation in respect of a Letter of Credit and distributed to a
Lender as a participant under this Section 2.5 is hereafter set aside, avoided
or recovered from the Issuing Bank in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding relating to any Borrower,
each Lender that received a distribution in respect of such payment shall, upon
demand by the Agent, pay to the Issuing Bank the amount of such distribution
received by such Lender.
24
<PAGE>
(i) Issuing Bank. The Designated Issuer, to the extent that it issues
------------
Letters of Credit hereunder, shall be fully protected for its actions hereunder
and have all of the benefits and immunities provided to a Lender hereunder.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
3.1 Use of Proceeds. The proceeds of the Loans hereunder shall be
---------------
used by the Borrowers for general corporate purposes
3.2 Post Maturity Interest. Notwithstanding anything to the contrary
----------------------
contained in Section 2.3, if all or a portion of the principal amount of any of
the Loans made hereunder or any interest accrued thereon shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), any such
overdue amount shall bear interest at a rate per annum which is equal to the
greater of (a) two percent (2%) above the highest rate which would otherwise be
applicable pursuant to Section 2.3 and (b) three percent (3%) above the Base
Rate, from the date of such nonpayment until paid in full (after as well as
before judgment), payable on demand. In addition, such Loan, if a Eurodollar
Rate Loan, shall be converted to a Base Rate Loan at the end of the then current
Interest Period therefor.
3.3 Computation of Interest.
-----------------------
(a) Calculations. Interest in respect of the Base Rate Loans and
------------
all fees payable by the Borrowers hereunder shall be calculated on the basis of
a 365 or 366 day year, as the case may be, for the actual days elapsed. Interest
in respect of the Eurodollar Rate Loans shall be calculated on the basis of a
360 day year for the actual days elapsed. Interest payable pursuant to Section
2.5 shall be calculated on the basis of a 365 or 366, as the case may be, day
year for the actual days elapsed. Any change in the interest rate on a Base Rate
Loan resulting from a change in the Base Rate shall become effective as of the
opening of business on the day on which such change in the Base Rate shall
become effective. Any change in the interest rate as a result of a change in the
Debt/Consolidated EBITDA Ratio shall be effective for each Loan on the first day
of each Pricing Period. In computing interest on any Loan, the date of the
making of the Loan shall be included and the date of payment shall be excluded;
provided that if a Loan is repaid on the same day on which it is made, one day's
- --------
interest shall be paid on that Loan.
(b) Determination by Agent. Each determination of an interest
----------------------
rate or fee by the Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrowers in the absence of manifest error.
25
<PAGE>
3.4 Payments. The Borrowers shall make each payment of principal,
--------
interest and fees hereunder and under the Notes, without set-off or
counterclaim, not later than 3:00 P.M., New York time, on the day when due in
lawful money of the United States of America to the Agent at the office of the
Agent designated from time to time in immediately available funds; funds
received by the Agent after that time shall be deemed to have been paid by the
Borrowers on the next succeeding Business Day. Each Borrower hereby authorizes
the Agent to charge its accounts with the Agent in order to cause timely payment
to be made to the Agent of all principal, interest, fees and expenses due
hereunder (subject to sufficient funds being available in its accounts for that
purpose). The Agent shall notify the Borrowers one (1) Business Day prior to the
date of any charge under this Section 3.4; provided, however, that the failure
-------- -------
to so notify the Borrowers will not affect the Agent's right to charge such
accounts. The Agent shall promptly pay to each Lender its pro rata share of each
payment received by the Agent. All prepayments shall be applied to payment of
accrued interest on the principal amount prepaid before application to
principal. Any mandatory prepayment shall be applied first to Base Rate Loans
to the full extent thereof before application to Eurodollar Rate Loans.
3.5 Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day and,
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension
3.6 Reduced Return. If any Lender or the Issuing Bank shall have
--------------
determined that any law, regulation, rule or regulatory requirement applicable
to financial institutions generally regarding capital adequacy ("Requirement"),
-----------
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
or the Issuing Bank with any request or directive regarding capital adequacy
(applicable to financial institutions generally whether or not having the force
of law) of any such authority, central bank or comparable agent, has or would
have the effect of reducing the rate of return on such Lender's or the Issuing
Bank's capital as a consequence of its Commitment and obligations hereunder, the
Letters of Credit issued hereunder or its obligation to purchase a participation
in the Letters of Credit to a level below that which would have been achieved
but for such Requirement, change or compliance (taking into consideration such
Lender's or the Issuance Bank's, as the case may be, polices with respect to
capital adequacy) by an amount deemed by such Lender or the Issuing Bank, as the
case may be, to be material (which amount shall be determined by such Lender's
or the Issuing Bank's, as the case may be, reasonable allocation of the
26
<PAGE>
aggregate of such reductions resulting from such events) then from time to time,
within five (5) Business Days after demand by such Lender or the Issuing Bank,
as the case may be, the Borrowers shall pay to that Lender or the Issuing Bank,
as the case may be, such additional amount or amounts as will compensate that
Lender or the Issuing Bank, as the case may be, for such reduction.
3.7 Indemnities.
-----------
(a) General. Whether or not the transactions contemplated hereby
-------
shall be consummated, the Borrowers agree to indemnify, pay and hold the Agent,
the Issuing Bank and each Lender, and the shareholders, officers, directors,
employees and agents of the Agent, the Issuing Bank and each Lender (each, an
"Indemnified Person"), harmless from and against any and all claims,
------------------
liabilities, losses, damages, costs and expenses (whether or not any of the
foregoing Persons is a party to any ligation), including reasonable attorneys'
fees and costs (including the reasonable estimate of the allocated cost of in-
house legal counsel and staff) and including costs of investigation, document
production, attendance at a deposition, or other discovery, with respect to or
arising out of any proposed acquisition by BEI or any of its Subsidiaries of any
Person or any securities (including a self-tender), this Agreement or any use of
proceeds hereunder, the issuance of any Letter of Credit or the failure by the
Issuing Bank to honor a drawing under a Letter of Credit as a result of any act
or omission of any government or governmental authority, or any claim, demand,
action or cause of action being asserted against BEI or any of its Subsidiaries,
whether or not any Indemnified Person is a party thereto (collectively, the
"Indemnified Liabilities"), except to the extent such Indemnified Liabilities
- ------------------------
result from the gross negligence or willful misconduct of any such Indemnified
Person. If any claim is made, or any action, suit or proceeding is brought,
against any Indemnified Person, the Indemnified Person shall notify the
Borrowers of such claim or of the commencement of such action, suit or
proceeding, and the Borrowers at their option may, or at the request of the
Indemnified Person will, control and direct the defense of such action, suit or
proceeding, employing counsel selected by the Borrowers and reasonably
satisfactory to the Indemnified Person, and pay the fees and expenses of such
counsel; provided, however, that any Indemnified Person may at its own expense
-------- -------
retain separate counsel to participate in such defense. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in his Section 3.7 may
be unenforceable because it is violative of any law or public policy, the
Borrowers shall contribute the maximum portion which they are permitted to pay
and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by any Indemnified Person.
(b) Funding Losses. The Borrowers agree to indemnify each Lender and
--------------
to hold each Lender harmless from any loss or
27
<PAGE>
expense, including any such loss or expense arising from interest or fees
payable by such Lender to Lenders of funds obtained by it in order to maintain
its Eurodollar Rate Loans hereunder, which such Lender may sustain or incur as a
consequence of (i) default by any Borrower in payment of the principal amount of
or interest on the Eurodollar Rate Loans of such Lender, (ii) default by any
Borrower in making a conversion or continuation after such Borrower has given a
notice thereof (other than pursuant to Section 3.13), (iii) default by any
Borrower in making any prepayment after such Borrower has given a notice of
prepayment, or (iv) any Borrower making any payment of a Eurodollar Rate Loan on
a day other than the last day of the Interest Period for such Loan (other than
pursuant to Section 3.13). For purposes of this Section 3.7, it shall be
assumed that the affected Lender had funded or would have funded 100%, as the
case may be, of each Eurodollar Rate Loan in the inter bank Eurodollar market
for a corresponding amount and term. In the event any Lender makes a claim for
payment under clause (iv) of this Section 3.7(b), the Borrowers shall be
credited with a reinvestment rate equal to the Eurodollar Reinvestment Rate.
Each Lender making a claim for payment under this Section 3.7(b) shall submit to
the Agent, who shall promptly transmit it to the Borrowers, an invoice for the
amount claimed to be owed by the Borrowers, showing in reasonable detail the
calculations necessary to determine the amount. The determination of such
amount by such Lender shall be presumed correct in the absence of manifest
error.
3.8 Funding Sources. Nothing in this Agreement shall be deemed to
---------------
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
3.9 Taxes.
-----
(a) Payments. Any and all payments by the Borrowers hereunder
--------
shall be made free and clear of and without deduction for any and all taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, arising under any law, rule or regulation of the United States
or any state or political subdivision hereof, excluding, in the case of each
---------
Lender, the Agent, each assignee, each participant and the Issuing Bank, taxes
imposed on its net income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Lender, Agent, assignee, participant
or Issuing Bank (as the case may be) is organized or any political subdivision
thereof and, in the case of each Lender, the Agent, each assignee, each
participant or the Issuing Bank, taxes imposed on its net income, and franchise
taxes imposed on it, by the jurisdiction of the office or branch in which such
Lender, Agent, assignee, participant or Issuing Bank books the Loans or the
Letters of Credit or in which it is deemed to be doing business or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges,
28
<PAGE>
withholdings and liabilities being hereinafter referred to as "Taxes"). If the
-----
Borrowers shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder to any Lender, the Agent, any assignee, any participant or
the Issuing Bank, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 3.9) such Lender, Agent, assignee,
participant or Issuing Bank, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrowers
shall make such deductions and (iii) the Borrowers shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law; provided that the Borrowers shall not be required pursuant
to clause (i) above to increase the sum payable to any Lender, Agent, assignee,
participant or Issuing Bank organized under the laws of a jurisdiction outside
of the United States if such Lender, Agent, assignee, participant or Issuing
Bank, as the case may be, shall have failed to provide the forms referred to in
Section 3.9(e).
(b) Other Taxes. In addition, the Borrowers agree to pay any present
-----------
or future stamp or documentary taxes or any other taxes or property taxes,
charges or similar levies arising under any laws, rule or regulation of the
United States or any state or political subdivision hereof which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, other than taxes, levies, impose,
deductions, charges or withholdings excluded under Section 3.4 (hereinafter
referred to as "Other Taxes").
-----------
(c) Indemnity. The Borrowers will indemnify each Lender, the Agent,
---------
each assignee, each participant and the Issuing Bank for the full amount of
Taxes or Other Taxes (including any Taxes or Other Taxes unposed by any
jurisdiction on amounts payable under this Section 3.9), paid by such Lender,
Agent, assignee, participant or Issuing Bank (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect hereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Each Lender, the Agent, each assignee, each participant and
the Issuing Bank, as the case may be, shall notify the Agent, who shall promptly
notify the Borrowers, of the imposition of any such Taxes or Other Taxes within
a reasonable period of time prior to the required payment date of any such Taxes
or Other Taxes: provided, however that the failure to so notify the Borrowers
-------- -------
will not relieve the Borrowers from any liability hereunder. If the Borrowers
and the affected Lender, Agent, assignee, participant or Issuing Bank, as the
case may be, determining in good faith that the Taxes or Other Taxes are not
correctly or legally asserted, upon Borrowers written request such affected
party agrees to use reasonable efforts to contest the imposition of such Taxes
or Other Taxes, and, in the event of
29
<PAGE>
any such contest, the Borrowers shall indemnify, pay and hold the affected party
harmless from and against any and all claims, liabilities, losses, damages,
costs and expenses, including attorneys' fees and costs, incurred by the
affected party in connection with or arising out of such contest within five (5)
Business Days of receipt by any Borrower of a statement from the affected party
setting forth a calculation of the unpaid losses, damages, costs or expenses
incurred to the date of such statement; provided, however, that no affected
-------- -------
party shall be required under this Section 3.9(c) to initiate any action or
proceeding before any court or administrative agency. If any Lender, the Agent,
any assignee, any participant or the Issuing Bank makes a claim for payment
under this Section 3.9(c), it shall submit to the Agent, who shall promptly
transmit it to the Borrowers, an invoice for the amount claimed to be owed by
the Borrowers, showing in reasonable detail the calculations necessary to
determine the amount. The determination of such amount by such Lender, Agent,
assignee, participant or Issuing Bank (as the case may be) shall be presumed
correct in the absence of manifest error. This indemnification shall be made
within thirty (30) days from the date such Lender, Agent, assignee, participant
or Issuing Bank (as the case may be) makes written demand therefor. Each Lender,
the Agent, each assignee, each participant and the Issuing Bank agrees to
reimburse the Borrowers for amounts paid by the Borrowers pursuant to this
Section 3.9 to the extent that such Lender, Agent, assignee, participant or
Issuing Bank actually recovers all or any portion of such amounts from the
applicable taxing authority which recovery is specifically designated by such
taxing authority as being applicable to such amounts.
(d) Evidence of Payment. Within sixty (60) days after the date of any
-------------------
payment of Taxes, the Borrowers will furnish to the Agent, at its address
referred to in Section 10.2, the original or a certified copy of a receipt
evidencing payment thereof or other evidence of the payment hereof satisfactory
to the Agent.
(e) IRS Forms. Prior to the date of the initial Borrowing (and from
---------
time to time hereafter if requested by the Borrowers or the Agent) each Lender,
Agent, assignee, participant and Issuing Bank organized under the laws of a
jurisdiction outside the United States shall provide the Agent and the Borrowers
with the forms prescribed by the Internal Revenue Service of the United States
certifying as to the status of such Lender, Agent, assignee, participant or
Issuing Bank for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender, Agent,
assignee, participant or Issuing Bank hereunder or other documents satisfactory
to the Borrowers and the Agent indicating that all payments to be made to such
Lender, Agent, assignee, participant or Issuing Bank hereunder are subject to
such taxes at a rate reduced by an applicable tax treaty. Unless the Borrowers
and the Agent have received forms or other documents
30
<PAGE>
satisfactory to them indicating that payments hereunder are not subject to
United States withholding tax, the Borrowers or the Agent shall withhold taxes
from such payments at the applicable statutory rate or such lower rate as
provided in an applicable tax treaty in the case of payments to or for any
Lender, assignee, participant or Issuing Bank organized under the laws of a
jurisdiction outside the United States.
3.10 Sharing of Payments Etc. If any Lender shall obtain any payment
-----------------------
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans owing to it in excess of its ratable share
of payments on account of the Loans obtained by all the Lenders, then such
Lender shall forthwith purchase from the other Lenders such participations in
the Loans owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
-------- -------
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrowers agree at any Lender so
purchasing a participation from another Lender pursuant to this Section 3.10 or
any other provision of this Agreement may, to the fullest extent permitted by
law, exercise all of its rights of payment (including the right to set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrowers in the amount of such participation.
3.11 Inability to Determine Interest Rate. In the event that the
------------------------------------
Agent or any Lender shall have determined (which determination shall be
conclusive and binding upon the Borrowers) that by reason of circumstances
affecting the inter bank Eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate applicable pursuant to Section 2.3
for any Interest Period with respect to a Eurodollar Rate Loan that will result
from a requested Eurodollar Rate Loan or that such rate of interest does not
adequately cover the cost of funding such Loan, and the result of any of the
foregoing is to increase the cost to any Lender or the Issuing Bank of making,
receiving or maintaining its Revolving Commitment or Eurodollar Rate Loans or of
issuing, renewing or maintaining the Letters of Credit or purchasing a
participation therein, or to reduce any amount receivable thereunder (which
increase or reduction shall be determined by such Lender's or the Issuing
Bank's, as the case may be, reasonable allocation of the aggregate of such cost
increases or reduced amounts receivable resulting from such events), then, in
any such case, the Borrowers shall pay to such Lender or the Issuing Bank, as
the case may be, within three (3)
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Business Days of its demand, any additional amounts necessary to compensate such
Lender or the Issuing Bank, as the case may be, for such additional cost or
reduced amount receivable as determined by such Lender or the Issuing Bank, as
the case may be, with respect to this Agreement if any Lender or the Issuing
Bank becomes entitled to claim any additional amounts pursuant to this Section
3.12, it shall notify the Borrowers of the event by reason of which it has
become so entitled. A statement incorporating the calculation as to any
additional amounts payable pursuant to the foregoing sentence submitted by the
affected Lender or the Issuing Bank, as the case may be, to the Borrowers shall
be conclusive in the absence of manifest error.
3.12 Illegality. Notwithstanding any other provisions herein, if any
----------
law, regulation, treaty or directive or any change rein or in the interpretation
or application thereof shall make it unlawful, impossible or impracticable for
any Lender to make or maintain Eurodollar Rate Loans as contemplated by this
Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Rate
Loans or convert Base Rate Loans to Eurodollar Rate Loans shall forthwith be
cancelled and (b) such Lender's Loans then outstanding as Eurodollar Rate Loans,
if any, shall be converted automatically to Base Rate Loans on the next
succeeding Interest Payment Date or within such earlier period as allowed by
law. The Borrowers hereby agree to pay any Lender, within three (3) Business
Days of its demand, any additional amounts necessary to compensate such Lender
for any costs (excluding loss of anticipated profits) incurred by such Lender in
making any conversion in accordance with this Section 3.13, including any
interest or fees payable by such Lender to lenders of funds obtained by it in
order to make or maintain its Eurodollar Rate Loans hereunder. Each Lender
making a claim for payment under this Section 3.13 shall submit to the Agent,
who shall promptly transmit it to the Borrowers, an invoice for the amount
claimed to be owed by the Borrowers, showing in reasonable detail the
calculations necessary to determine the amount. The determination of such
amount by such Lender shall be presumed correct in the absence of manifest
error.
3.13 Change of Booking Office. Any Lender claiming any additional
------------------------
amounts payable pursuant to Section 3.9 or 3.12 shall use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of the office or branch in which it books the Loans if
the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue and would not, in the
reasonable judgment of such Lender, be otherwise disadvantageous to such Lender;
provided, however, that such Lender shall not be obligated to use such other
- -------- -------
office or branch pursuant to this Section 3.14 unless the Borrowers agree to pay
all reasonable expenses incurred by such Lender in using such other office or
branch.
32
<PAGE>
3.14 Right to Replace Lender. If the Borrowers shall, as a result of
-----------------------
the requirements of Section 3.6 or 3.12, be required to pay any Lender the
additional costs referred to in such Section, the Borrowers shall have the right
to substitute another financial institution satisfactory to the Agent (whose
approval will not be unreasonably withheld) for such Lender which has submitted
an invoice for such additional costs. Any such substitution shall be on terms
and conditions satisfactory to the Agent. Until such time as such substitution
shall be consummated, the Borrowers shall continue to pay any additional costs
invoiced by such Lender and shall continue to pay all other amounts payable to
such Lender hereunder. Upon any such substitution, the Borrowers shall pay or
cause to be paid to the Lender that is being replaced all principal, interest
(to the date of such substitution) and other amounts owing hereunder to such
Lender.
ARTICLE IV
CONDITIONS OF LENDING
4.1 Conditions Precedent to Initial Loans. The obligation of each
-------------------------------------
Lender to make its initial Loan is subject to the conditions precedent that:
(a) The Agent shall have received on or before the day of the
initial Borrowing the following, each dated such day (except for the document
referred to in clause (ii)), in form and substance satisfactory to the Agent and
(except for the Notes) in sufficient copies for each Lender;
(i) The Notes issued by the Borrowers to the order of each
Lender;
(ii) Copies of the Articles, Certificate of Incorporation,
partnership agreement or other organizational document of each Borrower and the
Subsidiary Guarantor, certified as of a recent date by the Secretary of State of
its state of formation or incorporation;
(iii) Copies of the Bylaws, if any, of each Borrower and
the Subsidiary Guarantor, certified by the Secretary or an Assistant Secretary
of such Borrower or the Subsidiary Guarantor;
(iv) Copies of resolutions of the Board of Directors or
other authorizing documents of each Borrower and the Subsidiary Guarantor,
approving the Loan Documents and the Borrowings hereunder, certified by the
Secretary or an Assistant Secretary of each Borrower or the Subsidiary
Guarantor;
(v) An incumbency certificate executed by the Secretary or
an Assistant Secretary of each Borrower and the Subsidiary Guarantor or
equivalent document, certifying the names
33
<PAGE>
and signatures of the officers of such Borrower, the Subsidiary Guarantor or
other Persons authorized to sign the Loan Documents and the other documents to
be delivered hereunder;
(vi) Executed copies of all Loan Documents;
(vii) A pro forma Compliance Certificate as of the end of
June, 1997; and
(viii) A favorable opinion of counsel to the Borrowers and
the Subsidiary Guarantor, in such form and substance, and with respect to such
matters, as any Lender may reasonably request.
(b) The Borrowers shall have paid to the Agent, for distribution (as
appropriate) to the Agent and the Lenders, all fees payable on or prior to the
Closing Date.
(c) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Agent and
its counsel, and each Lender, and the Agent and the Agent's counsel shall have
received any and all further information and documents which the Agent or such
counsel may reasonably have requested in connection therewith, such documents
where appropriate to be certified by proper corporate or governmental
authorities.
4.2 Conditions Precedent to Each Borrowing. The obligation of each
--------------------------------------
Lender to make a Loan on the occasion of each Borrowing (including the Initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing the following statements shall be true and the Agent shall
have received the Notice of Borrowing required by Section 2.1(b), which notice
shall include a certification by the Borrowers that:
(a) the representations and warranties contained in Section 5.1 are
true and correct in all material respects on and as of the date of such
Borrowing as though made on and as of such date except to the extent such
representations or warranties specifically relate to an earlier date in which
case they were true and correct in all material respects as of such earlier
date,
(b) no event has occurred and is continuing, or would result from such
Borrowing, which constitutes an Event of Default or Potential Event of Default,
and
(c) all Loan Documents are in full force and effect.
34
<PAGE>
4.3 Conditions Precedent to Each Letter of Credit. The issuance of any
---------------------------------------------
Letter of Credit hereunder is subject to the prior or concurrent
satisfaction of all of the following conditions:
(a) On or before the date of issuance of the initial Letter of Credit,
each of the conditions set forth in Section 4.1 shall have been satisfied or
waived and the initial loans shall have been made hereunder.
(b) On or before the date of issuance, the Issuing Bank shall have
received the executed application for such Letter of Credit in the form
customarily required by the Issuing Bank and all other information specified in
Section 2.5(b) and such other documents as the Issuing Bank may reasonably
require in connection with the issuance of such Letter of Credit.
(c) On the date of issuance, all conditions precedent described in
Section 4.2 shall be satisfied to the same extent as though the issuance of such
Letter of Credit were the making of a Loan and the date of issuance of such
Letter of Credit were the date of a Borrowing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties. The Borrowers represent and
------------------------------
warrant as follows:
(a) Organization. Each Borrower and each of its Subsidiaries are duly
------------
organized, validly existing and in good standing under the laws of their
respective states of formation. The Borrowers and their respective Subsidiaries
are also duly authorized, qualified and licensed in all applicable
jurisdictions, and under all applicable laws, regulations, ordinances or orders
of public authorities, to carry on their respective businesses in the locations
and in the manner presently conducted.
(b) Authorizations. The execution, delivery and performance by the
--------------
Borrowers and the Subsidiary Guarantor of the Loan Documents, and the making of
Borrowings hereunder, are within each such Person's corporate or partnership
powers, as the case may be, have been duly authorized by all necessary corporate
or partnership action, as the case may be, and do not contravene (i) such
Person's charter, by-laws or other organizational documents or (ii) any law or
regulation (including Regulations G, T, U and X) or any contractual restriction
binding on or affecting any such Person.
35
<PAGE>
(c) Governmental Consents. No authorization or approval or other
---------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body (except routine reports required pursuant to the Securities
Exchange Act of 1934, as amended (if such act is applicable to any of the
Borrowers or the Subsidiary Guarantor), which reports will be made in the
ordinary course of business) is required for the due execution, delivery and
performance by the Borrowers and the Subsidiary Guarantor of the Loan Documents.
(d) Validity. The Loan Documents are the binding obligations of the
--------
Borrowers and the Subsidiary Guarantor, enforceable in accordance with their
respective terms; except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
(e) Financial Condition. The 1997 balance sheets of BEI Electronics,
-------------------
Inc. and its consolidated Subsidiaries as at fiscal June 1997 and fiscal
September 1996, and the related statements of income and retained earnings of
BEI Electronics, Inc. and its consolidated Subsidiaries for the fiscal year and
fiscal quarter then ended, and the information set forth in each of the Form 10-
Q filed on August 12, 1997 with the Securities and Exchange Commission under the
heading "Discontinued Operations -Technologies" and the Form 10 filed on July 3,
1997 (as amended) with the Securities and Exchange Commission with respect to
BEI, copies of which have been furnished to each Lender, fairly present the
financial condition of BEI and its consolidated Subsidiaries as at such dates
and the results of the operations of BEI and its consolidated Subsidiaries for
the respective periods ended on such dates, all in accordance with GAAP,
consistency applied, and since fiscal June 1997 there has been no material
adverse change in the business, operations, properties, assets, prospects or
condition (financial or otherwise) of BEI and its Subsidiaries, taken as a
whole.
(f) Litigation. Except as set forth in the Disclosure Letter, as of
----------
the date hereof and as of the Closing Date, there is no pending or threatened
action or proceeding affecting BEI or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may have a material adverse effect on
any Borrower's or the Subsidiary Guarantor's ability to perform its obligations
under the Loan Documents, having regard for its other financial obligations.
36
<PAGE>
(g) Employee Benefit Plans. The Borrowers and each of their respective
----------------------
ERISA Affiliates (including the Subsidiary Guarantor) is in compliance in all
material respects with any applicable provisions of ERISA and the regulations
and published interpretations thereunder with respect to all Employee Benefit
Plans. None of the Borrowers nor any of their respective ERISA Affiliates
(including the Subsidiary Guarantor) maintains, or has at any time maintained or
contributed to, a Pension Plan and no employee of any of the Borrowers or of any
of their respective ERISA Affiliates (including the Subsidiary Guarantor)
participates in a Multiemployer Plan.
(h) Disclosure. No representation or warranty of the Borrowers or the
----------
Subsidiary Guarantor contained in this Agreement or any other document,
certificate or written statement furnished to the Agent or any Lender by or on
behalf of such Person for use in connection with the transactions contemplated
by this Agreement contains any untrue statement of a material fact or omits to
state a material fact (known to the Borrowers or the Subsidiary Guarantor in the
case of any document not furnished by them) necessary in order to make the
statements contained herein or therein not misleading. There is no fact known
to the Borrowers or the Subsidiary Guarantor (other than matters of a general
economic nature) which materially adversely affect the business, operations,
properties, assets, prospects or condition (financial or otherwise) of any
Borrower and its Subsidiaries, taken as a whole, which has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Agent or any Lender for use in connection with the transactions contemplated
hereby.
(i) Margin Stock. The aggregate value of all margin stock (as defined
------------
in Regulation U) directly or indirectly owned by each Borrower is less than 25%
of the aggregate value of such Borrower's assets. No proceeds of any Loan will
be used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
(j) Environmental Matters. Except as set forth in the Disclosure
---------------------
Letter, as of the date hereof and as of the Closing Date to the best of their
knowledge, neither BEI nor any of its Subsidiaries, nor any of their respective
officers, employees, representatives or agents, nor any other Person, has
treated, stored, processed, discharged, spilled, or otherwise disposed of any
substance defined as hazardous or toxic by any applicable federal, state or
local law, rule, regulation, order or directive, or any waste or by-product
thereof, at any real property or any other facility owned, leased or used by BEI
or any of its Subsidiaries, in violation of any applicable statutes,
regulations, ordinances or directives of any governmental authority or court,
which violations may result in liability to BEI or any of its Subsidiaries or
any of their respective officers, employees, representatives, agents or
shareholders in an amount exceeding $500,000 for all such violations; and the
37
<PAGE>
unresolved violations set forth in said Disclosure Letter will not result in
uninsured liability to BEI or any of its Subsidiaries or any of their respective
officers, employees, representatives, agents or shareholders in an amount
exceeding $500,000 for all such unsatisfied claims or demand. Except as set
forth in said Disclosure Letter, no employee or other Person has ever made a
claim or demand against BEI or any of its Subsidiaries based on alleged damage
to health caused by any such hazardous or toxic substance or by any waste or
byproduct thereof; and the unsatisfied claims or demands against BEI or any of
its Subsidiaries set forth in said Disclosure Letter will not result in
uninsured liability to BEI or any of its Subsidiaries or any of their respective
officers, employees, representatives, agents or shareholders in an amount
exceeding $500,000 for all such unsatisfied claims or demands. Except as set
forth in said Disclosure Letter, neither BEI nor any of its Subsidiaries has
been charged by any governmental authority with improperly using, handling,
storing, discharging or disposing of any such hazardous or toxic substance or
waste or by-product thereof or with causing or permitting any pollution of any
body of water; and the outstanding charges set forth in said Disclosure Letter
will not result in liability to BEI or any of its Subsidiaries or any of their
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $500,000 for all such outstanding charges.
(k) Employee Matters. As of the date hereof and as of Closing Date,
----------------
there is no strike or work stoppage in existence or threatened involving any of
the Borrowers or the Subsidiary Guarantor that may materially adversely affect
the financial condition or operations of such Borrower or the Subsidiary
Guarantor or that may have a material adverse effect on such Borrower's or the
Subsidiary Guarantor's ability to perform its obligations under the Loan
Documents, having regard for its other financial obligations.
(l) Deposit Accounts. Set forth in the Disclosure Letter is a true and
----------------
complete list of all deposit accounts maintained by BEI or any of its
Subsidiaries as of the date hereof.
ARTICLE VI
COVENANTS
6.1 Affirmative Covenants. So long as any Note shall remain unpaid,
---------------------
any Letter of Credit shall remain outstanding or unreimbursed or any Lender
shall have any Commitment hereunder, the Borrowers will, unless the Majority
Lenders shall otherwise consent in writing:
(a) Financial Information. Furnish to each Lender and the
---------------------
Agent;
38
<PAGE>
(i) as soon as available, but in any event within ninety (90)
days after the end of each fiscal year of BEI, a copy of the Annual Report on
Form 10-K for such fiscal year filed by BEI and its consolidated Subsidiaries
with the S.E.C., accompanied by an unqualified report and opinion thereon of
independent certified public accountant acceptable to the Agent, all financial
statements contained therein to be complete and correct in all material respects
and in accordance with GAAP applied consistently throughout the fiscal year
(except as approved by such accountants and disclosed therein);
(ii) as soon as available, but in any event within forty-five
(45) days after the end of each of the first three fiscal quarters of BEI, a
copy of the Quarterly Report on Form 10-Q for such fiscal quarter filed by BEI
and its consolidated Subsidiaries with the S.E C., certified by a duly
authorized officer of BEI as being fairly stated in all material respects
subject to year end and audit adjustments, all financial statements contained
therein to be complete and correct in all material respects and in accordance
win GAAP, subject to normal year end and audit adjustments and the absence of
footnotes, applied consistency throughout the period reflected therein (except
as approved by such accountants and disclosed therein);
(iii) together with each delivery of financial statements of BEI
and its Subsidiaries pursuant to subdivisions (i) and (ii) above, (A) an
officers' certificate stating that the signers have reviewed the terms of the
Loan Documents and have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and condition of BEI and its
Subsidiaries during the accounting period covered by such financial statements
and that such review has not disclosed the existence during or at the end of
such accounting period, and that the signers do not have knowledge of the
existence as at the date of the officers' certificate, of any condition or event
which constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrowers have taken, are taking and
propose to take with respect thereto; and (B) a Compliance Certificate in the
form of Exhibit C demonstrating in reasonable detail compliance during and at
the end of such accounting periods with the restrictions contained in Sections
6.2(a), 6.2(b), 6.2(c), 6.2(d), and 6.2(e) as of the end of the fiscal period
covered thereby;
(iv) promptly upon receipt hereof, a copy of the management
letter submitted to the audit committee of the board of directors of BEI by
independent certified public accountant in connection with each annual audit of
the financial statements of BEI and its consolidated Subsidiaries made by such
accountants; and
39
<PAGE>
(v) substantially concurrent with the sending or filing hereof,
copies of all reports which any Borrower sends to a majority of its security
holders, and copies of all reports and registration statements which BEI or any
of its Subsidiaries files with the S.E.C. or any national securities exchange.
(b) Notices and Information. Deliver to the Agent and each Lender:
-----------------------
(i) promptly upon any officer of any Borrower obtaining
knowledge (A) of any condition or event which constitutes an Event of Default or
Potential Event of Default, (B) that any Person has given any notice to BEI or
any Subsidiary of BEI or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 7.1(f), (C) of
the institution of any litigation involving an alleged liability (including
possible forfeiture of property) of BEI or any of its Subsidiaries equal to or
greater than $1,000,000 or any adverse determination in any litigation involving
a potential liability of BEI or any of in Subsidiaries equal to or greater than
$1,000,000, or (D) of a material adverse change in the business, operations,
properties, assets or condition (financial or otherwise) of BEI and its
Subsidiaries, taken as a whole, an officers' certificate specifying the nature
and period of existence of any such condition or event, or specifying the notice
given or action taken by such holder or Person and the nature of such claimed
default, Event of Default, Potential Event of Default, event or condition, and
what action such Borrower has taken, is taking and proposes to take with respect
hereto:
(ii) promptly upon any Borrower becoming aware of the occurrence
of or forthcoming occurrence of any ERISA Event, a written notice specifying the
nature thereof, what action such Borrower has taken, is taking or proposes to
take with respect thereto, and, when known, any action taken or threatened by
the Internal Revenue Service, the Department of Labor, or the Pension Benefit
Guaranty Corporation with respect thereto;
(iii) promptly, but in any event within thirty (30) days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court in any way
concerning any action or omission on the part of BEI or any of its Subsidiaries
in connection with any substance defined as toxic or hazardous by any applicable
federal, state or local law, rule, regulation, order or directive or any waste
or by product thereof, or conceding the filing of a lien upon, against or in
connection with BEI, its Subsidiaries, or any of their leased or owned real or
personal property, in connection with a Hazardous Substance Superfund or a Post-
Closure Liability Fund as maintained pursuant to 9507 of the Internal Revenue
Code if such
40
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act or omission may result in liability in an amount exceeding $500,000 for all
such acts or omissions or if any such Lien, together with all other such Liens,
is based upon or against property the fair market value of which exceeds
$500,000 in the aggregate;
(iv) promptly following the establishment of any deposit account
by BEI or any of its Subsidiaries, which BEI or such Subsidiary anticipates will
have a cash balance from time to time in excess of $100,000, a notice setting
forth the name of the financial institution with which such account has been
established, the applicable account number and the Borrower or Subsidiary
establishing such account; and
(v) promptly, but in any event within ten (10) days after
request, such other information and data with respect to BEI or any of its
Subsidiaries as from time to time may be reasonably requested by the Agent or
any Lender.
(c) Corporate Existence. Etc. At all times presence and keep in
------------------------
full force and effect their and their respective Subsidiaries' respective
corporate existences and rights and franchises material to their respective
businesses and those of each of their respective Subsidiaries; provided, however
-------- -------
that the corporate existence of any Subsidiary of any Borrower may be terminated
if such termination is in the best interest of the Borrowers and is not
materially disadvantageous to the holder of any Note.
(d) Payment of Tax and Claims. Pay, and cause each of their
-------------------------
respective Subsidiaries to pay, all taxes, assessments and other governmental
charges imposed upon any of them or any of their respective properties or assets
or in respect of any of their respective franchises, business, income or
property before any penalty or interest accrues thereon, and all claims
(including claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a lien upon any
of their respective properties or assets, prior to the time when any penalty or
fine shall be incurred with respect thereto; provided that no such charge or
--------
claim need be paid if being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required in accordance win GAAP shall
have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to be
------------------------------------
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrowers and their respective
Subsidiaries and from time to time make or cause to be made all appropriate
repairs, renewals and replacements thereof. The Borrowers will maintain or cause
to be maintained, with financially sound and reputable insurers, insurance with
respect to their properties
41
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and business and the properties and business of their respective Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations.
(f) Inspection. Permit any authorized representatives designated by
----------
the Agent or any Lender to visit and inspect any of the properties of BEI or any
of its Subsidiaries, including its and their financial and accounting records,
and to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all at such reasonable times during normal business hours
and as open as may be reasonably requested.
(g) Compliance with Laws Etc. Exercise, and cause each of their
------------------------
respective Subsidiaries to exercise, all due diligence in order to comply with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including all environmental laws, rules, regulations and
orders, noncompliance with which would materially adversely affect the business,
properties, assets, operations, prospects or condition (financial or otherwise)
of any Borrower and its Subsidiaries, taken as a whole.
6.2 Negative Covenants. So long as any Note shall remain unpaid, any
------------------
Letter of Credit shall remain outstanding or unreimbursed or any Lender shall
have any Commitment hereunder, the Borrowers will not, without the written
consent of the Majority Lenders:
(a) Debt/Consolidated EBITDA Ratio. Permit the Debt/Consolidated
------------------------------
EBITDA Ratio at any time to be greater than 3.00 to 1.00.
(b) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net
-------------------------------
Worth as at the end of any fiscal quarter of BEI to be less than the sum of (i)
$28,149,000, plus (ii) 75% of positive Consolidated Net Income for each fiscal
quarter of BEI commencing with the fiscal quarter ending December 27, 1997 plus
(iii) 100% of the Net Proceeds of any Equity Issuance by BEI after September 30,
1997 excluding Equity Issuances arising from the exercise of stock options.
(c) Quick Ratio. Permit the Quick Ratio at any time to be less than
-----------
.80 to 1.00.
(d) Interest Coverage Ratio. As of the end of any fiscal quarter of
-----------------------
BEI, permit the ratio of (i) Consolidated EBITDA for the four fiscal quarters
then ended minus all Consolidated Capital Expenditures to (ii) Consolidated
Interest Expense for such four fiscal quarters to be less 2.00 to 1.00.
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<PAGE>
(e) Consolidated Net Income.
-----------------------
(i) Permit Adjusted Consolidated Net Losses for any fiscal
quarter to be greater than the greater of (A) $3,000,000 or (B) five percent
(5%) of Tangible Net Worth (as measured on the Closing Date).
(ii) Permit Adjusted Consolidated Net Losses for any two
consecutive fiscal quarters.
(iii) Permit the cumulative Consolidated Net Income for any
consecutive four fiscal quarters to be less than $1.00.
(f) Liens, Etc. Create or suffer to exist, or permit any of their
----------
respective Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its properties, whether now owned or hereafter acquired, other
than:
(i) Liens existing on the date hereof and set forth in the
Disclosure Letter,
(ii) Permitted Liens;
(iii) Liens (including chattel mortgages) upon or in any real
property or fixed assets acquired or leased by any Borrower or any of its
Subsidiaries in the ordinary course of business to secure (A) Debt incurred
solely for the purpose of financing the acquisition of such property or assets
or (B) Capital Leases, in each case permitted under Section 6.2(g)(vi); provided
any such Lien encumbers only the property or assets so acquired or leased; and
(iv) all renewals, refundings, refinancings and extensions of
any such Liens described in clause (i) above; provided that the principal amount
--------
secured is not increased and that such Lien is not extended to other property.
(g) Debt. Create or suffer to exist, or permit any of their
----
respective Subsidiaries to create or suffer to exist, any Debt, other than:
(i) Debt existing on the Closing Date and set forth in the
Disclosure Letter (as supplemented on the Closing Date);
(ii) Debt owed to the Lenders hereunder;
(iii) Debt of a wholly-owned Subsidiary of any Borrower to
another wholly-owned Subsidiary of such Borrower or to such Borrower, Debt of
any Borrower to a wholly-owned Subsidiary of such Borrower, Debt of SiTek, Inc.,
a Delaware corporation ("SiTek") to BEI and Debt of BEI to SiTek;
-----
43
<PAGE>
(iv) Contingent Obligations permitted under Section 6.2(k);
(v) reimbursement obligations with respect to Letters of Credit
issued hereunder in accordance with Section 2.5 and letters of credit permitted
under Section 6.2(k)(v);
(vi) Capital Leases and Debt incurred to finance the acquisition
of specific real property or fixed assets not in excess of $3,000,000 in the
aggregate at any one time outstanding; and
(vii) all renewals or extensions of any such Debt described in
clause (i) above, provided that the terms thereof are substantially the same as
those set forth in the documents evidencing such Debt as in effect on the date
hereof in the case of Debt described in clause (i).
(h) Dividends, Etc. Declare or pay any dividends, purchase or
--------------
otherwise acquire for value any of their respective capital stock now or
hereafter outstanding, or make any distribution of assets to their respective
stockholders as such, or permit any of their respective Subsidiaries to declare
or pay any dividends, purchase or otherwise acquire for value any stock of any
Borrower or any of their respective capital stock now or hereafter outstanding,
or make any distribution of assets to their respective stockholders as such,
except that (i) Borrower or any Subsidiary of any Borrower may declare and
deliver dividends and distributions payable in shares of its capital stock; (ii)
any wholly-owned Subsidiary of any Borrower may declare and pay cash dividends
to such Borrower, may purchase or acquire for value any stock of such Borrower
or any of such wholly-owned Subsidiary's capital stock now or hereafter
outstanding and may make distributions of assets to its stockholders as such;
and (iii) Borrower may declare and deliver dividends and distributions through
the Maturity Date in an aggregate amount not to exceed $2,000,000.
(i) Consolidation, Merger. Consolidate or merge with any other
---------------------
Person, liquidate, wind-up or dissolve themselves or acquire by purchase or
otherwise all or substantially all of the business, property or fixed assets of,
or stock or other evidence of beneficial ownership of, any Person, or permit any
of their respective Subsidiaries to do any of the foregoing, except that:
(i) any Subsidiary of any Borrower may be merged or consolidated
with or into such Borrower or any wholly-owned Subsidiary of such Borrower, or
be liquidated, wound up or dissolved, or all or any substantial part of its
business, property or assets may be conveyed, sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions, to such
Borrower or any wholly-owned Subsidiary of
44
<PAGE>
such Borrower; provided that, in the case of such a merger or consolidation,
such Borrower or such wholly-owned Subsidiary shall be the continuing or
surviving corporation:
(ii) any Borrower or any wholly-owned Subsidiary of a Borrower
may acquire the business, property, fixed assets or stock of Persons in a
related business (each, an "Acquisition"), provided that (i) immediately
----------- --------
following the consummation of any such Acquisition there shall exist no
condition or event that constitutes an Event of Default or a Potential Event of
Default, (ii) the fair market value of the consideration (whether in the form of
cash, assumed liabilities, or debt or equity securities of any Borrower or any
Subsidiary of a Borrower) paid in any such Acquisition does not exceed
$2,500,000 and (iii) the aggregate fair market value of the consideration
(whether in the form of cash, assumed liabilities, or debt or equity securities
of any Borrower or any Subsidiary of a Borrower) paid in all such Acquisitions
during any fiscal year of BEI does not exceed $12,000,000 in the aggregate; and
(iii) any Borrower or any wholly-owned Subsidiary of a
Borrower may make any Acquisition approved by Majority Lenders, which approval
shall not be unreasonably withheld.
(j) Investments. Make or permit to remain outstanding, or permit any
-----------
of their respective Subsidiaries to make or permit to remain outstanding, any
Investment, except that the Borrower and their Subsidiaries may:
(i) continue to own Investments existing on the date hereof and
set forth in the Disclosure Letter;
(ii) own, purchase or acquire certificates of deposit by any
Lender, commercial paper ranked Moody's P-I, municipal bonds rated Moody's AA or
better, direct obligations of the United States of America or its agencies, and
obligations guaranteed by the United States of America;
(iii) acquire and own stock, obligations or securities received
from customers in connection with debts created in the ordinary course of
business owing to a Borrower or a Subsidiary of a Borrower;
(iv) continue to own the existing capital stock of their
respective Subsidiaries;
(v) make or permit to remain outstanding intercompany loans to
the extent permitted under Section 6.2(g)(iii);
(vi) make any Acquisition permitted by Section 6.20(i);
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<PAGE>
(vii) make additional Investments in any Borrower or any of
their respective wholly-owned Subsidiaries;
(viii) purchase or otherwise acquire capital stock to the extent
permitted under Sections 6.2(h);
(ix) make deposits with vendors representing advance payments
made in the ordinary course of business; and
(x) make Investment not otherwise permitted by clauses (i)
through (ix) above, not in excess of $1,000,000 in the aggregate at any one
time.
(k) Contingent Obligations. Create or become or remain liable, or
----------------------
permit any of their respective Subsidiaries to create or become or remain
liable, with respect to any Contingent Obligation, except that the Borrowers and
their Subsidiaries may:
(i) remain liable with respect to Contingent Obligations
existing on the date hereof and set forth in the Disclosure Letter;
(ii) enter into Interest Rate Agreements and Currency Agreements
in an aggregate notional principal amount not to exceed at any time the
aggregate principal amount of all then outstanding Debt of BEI ant its
Subsidiaries, provided that all such arrangements are entered into in connection
with bona fide hedging operations and not for speculation;
(iii) endorse negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business;
(iv) become or remain liable with respect to Letters of Credit
issued pursuant to Section 2.5;
(v) become and remain liable with respect to documentary letters
of credit issued for the account of Borrower or any Subsidiary of any Borrower
not to exceed $1,000,000 at any time;
(vi) become and remain liable with respect to any guarantee of
any Debt of any Borrower or any Subsidiary of a Borrower; and
(vii) become and remain liable with respect to Contingent
Obligations not otherwise permitted by clauses (i) through (vi) above, not in
excess of $1,500,000 in the aggregate at any one time.
(l) Asset Sales. Convey, sell, lease, transfer or otherwise dispose
-----------
of, or permit any of their respective Subsidiaries to convey, sell, lease,
transfer or otherwise
46
<PAGE>
dispose of, in one transaction or a series of transactions, (i) all or any part
of their or their respective Subsidiaries' business, property or fixed assets
outside of the ordinary course of business, whether now owned or hereafter
acquired, or (ii) any capital stock or debt of any of their respective
Subsidiaries, except:
(i) The Borrowers and their respective Subsidiaries may convey,
sell, lease, transfer or otherwise dispose of business, property or fixed assets
the fair market value of which does not exceed $2,500,000 in the aggregate in
any fiscal year;
(ii) The Borrowers and their respective Subsidiaries may convey,
sell, lease, transfer or otherwise dispose of fixed assets in the ordinary
course of business; and
(iii) Any Subsidiary of any Borrower may sell, lease or transfer
assets to such Borrower or to any wholly-owned Subsidiary of such Borrower.
(m) Transactions with Shareholders and Affiliates. Enter into, or
---------------------------------------------
permit any of their respective Subsidiaries to enter into, any transaction
including the purchase, sale, lease or exchange of any property or the rendering
of any service) with any holder of 5% or more of any class of equity securities
of any Borrower, or with any Affiliate of any Borrower or any such holder (other
than another Borrower or a wholly-owned Subsidiary of a Borrower), on terms that
(when taken in the light of any related or series of transactions of which such
transaction is a part (if any)) are less favorable to any Borrower or any such
Subsidiary than those which might be obtained at the time from Persons who are
not such a holder or Affiliate.
(n) Agreements Restricting Payment of Dividends. Permit any of their
-------------------------------------------
respective Subsidiaries to enter into any agreement restricting the ability of
such Subsidiary to declare, order, pay or make or set apart any sum for any
dividends or other distributions on account of any shares of any class of its
stock.
(o) Restrictive Agreements. Agree with any Person, or permit any of
----------------------
their respective Subsidiaries to agree with any Person, that any Borrower or
such Subsidiary will not create, incur or suffer to exist any Liens on its
properties.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events ("Event of
----------------- --------
Default") shall occur and be continuing:
- -------
47
<PAGE>
(a) Any Borrower shall fail to pay any installment of the principal of
any Note when due, to pay when due any amount payable in reimbursement of the
Issuing Bank in respect of a drawing under a Letter of Credit, or to pay any
installment of interest on any Note or other amount payable hereunder within
three (3) Business Days of the date when due; or
(b) Any representation or warranty made by the Borrowers herein or by
the Borrowers (or any of their officers) in connection with this Agreement shall
prove to have been incorrect in any material respect when made; or
(c) The Borrowers shall fail to perform or observe any term, covenant
or agreement contained Section 3.1, 6.1(b)(i), 6.1(c) or 6.2 on their part to be
performed or observed; or
(d) The Borrowers or the Subsidiary Guarantor shall fail to perform or
observe any term, covenant or agreement contained in this Agreement or any other
Loan Document other than those referred to in Sections 7.1(a), 7.1(b), and
7.1(c) above on their part to be performed or observed and any such failure
shall remain unremedied or uncured for thirty (30) days after any Borrower knows
of such failure, or, with respect to Section 6.1(a)(iii)(B) only, such failure
shall remain unremedied or uncured at the beginning of the next succeeding
Pricing Period; or
(e) The Borrowers or the Subsidiary Guarantor shall default in the
performance of or compliance with any term contained in any Loan Document other
than this Agreement and such default shall not have been remedied or waived
within any applicable grace period; or
(f) (i) BEI or any of its Subsidiaries shall (A) fail to pay any
principal of, or premium or interest on, any Debt, the aggregate outstanding
principal amount of which is at least $500,000 (excluding Debt evidenced by the
Notes), when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (B) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Debt, when required to be performed or observed,
and such failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument; or
(g) (i) BEI or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect
48
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to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or BEI or any of its
Subsidiaries shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against BEI or any of its Subsidiaries any
case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of sixty (60) days; or (iii) there shall be commenced against BEI or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within sixty (60) days from the entry thereof; or (iv) BEI or any
of its Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii) and (iii) above; or (v) BEI or any of its Subsidiaries shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(h) One or more judgments or decrees shall be entered against BEI or
any of its Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance) equal to or greater than $1,000,000 and all such
judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within thirty (30) days from the entry hereof; or
(i) There shall occur one or more ERISA Events which individually or
in the aggregate results in or might reasonably be expected to result in
liability of BEI or any of its ERISA Affiliates in excess of $1,000,000 during
the term of this Agreement; or
(j) There shall be instituted against BEI or any of its Subsidiaries
any proceeding for which forfeiture of any property of material value is a
potential penalty;
THEN (i) upon the occurrence of any Event of Default described in cause (g)
above, the Commitment and any obligation of the Issuing Bank to issue any Letter
of Credit shall immediately terminate and all Loans hereunder together with
accrued interest thereon, an amount equal to the Letter of Credit Usage and all
other amounts owing under this Agreement, the Notes, the Letters of Credit, and
the other Loan Documents shall automatically become due and payable) and (ii)
upon the occurrence of any other Event of Default, the Agent shall at the
request, or may with the
49
<PAGE>
consent, of the Majority Lenders, by notice to the Borrowers declare the
Commitment and any obligation to issue any Letter of Credit to be terminated
forthwith, whereupon the Commitment and any obligation of the Issuing Bank to
issue any Letter of Credit shall immediately terminate, and/or, by notice to the
Borrowers, declare the Loans hereunder, with accrued interest thereon, an amount
equal to the Letter of Credit Usage, and all other amounts owing under this
Agreement, the Notes, the Letters of Credit and the other Loan Documents to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
So long as any Letter of Credit shall remain outstanding, any amounts received
by the Issuing Bank, may be held as cash collateral for the obligation of the
Borrower for whose benefit the Letter of Credit was issued to reimburse the
Issuing Bank in event of any drawing under any Letter of Credit. In the event
any Letter of Credit in respect of which the Borrowers have deposited cash
collateral with the Issuing Bank is cancelled or expires, the cash collateral
shall be applied first to the reimbursement of the Issuing Bank for any drawings
------
thereunder, and second to the payment of any outstanding obligations of the
------
Borrowers hereunder or under any other Loan Document.
ARTICLE VIII
GUARANTEE
8.1 Guarantee. Each Borrower and the Subsidiary Guarantor (for
---------
purposes of this Article VII, each a "Guarantor") hereby unconditionally and
---------
irrevocably guarantees to the Agent and the Lenders, the prompt and complete
payment and performance by each of the Borrowers or other Borrowers (as
applicable) when due (whether at the stated maturity, by acceleration or
otherwise) of the Loans and other Obligations owing to the Agent and the Lenders
by the Borrowers or the other Borrowers (as applicable). This Guarantee shall
remain in full force and effect until the Obligations of the Borrowers are
indefeasibly paid in full, notwithstanding that from time to time prior thereto
any Borrower may be free from any Obligations. No payment or payments made by
any Borrower or any other Person or received or collected by the Agent or any
Lender from any Borrower or any other Person by virtue of any action or
proceeding or any offset or appropriation or application, at any time or from
time to time, in reduction of or in payment of the Obligations of the Borrowers
shall be deemed to modify, reduce, release or otherwise affect the liability of
each Guarantor under this Guarantee, and each Guarantor shall remain obligated
under this Guarantee, notwithstanding any such payment or payments, until the
Obligations of the Borrowers are indefeasibly paid in full.
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<PAGE>
8.2 No Subrogation, Contribution, Reimbursement or Indemnity.
--------------------------------------------------------
Notwithstanding anything to the contrary in this Guarantee, each Guarantor
hereby irrevocably waives all rights which may have arisen in connection with
this Guarantee to be subrogated to any of the rights (whether contractual, under
the Bankruptcy Code, including Section 509 hereof, under common law or
otherwise) of the Agent or any Lender against any Borrower or any other Borrower
(as applicable) for the payment of the Obligations. Each Guarantor hereby
further irrevocably waives all contractual, common law, statutory or other
rights of reimbursement, contribution, exoneration or indemnity (or any similar
right) from or against any Borrower or any other Borrower (as applicable) or any
other Person which may have arisen in connection with this Guarantee. So long
as the Obligations of any of the Borrowers remain outstanding, if any amount
shall be paid by or on behalf of any Borrower to any Guarantor on account of any
of the rights waived in this subsection, such amount shall be held by such
Guarantor in trust, segregated from other funds of such Guarantor and shall,
forthwith upon receipt by such Guarantor, be turned over to the Agent in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Agent, if required), to be applied against the obligations of the Borrower or
the other Borrowers (as applicable), whether matured or unmatured, in such order
as the Agent may determine. The provisions of this Section shall survive the
payment in full of the Obligations of the Borrowers.
8.3 Amendments Etc., with Respect to the Obligations. Each Guarantor
------------------------------------------------
shall remain obligated under this Guarantee notwithstanding that, without any
reservation of rights against such Guarantor, and without notice to or further
assent by such Guarantor, any demand for payment of any of the Obligations made
by the Agent or any Lender may be rescinded by the Agent or such Lender, and any
of the Obligations continued, and the obligation, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Agent or any Lender, and
this Agreement and the other Loan Documents may be amended, modified,
supplemented or terminated, in whole or in part, as the Agent or the Lenders (or
the Majority Lenders, as the case may be) may deem advisable from time to time
in accordance with the provisions of Section 10.1, and any collateral security,
guarantee or right of set-off at any time held by the Agent or any Lender for
the payment of the Obligations may be sold, exchanged, Waived, surrendered or
released. Neither the Agent nor any Lender shall have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as security
for the Obligations or for the obligations of any Guarantor under this Guarantee
or any property subject thereto.
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8.4 Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Agent or any Lender upon
this Guarantee or acceptance of this Guarantee; the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred
in reliance upon this Guarantee; and all dealings between the Borrowers, on the
one hand, and the Agent and the Lenders, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. Each Guarantor waives:
(a) diligence, presentment, protest, notice of intent to
accelerate, notice of acceleration, demand for payment and notice of default or
nonpayment to or upon any of the Borrowers or any other Borrowers (as
applicable) or the Guarantor with respect to the Obligations;
(b) any right to require the Agent or the Lenders, as a
condition of payment or performance by the Guarantor, to (i) proceed against the
Borrowers or the other Borrowers (as applicable), any other guarantor of the
Obligations or any other Person, (ii) proceed against or exhaust any security
held from the Borrowers or the other Borrowers (as applicable), any other
guarantor of the Obligations or any other Person, (iii) proceed against or have
resort to any balance of any deposit account or credit on the books of the Agent
or any Lender in favor of the Borrowers or any other Borrowers (as applicable)
or any other Person, or (iv) pursue any other remedy in the power of the Agent
or any Lender whatsoever;
(c) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of any Borrower or any other
Borrower (as applicable), including any defense based on or arising out of the
lack of validity or the unenforceability of the Obligations or any agreement or
instrument relating hereto or by reason of the cessation of the liability of any
Borrower or any other Borrower (as applicable) from any cause other than
indefeasible payment in full of the Obligations;
(d) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respect more burdensome than that of the principal;
(e) any defense based upon the Agent's or any Lender's errors or
omissions in the administration of the Obligations, except behavior which
amounts to bad faith;
(f) (i) any principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms of this Article VIII
and any legal or equitable discharge of such Guarantor's obligations hereunder,
(ii) the
52
<PAGE>
benefit of any statute of limitations effecting such Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments
and counterclaims, and (iv) promptness, diligence and any requirement that the
Agent or any Lender protect, secure, perfect or insure any security interest or
lien or any property subject thereto;
(g) notices of any renewal, extension or modification of the
Obligations or any Loan Document; and
(h) any defenses or benefits that may be derived from or
afforded by applicable law which limit the liability of or exonerate guarantors
or sureties, or which may conflict with the terms of this Article VIII,
including (if and to the extent applicable) the provisions of California Civil
Code Sections 2809, 2810, 2819, 2839, 2845, 2846, 2849, 2850, 2899 and 3433.
This Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of this Agreement, any other Loan Document, any of the
Obligations or any collateral security therefor or guarantee or right of set-off
with respect thereto at any time or from time to time held by the Agent or any
Lender, (b) any defense, offset or counterclaim (other than a defense of payment
or performance) which may at any time be available to or be asserted by any of
the Borrowers against the Agent or any Lender or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any of the Borrowers)
which constitutes, or might be construed to constitute, an equitable or legal
discharge of any of the Borrowers or any of the other Borrowers (as applicable)
for the Obligations of such Borrower, or of the Guarantor under this Guarantee,
in bankruptcy or in any other instance.
8.5 Reinstatement. This Guarantee shall continue to be effective,
-------------
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Obligations of any Borrower is rescinded or must
otherwise be restored or returned by the Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of such
Borrower or upon or as a result of the appointment of a receiver, intervener or
conservator of, or trustee or similar officer for, such Borrower or any
substantial part of any of its property, or otherwise, all as such payments had
not been made.
ARTICLE IX
THE AGENT
9.1 Authorization and Action. Each Lender hereby appoints and
------------------------
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with
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such powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement (including enforcement or collection of
the Notes), the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
------------------
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or applicable law. The Agent agrees to give
to each Lender prompt notice of each notice given to it by any of the Borrowers
pursuant to the terms of this Agreement.
9.2 Agent's Reliance, Etc. Neither the Agent nor any of its
----------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or wilful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent (ii) may consult with legal counsel (including counsel
for the Borrowers), independent public accountants and other experts selected by
it and still not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (iii) makes no warranty or representation to any Lender and shall not
be responsible to any Lender for any statements, warranties or representations
made in or in connection with this Agreement; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement on the part of the Borrowers or to
inspect the property (including the books and records) of the Borrowers; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
9.3 Canadian Imperial Bank of Commerce. and Affiliates. With
--------------------------------------------------
respect to its Commitment, the Advances made by it and the Note issued to it,
Canadian Imperial Bank of Commerce shall have the same rights and powers under
this Agreement as any other Lender and may exercise the same as though it were
not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Canadian Imperial Bank of Commerce in its
individual capacity. Canadian Imperial Bank of Commerce and its Affiliates may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind
54
<PAGE>
of business with, BEI, any of its subsidiaries and any Person who may do
business with or own securities of BEI or any such subsidiary, all as if
Canadian Imperial Bank of Commerce were not the Agent and without any duty to
account therefor to the Lenders.
9.4 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the agent or any other Lender and based
on the financial statements referred to in Section 5.1(e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
9.5 Indemnification. The Lenders agree to indemnify the Agent (to
---------------
the extent not reimbursed by the Borrowers), ratably according to the respective
principal amounts of the Notes then held by each of them (or if no Notes are at
the time outstanding or if any Notes are held by Persons which are not lenders,
ratably according to the respective amounts of their Commitments), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any action
taken or omitted by the Agent under this Agreement, provided that no Lender
--------
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or wilful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, to the extent that the Agent is not reimbursed for such expenses
by the Borrowers.
9.6 Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Lenders and the Borrowers and may be removed at
any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Lenders, and shall have accepted such appointment, within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the
55
<PAGE>
lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article IX shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Amendment. Etc. No amendment or Waiver of any provision of the
---------------
Loan Documents nor consent to any departure by the Borrowers therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Majority Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
- -------
signed by all the Lenders, do any of the following; (a) increase the Commitment
of the Lenders or subject the Lenders to any additional obligations, (b) reduce
the principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (c) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (d)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action hereunder or (e) amend this Section
10.1; and provided, further that no amendment, waiver or consent shall, unless
-------
in writing and signed by the Agent in addition to the Lenders required above to
take such action, affect the rights or duties of the Agent under this Agreement
or any other Loan Document.
10.2 Notices. Etc. Except as otherwise set forth in this Agreement,
-------------
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or delivered, if to the Borrowers or
the Subsidiary Guarantor, at the addresses set forth on the signature page
hereof; and if to any Lender or the Agent, at its address set forth on the
signature page hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective three (3) Business Days after
deposit in the U.S mail, postage prepaid, when sent by telex or
56
<PAGE>
sent by facsimile, or when delivered, respectively, except that notices and
communications to the Agent pursuant to Article II or VII shall not be effective
until received by the Agent.
10.3 Right of Setoff; Deposit Accounts. Upon and after the
---------------------------------
occurrence of any Event of Default, each Lender is hereby authorized by the
Borrowers, at any time and from time to time, without notice, (a) to set off
against, and to appropriate and apply to the payment of, the obligations and
liabilities of the Borrowers under the Loan Documents (whether matured or
unmatured, fixed or contingent or liquidated or unliquidated) any and all
amounts owing by such Lender to the Borrowers (whether payable in Dollars or any
other currency, whether matured or unmatured, and, in the case of deposits,
whether general or special, time or demand and however evidenced) and (b)
pending any such action, to the extent necessary, to hold such amounts as
collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as such Lender in its sole discretion may elect. The Borrowers
hereby grant to each Lender a security interest in all deposits and accounts
maintained with that Lender. The rights of each Lender under this Section are
in addition to other rights and remedies (including odds rights of set off)
which such Lender may have.
10.4 No Waiver; Remedies. No failure on the part of the Agent or any
-------------------
Lender to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise hereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
10.5 Costs and Expenses. The Borrowers agree to pay on demand all
------------------
costs and expenses of the Agent (including attorney's fees and the reasonable
estimate of the allocated cost of in-house counsel and staff) in connection with
the preparation, amendment, modification, enforcement (including in appellate,
bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar
proceedings) or restructuring of the Loan Documents.
10.6 Additional Lenders; Assignments: Participations.
-----------------------------------------------
(a) Each Lender hereby represents that it is making its Loans
provided for herein and receiving its Note for its own account and not with a
view to the distribution hereof, subject, however, to any requirement that its
------- -------
property shall at all times be within its control and subject further to each
---------------
Lender's right to assign all or any portion of its share of the Commitments and
its Note or to grant participations therein in accordance with this Section
10.6. Lender may assign, from time to time, all or any portion of its pro rata
share of the
57
<PAGE>
Commitments and its Note to an Affiliate of that Lender or, subject to the prior
written approval of the Borrowers (which approval will not be unreasonably
withheld), to any other financial institution acceptable to the Agent; provided
--------
that any such assignment effected hereunder shall be in a minimum amount of
$5,000,000 or such Lender's entire Commitment; provided further that no such
-------- -------
assignment shall become effective until the Agent shall have received a
registration and processing fee of $3000 to be paid as the assignor and assignee
shall mutually agree; and provided, further that each such assignment shall be
-------- -------
evidenced by an Assignment and Acceptance Agreement in the form of Exhibit E.
From and after the effective date of such assignment (i) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it, have the rights and obligations of a Lender hereunder
and (ii) the Lender assignor hereunder shall, to the extent that rights and
obligations hereunder have been assigned by it, relinquish its rights and be
released from its obligations under this Agreement (other than pursuant to
Section 10.6(e)), and, in the case of an assignment covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto, subject to its
continuing obligations under Section 10.6(e). The Commitments hereunder shall
be modified to reflect the Commitment of such assignee, and, if any such
assignment occurs while any Notes are outstanding, new Notes shall, upon the
surrender of the assigning Lender's Notes, be issued to such assignee and to the
assigning Lender as necessary to reflect the new Commitments of the assigning
Lender and of its assignee.
(b) Each Lender may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrowers
outstanding under the Loan Documents, without notice to or the approval of the
Agent or the Borrowers; provided that any such sale, negotiation or
--------
participation shall be in compliance with the applicable federal and state
securities laws and the other requirements of this Section 10.6. No participant
shall constitute a "Lender" under any Loan Document, and the Borrowers shall
continue to deal solely and directly with the Agent and the Lenders.
(c) Each Lender may disclose to any proposed assignee or participant
any information relating to BEI or any of its Subsidiaries; provided, that prior
to such disclosure such proposed assignee or participant shall have agreed in
writing to keep any such information confidential substantially on the terms of
Section 10.6(e).
(d) The grant of a participation interest shall be on such terms as
the granting Lender defines are appropriate, provided only that (i) the holder
of such a participation interest shall not have any of the rights of a Lender
under this Agreement except, if the participation agreement so provides, rights
to demand the payment of costs of the type described in
58
<PAGE>
Article III; provided, however, the aggregate amount that the Borrowers shall be
-----------------
required to pay under Sections 3.6, 3.9 and 3.12, and the aggregate attorneys'
fees and costs that the Borrower shall be required to pay under Section 3.7,
with respect to any ratable share of the Commitment or any Loan (including
amounts paid to participants) shall not exceed the amount that the Borrowers
would have had to pay if no participation agreements had been entered into, and
(ii) the consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Documents other
than those that (A) increase the amount of the Commitments, (B) extend the term
of the Commitments, (C) decrease the rate of interest or the amount of any fee
or any other amount payable to the Lenders under the Loan Documents, (D) reduce
the principal amount payable under the Loan Documents, or (E) extend the date
fixed for the payment of principal or interest or any other amount payable under
the Loan Documents.
(e) Each Lender understands that some of the information and documents
furnished to it pursuant to this Agreement may be confidential and each Lender
agrees that it will keep all non-public information, documents and agreements so
furnished to it confidential and will make no disclosure to other Persons of
such information or agreements until it shall have become public, except (i) to
the extent required in connection with matters involving operations under or
enforcement or amendment of the Loan Documents; (ii) to such Lender's examiners
and auditors or in accordance with such Lender's obligations under law or
regulations or pursuant to subpoenas or other process to make information
available to governmental agencies and examiners or to others: (iii) to any
corporate parent of any Lender so long as such parent agrees to accept such
information or agreement subject to the restrictions provided in this Section
10.6(e); (iv) to any participant bank or trust company of any Lender so long as
such participant shares the corporate parent with such Lender and agrees to keep
such information, documents or agreement confidential in accordance with the
restrictions provided in this Section 10.6(e); (v) to the Agent or to any other
Lender and their respective counsel and other professional advisors and to its
own counsel and professional advisors so long as such Persons are instructed to
keep such information confidential in accordance with the provisions of this
Section 10.6(e); (vi) to proposed assignees and participants in accordance with
Section 10.6(c); and (vii) with the prior written consent of the Borrowers.
10.7 Effectiveness; Binding Effect; Governing Law. This Agreement
--------------------------------------------
shall become effective when it shall have been executed by the Borrowers, the
Subsidiary Guarantor, the Agent and each Lender and thereafter shall be binding
upon and inure to the benefit of the Borrowers, the Subsidiary Guarantor, the
Agent, each Lender and their respective successors and assigns, except that the
Borrowers and the Subsidiary Guarantor shall not have the right to assign their
rights hereunder or any interest
59
<PAGE>
herein without the prior written consent of the Agent and all the Lenders. THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF TO STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW
DOCTRINE. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS AND RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO RULES OR LAWS ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES
FOR DOCUMENTARY CREDIT (1983 REVISION), INTERNATIONAL CHAMBER OF COMMERCE,
PUBLICATION NO. 400 (THE "UCP") AND, AS TO MATTERS NOT GOVERNED BY THE UCP, THE
---
LAWS OF THE STATE OF CALIFORNIA.
10.8 Waiver of Jury Trial. THE BORROWERS, THE SUBSIDIARY GUARANTOR,
--------------------
THE AGENT AND EACH LENDER HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims. The Agent, each Lender, the Borrowers and the Subsidiary Guarantor each
acknowledge that this waiver is a material inducement to enter into a business
relationship, that each has already relied on the waiver in entering into this
Agreement, and that each will continue to rely on the waiver in is related
future dealings. The Agent, each Lender, the Borrowers and the Subsidiary
Guarantor further warrant and represent that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOAN. In the event of litigation, this Agreement may be filed
as a written consent to a trial by the court.
10.9 Consent to Jurisdiction; Venue; Agent for Service of Process.
------------------------------------------------------------
All judicial proceedings brought against any Borrower or the Subsidiary
Guarantor with respect to this Agreement and the Loan Documents may be brought
in any state or federal court of competent jurisdiction in the City of San
Francisco in the State of California, and by execution and delivery of this
Agreement, each Borrower and the Subsidiary Guarantor accepts for itself and in
connection with its respective properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
Borrowers and the Subsidiary Guarantor irrevocably waive any right they may have
to
60
<PAGE>
assert the doctrine of forum non conveniens or to object to venue to the extent
----- ----------
any proceeding is brought in accordance with this Section. The Borrowers (other
than BEI) and the Subsidiary Guarantor designate and appoint BEI at the address
set forth on the signature page hereof and such other Person as may hereafter be
selected by the Borrowers and the Subsidiary Guarantor irrevocably agreeing in
writing to so serve as their agent to receive on their behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by the Borrowers and the Subsidiary Guarantor to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the applicable Borrower and the Subsidiary
Guarantor at its address provided in the applicable signature page hereto,
except that unless otherwise provided by applicable law, any failure to mail
such copy shall not affect the validity of service of process. If any agent
appointed by the Borrowers and the Subsidiary Guarantor refuses to accept
service, the Borrowers and the Subsidiary Guarantor hereby agree that service
upon them by mail shall constitute sufficient notice. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of the Agent or any Lender to bring proceedings against the
Borrowers and the Subsidiary Guarantor in courts of any jurisdiction.
10.10 Entire Agreement. This Agreement with Exhibits and Schedules
----------------
and the other Loan Documents embody the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
10.11 Separability of Provisions. In case any one or more of the
--------------------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby
10.12 Obligations Several. The obligation of each Lender hereunder is
-------------------
several, and no Lender shall be responsible for the obligation or commitment of
any other Lender hereunder. Nothing contained in this Agreement and no action
taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders
to be a partnership, an association, a joint venture or any other kind of
entity.
10.13 Survival of Certain Agreements. Notwithstanding anything in
------------------------------
this Agreement or implied by law to the contrary, the agreements of the
Borrowers and the Subsidiary Guarantor (as applicable) set forth in Sections
3.6, 3.7, 3.9, 3.12, 3.13 and Article VII, 8.1 and 10.5 and the agreements of
the Lenders set forth in Sections 3.10, 9.2, 9.5 and 10.3 shall survive the
payment of the Loans and the Notes and the termination of this Agreement.
61
<PAGE>
10.14 Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement;
signature pages may be attached from counterpart documents and reassembled to
form duplicate executed originals.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS AND SUBSIDIARY GUARANTOR:
BEI TECHNOLOGIES, INC.,
as a Borrower
--------------------------------------------------
By:
Title:
Address:
One Post Street
Suite 2500
San Francisco, California 94104
Attention: Robert R. Corr
BEI SENSORS & SYSTEMS COMPANY,
INC., as a Borrower
--------------------------------------------------
By:
Title:
Address:
One Post Street
Suite 2500
San Francisco, California 94104
Attention: Robert R. Corr
63
<PAGE>
DEFENSE SYSTEMS COMPANY, INC.,
as Subsidiary Guarantor
--------------------------------------------------
By:
Title:
Address:
One Post Street
Suite 2500
San Francisco, California 94104
Attention: Robert R. Corr
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent
--------------------------------------------------
By:
Title:
Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-4165
Telecopier: (212) 856-3991
Attention: Cyd Petre
Payment Address:
Bank of New York, New York
(SWIFT Code IRVTUS3N)
ABA No.: 021-000-018
Account No.: 890-0331-046
For further Credit to: Agented Loans
Account No.: 07-09611
Attention: Agency Services
Reference: BEI Electronics
64
<PAGE>
COMMITMENT THE LENDERS:
$25,000,000 CIBC INC.,
as a Lender
--------------------------------------------------
By:
Title:
Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-4165
Telecopier: (212) 856-3991
Attention: Cyd Petre
THE ISSUING BANK:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Designated Issuer
--------------------------------------------------
By:
Title:
Address:
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 856-4165
Telecopier: (212) 856-3991
Attention: Cyd Petre
65
<PAGE>
SCHEDULE 1.1(A)
---------------
PRICING GRID
------------
<TABLE>
<CAPTION>
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4
PERIOD PERIOD PERIOD PERIOD
-------- -------- -------- --------
<S> <C> <C> <C> <C>
APPLICABLE MARGINS
- ------------------
EURODOLLAR RATE
- ---------------
LOANS: 1.00% 1.25% 1.50% 1.75%
- -----
COMMITMENT FEE
- --------------
PERCENTAGES: .250% .375% N/A N/A
- -----------
</TABLE>
EXPLANATION
-----------
1. The Applicable Margin for each Eurodollar Rate Loan and the Commitment Fee
Percentage will be set for each Pricing Period and will vary depending upon
whether such period is (a) a Level 1 Period or a Level 2 Period, in the
case of Commitment Fee Percentages and (b) a Level 1 Period, a Level 2
Period, a Level 3 Period or a Level 4 Period, in the case of Eurodollar
Rate Loans on the basis of the Compliance Certificate delivered during the
immediately preceding Pricing Period.
2. The first Pricing Period, which commences on the date of this Agreement and
ends on December 31, 1997, will be a Level 3 Period.
3. Each Pricing Period thereafter will be (a) a Level 1 Period or a Level 2
Period, in the case of Commitment Fee Percentages and (b) a Level 1 Period,
a Level 2 Period, a Level 3 Period or a Level 4 Period, in the case of
Eurodollar Rate Loans depending upon the Debt/Consolidated EBITDA Ratio for
the most recent fiscal quarter end prior to the first day of such Pricing
Period as follows:
(a) Commitment Fee Percentages:
--------------------------
(i) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is less than 2.50 to 1.00, the Borrowers' pricing will be a Level
1 Period.
(ii) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is greater than or equal to 2.50 to 1.00, the Borrowers' pricing
will be a Level 2 Period.
1.1-1
<PAGE>
(b) Eurodollar Rate Loans:
---------------------
(i) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is less than 1.00 to 1.00, the Borrowers' pricing will be a Level
1 Period.
(ii) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is less than 1.50 to 1.00 but greater than or equal to 1.00 to
1.00, the Borrowers' pricing will be a Level 2 Period.
(iii) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is less than 2.50 to 1.00 but greater than or equal to 1.50 to
1.00, the Borrowers' pricing will be a Level 3 Period.
(iv) If, during any Pricing Period, the Debt/Consolidated EBITDA Ratio
is greater than or equal to 2.50 to 1.00, the Borrowers' pricing
will be a Level 4 Period.
1.1-2
<PAGE>
EXHIBIT A
---------
[FORM OF PROMISSORY NOTE]
-------------------------
BEI TECHNOLOGIES, INC.
BEI SENSORS & SYSTEMS COMPANY, INC.
[/1/]
[/2/] [/3/]
FOR VALUE RECEIVED, BEI TECHNOLOGIES, INC., a Delaware corporation and
BEI SENSORS & SYSTEMS COMPANY, INC., a Delaware corporation (the "Borrowers"),
---------
promise to pay to the order of [ ] (the "Lender") the principal
--------------- ------
amount of [/4/] ($[/2/]) or, if less, the aggregate amount of Revolving Loans
(as defined in the Credit Agreement referred to below), made by the Lender to
the Borrowers pursuant to the Credit Agreement referred to below outstanding on
the Maturity Date (as defined in the Credit Agreement referred to below) on the
Maturity Date.
The Borrowers also promise jointly and severally to pay interest on
the unpaid principal amount hereof from the date hereof until paid at the rates
and at the times which shall be determined in accordance with the provisions of
the Credit Agreement.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in same day funds at the
office of the Agent (as defined in the Credit Agreement referred to below)
described in the Credit Agreement. Until notified of the transfer of this Note,
the Borrowers shall be entitled to deem the Lender or such person who has been
so identified by the transferor in writing to the Borrowers as the holder of
this Note, as the owner and holder of this Note. Each of the Lender and any
subsequent holder of this Note agrees that before disposing of this Note or any
part hereof it will make a notation hereon of all principal payments previously
made hereunder and of the date to which interest hereon has been paid on the
schedule attached hereto, if any; provided, however, that the failure to make
-------- -------
notation of any payment made on this Note shall not limit or otherwise affect
the obligation of the Borrowers hereunder with respect to payments of principal
or interest on this Note.
This Note is referred to in, and is entitled to the benefits of, the
Credit Agreement dated as of September 28, 1997 (the "Credit Agreement", the
----------------
terms defined herein and not otherwise defined herein being used herein as
therein defined)
- ----------------------------------
/1/ Insert place of delivery of Note.
/2/ Insert amount of Revolving Commitment in numbers.
/3/ Insert Closing Date.
/4/ Insert amount of Revolving Commitment in words.
<PAGE>
among the Borrowers, Defense Systems Company, Inc., a Delaware corporation, as
the Subsidiary Guarantor, the financial institutions named therein, Canadian
Imperial Bank of Commerce, New York Agency, as Agent, Canadian Imperial Bank of
Commerce, as Designated Issuer and CIBC Wood Gundy Securities Corp., as
arranger. The Credit Agreement, among other things, (i) provides for the making
of advances (the "Loans") by the Lender to the Borrowers from time to time in an
-----
aggregate amount not to exceed at any time outstanding the dollar amount first
above mentioned, the indebtedness of the Borrowers resulting from each such Loan
being evidenced by this Note, and (ii) contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligation of the
Borrowers, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The Borrowers promise jointly and severally to pay all costs and
expenses, including reasonable attorneys' fees, incurred in the collection and
enforcement of this Note. The Borrowers hereby consent to renewals and
extensions of time at or after the maturity hereof, without notice, and hereby
waive diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
This Note shall be governed by, and construed in accordance with, the
laws of the state of California without giving effect to its choice of law
doctrine.
A-2
<PAGE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
and delivered by its duly authorized officer, as of date and the place first
above written.
BEI TECHNOLOGIES, INC.
--------------------------------------------------
By:
Title:
BEI SENSORS & SYSTEMS COMPANY, INC.
--------------------------------------------------
By:
Title:
A-3
<PAGE>
TRANSACTIONS
ON
NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Amount of Amount of Principal Interest Notation
Date Loan Made Principal Paid Balance Interest Paid Paid Through Made By
- ------ --------- -------------- --------- ------------- ------------ --------
</TABLE>
<PAGE>
EXHIBIT B
---------
[FORM OF NOTICE OF BORROWING]
-----------------------------
NOTICE OF BORROWING
Pursuant to that certain Credit Agreement dated as of September 28,
1997 (said Credit Agreement, as amended from time to time, being the "Credit
------
Agreement"; the terms defined therein and not otherwise defined herein being
- ---------
used herein as therein defined), by and among BEI Technologies, Inc., a Delaware
corporation and BEI Sensors & Systems Company, Inc., a Delaware corporation
(collectively, the "Borrowers"), Defense Systems Company, Inc., a Delaware
---------
corporation, as the Subsidiary Guarantor, the financial institutions listed
therein (the "Lenders"), Canadian Imperial Bank of Commerce, New York Agency, as
-------
Agent (the "Agent"), Canadian Imperial Bank of Commerce, as Designated Issuer
-----
and CIBC Wood Gundy Securities Corp., as the arranger, this represents
's request to borrow on , [199__][2000] from Lenders, in
- --------- ---------
accordance with their applicable pro rata shares, $ in
--------------------
Revolving Loans as [Base] [Eurodollar] Rate Loans. [The initial Interest Period
for such Loans is requested to be a month period.] The proceeds of
----------
such Loans are to be deposited in 's account at Agent.
-----------
The undersigned officers, to the best of their knowledge, and on
behalf of the Borrower which he or she represent certify that:
(i) The representations and warranties contained in Section 5.1 of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof as though made on and as of the date hereof except to the extent
such representations and warranties specifically related to an earlier date in
which case they were true and correct in all material respects on and as of such
earlier date;
(ii) No event has occurred and is continuing, or would result from the
consummation of the Borrowing contemplated hereby, which would constitute an
Event of Default or a Potential Event of Default; and
(iii) All Loan Documents are in full force and effect.
Dated: [BEI TECHNOLOGIES, INC.]
---------------- [BEI SENSORS & SYSTEMS COMPANY, INC.]
----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
B-1
<PAGE>
EXHIBIT C
---------
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
-------------------------------------------
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain Credit Agreement dated as of September 28,
1997 (said Credit Agreement, as amended from time to time, being the "Credit
------
Agreement"; the terms defined therein and not otherwise defined herein being
- ---------
used herein as therein defined), by and among BEI Technologies, Inc., a Delaware
corporation and BEI Sensors & Systems Company, Inc., a Delaware corporation
(collectively, the "Borrowers"), Defense Systems Company, Inc., a Delaware
---------
corporation, as the Subsidiary Guarantor, the financial institutions listed
therein ("Lenders"), Canadian Imperial Bank of Commerce, New York Agency, as
-------
Agent (the "Agent"), Canadian Imperial Bank of Commerce, as Designated Issuer
-----
and CIBC Wood Gundy Securities Corp., as the arranger, this represents
's request to [convert] [continue] a Revolving Loan as follows:
- --------------
(a) The Borrowing to be [converted] [continued] consists of ["Base
Rate" or "Eurodollar Rate"] Loans in the aggregate principal amount of
$ which were initially advanced on , ;
------------- ------------- -------
(b) The Revolving Loans in the Borrowing are to be [converted into]
[continued as] ["Base Rate" or "Eurodollar Rate"] Loans;
(c) If such Revolving Loans are to be [converted into] [continued as]
Eurodollar Rate Loans, the Interest Period for such Eurodollar Rate Loans
commencing upon [conversion] [continuation] will be months; and
-----------
(d) The date of the requested [conversion] [continuation] is to be
, .
------------ -------
The undersigned officers, to the best of their knowledge, and on
behalf of the Borrower which he or she represent certify that:
(i) The representations and warranties contained in Section 5.1 of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof as though made on and as of the date hereof except to the extent
such representations and warranties specifically related to an earlier date in
which case they were true and correct in all material respects on and as of such
earlier date;
(ii) No event has occurred and is continuing, or would result from the
consummation of the borrowing contemplated
C-1
<PAGE>
hereby, which would constitute an Event of Default or a Potential Event of
Default; and
(iii) All Loan Documents are in full force and effect.
Dated: [BEI TECHNOLOGIES, INC.]
--------------- [BEI SENSORS & SYSTEMS COMPANY, INC.]
--------------------------------------
By:
-----------------------------------
Title:
--------------------------------
C-2
<PAGE>
EXHIBIT D
---------
[FORM OF COMPLIANCE CERTIFICATE]
1. This Compliance Certificate ("Compliance Certificate") is executed and
----------------------
delivered by BEI Technologies, Inc., a Delaware corporation and BEI Sensors &
Systems Company, Inc., a Delaware corporation, and Defense systems Company,
Inc., a Delaware corporation (collectively, the "Borrowers") to Canadian
---------
Imperial Bank of Commerce, New York Agency (the "Agent") pursuant to Section
-----
6.1(a)(iii)(B) of the Credit Agreement dated as of September 28, 1997 among the
Borrowers, Defense Systems Company, Inc., a Delaware corporation, as the
Subsidiary Guarantor, the financial institutions named therein, the Agent,
Canadian Imperial Bank of Commerce, as Designated Issuer and CIBC Wood Gundy
Securities Corp., as the arranger (as amended from time to time, the "Credit
------
Agreement"). Any terms used herein and not defined herein shall have the
- ---------
meanings defined in the Credit Agreement. This Compliance Certificate covers
BEI's:
Fiscal quarter ended ,
------------------ ------
Fiscal year ended ,
------------------- ------
2. The following paragraphs set forth calculations in compliance with
obligations pursuant to Sections 6.2(a), (b), (c), (d) and (e) of the Credit
Agreement, as of the end of the fiscal period set forth in paragraph 1 hereof.
A. Debt/Consolidated EBITDA Ratio (Section 6.2(a)):
-----------------------------------------------
(a) Debt $
------------
(b) Consolidated EBITDA $
------------
Ratio (a) : (b) :
------ -----
Maximum Permitted Ratio 3.00 : 1.00
B. Consolidated Tangible Net Worth (Section 6.2(b)):
------------------------------------------------
1. Actual Consolidated Tangible Net Worth
(a) Stockholders' equity $
-----------
minus
(b) Intangible Assets (less Intangible
Assets acquired after September 27, 1997
in an aggregate amount not to exceed
$2,000,000)
$
-----------
D-1
<PAGE>
(a) - (b) $
-----------
2. Minimum Consolidated Tangible Net Worth
(a) $28,149,000
plus
(b) 75% of Consolidated Net Income
for each fiscal quarter of BEI
after September, 1997 $
-----------
plus
(c) 100% of the Net Proceeds of any
Equity Issuance by BEI (excluding
Equity Issuances with respect
to the exercise of stock options) $
-----------
(a) + (b) + (c) $
-----------
Required 1 > 2 In compliance: Yes/No
-
C. Quick Ratio (Section 6.2(c)):
----------------------------
(a) Cash, Cash Equivalents
and accounts receivable $
-----------
(b) Current liabilities $
-----------
Ratio (a) : (b) :
----- -----
Minimum Permitted Ratio .80 : 1.00
D. Interest Coverage Ratio (Section 6.2(d)):
----------------------------------------
(a) Consolidated EBITDA
(i) Consolidated Net Income (or
Consolidated Net Losses) $
-----------
plus
(ii) Consolidated Interest
Expense $
-----------
plus
(iii) Provisions for taxes based
on income $
-----------
D-2
<PAGE>
plus
(iv) Depreciation expense $
-----------
plus
(v) Amortization expense $
-----------
minus
(vi) the lessor of (i) out-of-
pocket divestiture expenses
or (ii) $1,250,000 $
-----------
minus
(vi) Consolidated Capital
Expenditures $
-----------
(i) + (ii) + (iii) + (iv)
+ (v) - (vi) - (vii) $
-----------
(b) Consolidated Interest Expense $
-----------
Ratio (a) : (b) :
---- -----
Minimum Permitted Ratio 2.00 : 1.00
In compliance: Yes/No
E. Adjusted Consolidated Net Income (Sec. 6.2(e)):
-----------------------------------------------
(i) Required: No Adjusted Consolidated Net Losses
greater than the greater of (i) $3,000,000
or 5% of Tangible Net Worth
In compliance: Yes/No
(ii) Required: No two consecutive fiscal quarters
with Adjusted Consolidated Net Losses in most
recently ended two fiscal quarters
In compliance: Yes/No
(iii) Required: Not permit the cumulative
Consolidated Net Income for any
consecutive four fiscal quarters
to be less than $1.00
In compliance Yes/No
F. Aggregate Dividends Paid to Date (Sec. 6.2(h)):
----------------------------------------------
(i) Less than $2,000,000
In compliance Yes/No
D-3
<PAGE>
3. The undersigned has reviewed the terms of the Credit Agreement and
has made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of BEI and its Subsidiaries during the
fiscal period covered by this Compliance Certificate. The undersigned does not
(either as a result of such review or otherwise) have any knowledge of the
existence as of the date of this Compliance Certificate of any condition or
event that constitutes an Event of Default or a Potential Event of Default, with
the exception set forth below in response to which the Borrowers are taking or
propose to take the following actions (if none, so state):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. This Compliance Certificate is executed on ,
-------------------
[19 ] [2000] by the Chief Executive Officer, Chief Financial Officer,
---
Treasurer or Controller of BEI. The undersigned hereby certifies that each and
every matter contained herein is derived from the Borrowers' books and records
and is, to the best of knowledge of the undersigned, true and correct.
BEI TECHNOLOGIES, INC.,
a Delaware corporation
- ----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
D-4
<PAGE>
EXHIBIT E
---------
[FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT]
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT ("Assignment Agreement"), dated as
--------------------
of the date set forth at the top of Attachment 1 hereto, by and among:
------------
(1) The bank designated under item A of Attachment I hereto as the
------------
Assignor Lender ("Assignor Lender"); and
---------------
(2) Each bank designated under item B of Attachment I hereto as an
------------
Assignee Lender (individually, an "Assignee Lender").
---------------
RECITALS
--------
A. Assignor Lender is one of the lenders which is a party to the Credit
Agreement dated as of September 28, 1997 by and among BEI Technologies, Inc., a
Delaware corporation and BEI Sensors & Systems Company, Inc., a Delaware
corporation (collectively, the "Borrowers"), Defense systems Company, Inc., a
---------
Delaware corporation, as the Subsidiary Guarantor, Assignor Lender and the other
financial institutions parties thereto (collectively, the "Lenders"), Canadian
-------
Imperial Bank of Commerce, New York Agency (the "Agent"), Canadian Imperial Bank
-----
of Commerce, as Designated Issuer and CIBC Wood Gundy Securities Corp., as the
arranger (as amended from time to time, the "Credit Agreement").
----------------
B. Assignor Lender wishes to sell, and Assignee Lender wishes to
purchase, all or a portion of Assignor Lender's rights under the Credit
Agreement pursuant to Section 10.6 of the Credit Agreement.
------------
AGREEMENT
---------
Now, therefore, the parties hereto hereby agree as follows:
1. Definitions. Except as otherwise defined in this Assignment
-----------
Agreement, all capitalized terms used herein and defined in the Credit Agreement
have the respective meanings given to those terms in the Credit Agreement.
2. Sale and Assignment. Subject to the terms and conditions of this
-------------------
Assignment Agreement, Assignor Lender hereby agrees to sell, assign and delegate
to each Assignee Lender and each Assignee Lender hereby agrees to purchase,
accept and assume the rights, obligations and duties of a Lender under the
Credit Agreement and the other Loan Documents equal to the pro rata share set
forth under the caption "Pro Rata Share Transferred" opposite such Assignee
Lender's name on Attachment I hereto.
------------
E-1
<PAGE>
Such sale, assignment and delegation shall become effective on the date
designated in Attachment I hereto (the "Assignment Effective Date"), which date
------------ -------------------------
shall be, unless Agent shall otherwise consent, at least five (5) Business Days
after the date following the date counterparts of this Assignment Agreement are
delivered to Agent in accordance with Paragraph 3 hereof.
3. Assignment Effective Notice. Upon (a) receipt by Agent of five (5)
---------------------------
counterparts of this Assignment Agreement (to each of which is attached a fully
completed Attachment I), each of which has been executed by Assignor Lender and
------------
each Assignee Lender (and, to the extent required by Section 10.6 of the Credit
--------------------------
Agreement, by the Borrowers and Agent) and (b) payment to Agent of the
- ---------
registration and processing fee specified in Section 10.6 of the Credit
--------------------------
Agreement, Agent will transmit to the Borrowers, Assignor Lender and each
- ---------
Assignee Lender an Assignment Effective Notice substantially in the form of
Attachment II hereto, fully completed (an "Assignment Effective Notice").
- ------------- ---------------------------
4. Assignment Effective Date. At or before 12:00 noon (local time of
-------------------------
Assignor Lender) on the Assignment Effective Date, each Assignee Lender shall
pay to Assignor Lender, in immediately available or same day funds, an amount
equal to the purchase price, as agreed between Assignor Lender and such Assignee
Lender (the "Purchase Price"), for the pro rata share purchased by such Assignee
--------------
Lender hereunder. Effective upon receipt by Assignor Lender of the Purchase
Price payable by each Assignee Lender, the sale, assignment and delegation to
such Assignee Lender of such pro rata share as described in Paragraph 2 hereof
-----------
shall become effective.
5. Payments After the Assignment Effective Date. Assignor Lender and
--------------------------------------------
each Assignee Lender hereby agree that Agent shall, and hereby authorize and
direct Agent to, allocate amounts payable under the Credit Agreement and the
other Loan Documents as follows:
(a) All principal payments made after the Assignment Effective Date
with respect to each pro rata share assigned to an Assignee Lender pursuant
to this Assignment Agreement shall be payable to such Assignee Lender.
(b) All interest, fees and other amounts accrued after the Assignment
Effective Date with respect to each pro rata share assigned to an Assignee
Lender pursuant to this Assignment Agreement shall be payable to such
Assignee Lender.
Assignor Lender and each Assignee Lender shall make any separate arrangements
between themselves which they deem appropriate with respect to payments between
them of amounts paid under the Loan Documents on account of the pro rata share
assigned to such Assignee Lender, and neither Agent nor any Borrower shall have
E-2
<PAGE>
any responsibility to effect or carry out such separate arrangements.
6. Delivery of Notes. On or prior to the Assignment Effective Date,
-----------------
Assignor Lender will deliver to Agent the Note payable to Assignor Lender. On
or prior to the Assignment Effective Date, the Borrowers will deliver to Agent
new Notes for each Assignee Lender and Assignor Lender, in each case in
principal amounts reflecting, in accordance with the Credit Agreement, their
respective Commitments (as adjusted pursuant to this Assignment Agreement).
Each such new Note shall be dated the Closing Date. Promptly after the
Assignment Effective Date, Agent will send to each of Assignor Lender and the
Assignee Lenders its new Notes and will send to the Borrowers the superseded
Note payable to Assignor Lender, marked "Replaced."
7. Delivery of Copies of Loan Documents. Concurrently with the execution
------------------------------------
and delivery hereof, Assignor Lender will provide to each Assignee Lender (if it
is not already a Lender party to the Credit Agreement) conformed copies of all
documents delivered to Assignor Lender on or prior to the Closing Date in
satisfaction of the conditions precedent set forth in the Credit Agreement.
8. Further Assurances. Each of the parties to this Assignment Agreement
------------------
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment Agreement.
9. Further Representations, Warranties and Covenants. Assignor Lender
-------------------------------------------------
and each Assignee Lender further represent and warrant to and covenant with each
other, Agent and the Lenders as follows:
(a) Other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned hereby free and clear
of any adverse claim, Assignor Lender makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or the other Loan
Documents.
(b) Assignor Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or any
of its obligations under the Credit Agreement or any other Loan Documents.
(c) Each Assignee Lender confirms that it has received a copy of the
Credit Agreement and such other documents and
E-3
<PAGE>
information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Assignment Agreement.
(d) Each Assignee Lender will, independently and without reliance upon
Agent, Assignor Lender or any other Lender and based upon such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Credit
Agreement and the other Loan Documents.
(e) Each Assignee Lender appoints and authorizes Agent to take such
action as Agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as Agent is authorized to exercise
by the terms thereof, together with such powers as are reasonably
incidental thereto, all in accordance with Article IX of the Credit
------------------------
Agreement.
---------
(f) Each Assignee Lender agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement and the other Loan Documents are required to be performed by it
as a Lender.
(g) Attachment I hereto sets forth administrative information with
------------
respect to each Assignee Lender.
10. Effect of this Assignment Agreement. On and after the Assignment
-----------------------------------
Effective Date, (a) each Assignee Lender shall be a Lender with a pro rata share
of the Revolving Commitment equal to the pro rata share set forth under the
caption "Pro Rata Share After Assignment" opposite such Assignee Lender's name
on Attachment I hereto and shall have the rights, duties and obligations of such
------------
a Lender under the Credit Agreement and the other Loan Documents and (b)
Assignor Lender shall be a Lender with a pro rata share of the Revolving
Commitment equal to the pro rata share set forth under the caption "Pro Rata
Share After Assignment" opposite Assignor Lender's name on Attachment I hereto
------------
and shall have the rights, duties and obligations of such a Lender under the
Credit Agreement and the other Loan Documents, or, if the pro rata share of the
Revolving Commitment of Assignor Lender has been reduced to 0%, Assignor Lender
shall cease to be a Lender and shall have no further obligation to make any
Loans.
11. Miscellaneous. This Assignment Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California. Paragraph
headings in this Assignment Agreement are for convenience of reference only and
are not part of the substance hereof.
E-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their respective duly authorized officers as of the
date set forth in Attachment I hereto.
------------
, as
-------------------------------------
Assignor Lender
By:
----------------------------------
Name:
----------------------------
Title:
----------------------------
, as an
-------------------------------------
Assignee Lender
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
E-5
<PAGE>
CONSENTED TO AND ACKNOWLEDGED BY:
BEI TECHNOLOGIES, INC.
By:
---------------------------
Name:
----------------------
Title:
---------------------
BEI SENSORS & SYSTEMS COMPANY, INC.
By:
---------------------------
Name:
----------------------
Title:
---------------------
DEFENSE SYSTEMS COMPANY, INC.
By:
---------------------------
Name:
----------------------
Title:
---------------------
E-6
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
As Agent
By:
----------------------------
Name:
-----------------------
Title:
----------------------
ACCEPTED FOR RECORDATION
IN REGISTER:
CANADIAN IMPERIAL BANK OF COMMERCE,
As Agent
By:
----------------------------
Name:
-----------------------
Title:
----------------------
E-7
<PAGE>
ATTACHMENT 1
TO ASSIGNMENT AGREEMENT
-----------------------
NAMES, ADDRESSES AND PRO RATA SHARES
OF ASSIGNOR LENDER AND ASSIGNEE LENDERS
AND ASSIGNMENT EFFECTIVE DATE
,
--------------- -----
Pro Rata Pro Rata
Share Share After
A. ASSIGNOR LENDER Transferred/5/,/6/ Assignment /1/
--------------- ------------------ --------------
% %
-------------------- ------------- -----------
Lending Office:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
- ----------------------------
/5/ To be expressed by a percentage rounded to the seventh-digit to the right of
the decimal point.
/6/ Share of Commitment sold by Assignor Lender, and share of Commitment
purchased by Assignee Lender.
E(1)-1
<PAGE>
Address for notices:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Telephone No:
-----------
Telecopier No:
-----------
Wiring Instructions:
---------------------------------
---------------------------------
<PAGE>
Pro Rata Pro Rata
Share Share After
B. ASSIGNEE LENDER Transferred/5/,/6/ Assignment /1/
--------------- ------------ -------------
/5/ To be expressed by a percentage rounded to the seventh-digit to the right of
the decimal point.
/6/ Share of Commitment sold by Assignor Lender, and share of Commitment
purchased by Assignee Lender.
% %
-------------------- ------------- -----------
Lending Office:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Address for notices:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Telephone No:
-----------
Telecopier No:
-----------
Wiring Instructions:
-----------------------------
-----------------------------
B. ASSIGNMENT EFFECTIVE DATE:
-------------------------
,
----------------- ------
E(1)-3
<PAGE>
ATTACHMENT 2
TO ASSIGNMENT AGREEMENT
-----------------------
FORM OF
ASSIGNMENT EFFECTIVE NOTICE
---------------------------
Reference is made to the Credit Agreement, dated as of September 28, 1997
by and among BEI Technologies, Inc., a Delaware corporation and BEI Sensors &
Systems Company, Inc., a Delaware corporation (collectively, the "Borrowers"),
---------
Defense systems Company, Inc., a Delaware corporation, as the Subsidiary
Guarantor, Assignor Lender and the other financial institutions parties thereto
(collectively, the "Lenders"), Canadian Imperial Bank of Commerce, New York
-------
Agency (the "Agent"), Canadian Imperial Bank of Commerce, as Designated Issuer
-----
and CIBC Wood Gundy Securities Corp., as the arranger (as amended from time to
time, the "Credit Agreement"). Agent hereby acknowledges receipt of five
----------------
executed counterparts of a completed Assignment Agreement, a copy of which is
attached hereto. [Note: Attach copy of Assignment Agreement.] Terms defined
in such Assignment Agreement are used herein as therein defined.
1. Pursuant to such Assignment Agreement, you are advised that the
Assignment Effective Date will be .
------------
2. Pursuant to such Assignment Agreement, Assignor Lender is required to
deliver to Agent on or before the Assignment Effective Date the Notes payable to
Assignor Lender.
3. Pursuant to such Assignment Agreement, Borrower is required to deliver
to Agent on or before the Assignment Effective Date the following Notes, each
dated [Insert appropriate date]:
-------------------------
[Describe each new Note for Assignor Lender and each Assignee Lender as to
principal amount.]
4. Pursuant to such Assignment Agreement, each Assignee Lender is
required to pay its Purchase Price to Assignor Lender at or before 12:00 Noon on
the Assignment Effective Date in immediately available funds.
Very truly yours,
CANADIAN IMPERIAL BANK OF COMMERCE
as Agent
By:
---------------------------
Name:
----------------------
Title:
---------------------
E(1)-4
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+A REGISTRATION STATEMENT RELATED TO THE COMMON STOCK OF BEI TECHNOLOGIES, +
+INC. HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT +
+YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION +
+OR AMENDMENT. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
EXHIBIT 99.1
SUBJECT TO COMPLETION OR AMENDMENT, DATED SEPTEMBER 22, 1997
PRELIMINARY INFORMATION STATEMENT
BEI TECHNOLOGIES, INC.
DISTRIBUTION OF APPROXIMATELY 7,115,000 SHARES OF COMMON STOCK (PAR VALUE
$.001 PER SHARE)
This Information Statement is being furnished to stockholders of BEI
Electronics, Inc. ("Electronics") in connection with the distribution (The
"Distribution") to holders of record of Electronics Common Stock, par value
$.001 per share ("Electronics Common Stock"), on September 24, 1997 (the
"Record Date"), of one share of BEI Technologies, Inc. ("Technologies" or the
"Company") Common Stock, par value $.001 per share ("Technologies Common
Stock"), for every one share of Electronics Common Stock owned. The
Distribution will result in all of the issued and outstanding shares of
Technologies Common Stock being distributed to holders of Electronics Common
Stock. See "Ownership of Technologies Common Stock by Certain Beneficial Owners
and Management" for further information regarding the share ownership of
Technologies following the Distribution. Electronics has transferred to
Technologies all of the electronic sensors and defense-related businesses
formerly conducted by Electronics. See "Description of the Business of BEI
Technologies, Inc."
The Distribution will be effective at the end of the day on September ,
1997 (the "Effective Date"), with the distribution of Company stock
certificates by the Distribution Agent commencing on or about October 10 , 1997
(the "Mailing Date"). No consideration will be paid by Electronics'
stockholders for shares of Technologies Common Stock. There is no current
trading market for Technologies Common Stock. However, the Technologies Common
Stock has been approved for quotation on the Nasdaq National Market System
under the trading symbol "BEIQ", subject to official notice of issuance.
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors."
------------
NO STOCKHOLDER APPROVAL IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A PROXY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AUTHORITY NOR HAS SUCH
COMMISSION OR OTHER AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
Stockholders of Electronics with inquiries related to the Distribution should
contact BEI Electronics, Inc., One Post Street, Suite 2500, San Francisco,
California 94104, telephone (415) 956-4477, or Electronics' transfer agent,
ChaseMellon Shareholder Services, L.L.C., Securities Transfer Services, P.O.
Box 3310, South Hackensack, New Jersey 07606, telephone (415) 954-9516 (in the
San Francisco Bay Area) and (800) 356-2017 (anywhere in the U.S.).
THE DATE OF THIS INFORMATION STATEMENT IS SEPTEMBER 22, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... iv
SUMMARY OF CERTAIN INFORMATION............................................ v
SUMMARY HISTORICAL FINANCIAL DATA......................................... viii
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA ............................... ix
FORWARD-LOOKING STATEMENTS................................................ 1
THE DISTRIBUTION.......................................................... 1
Reasons for the Distribution............................................ 1
Certain Federal Income Tax Consequences of the Distribution............. 2
Manner of Effecting the Distribution.................................... 3
Opinion of Financial Advisor............................................ 3
Relationship between Electronics and Technologies after the
Distribution........................................................... 5
Distribution Agreement................................................ 5
Assumption of Liabilities and Indemnification Agreement............... 6
Corporate Services Agreement.......................................... 6
Tax Agreement......................................................... 6
Technology Transfer and License Agreement............................. 7
Trademark Assignment and Consent...................................... 7
Related Transactions.................................................... 7
Listing and Trading of Technologies Common Stock........................ 8
Other Consequences of the Distribution.................................. 8
FINANCING................................................................. 10
Bank Credit Facilities.................................................. 10
CAPITALIZATION............................................................ 11
THE BUSINESS--INTRODUCTION AND HISTORICAL OVERVIEW........................ 12
DESCRIPTION OF THE BUSINESS OF BEI TECHNOLOGIES, INC...................... 13
Business Summary and Strategy........................................... 13
Customers and Markets................................................... 14
Products and Proprietary Systems........................................ 14
Backlog................................................................. 16
Competition............................................................. 17
Manufacturing........................................................... 17
Research and Development................................................ 17
Employees............................................................... 18
Intellectual Property................................................... 18
Environmental Matters................................................... 18
Properties.............................................................. 19
Legal Proceedings....................................................... 19
SELECTED HISTORICAL FINANCIAL DATA........................................ 20
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA............................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 25
Comparison of Nine Months Ended June 28, 1997 and June 29, 1996......... 25
Net Sales............................................................. 25
Cost of Sales......................................................... 25
Selling, General and Administrative Expenses.......................... 25
Research, Development and Related Expenses............................ 26
Interest Expense and Other Income..................................... 26
Income from Continuing Operations..................................... 26
Income from Discontinued Operations................................... 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Liquidity and Capital Resources....................................... 26
Fiscal Years 1996, 1995 and 1994........................................ 27
Net Sales............................................................. 27
Cost of Sales......................................................... 27
Selling, General and Administrative Expenses.......................... 27
Research, Development and Related Expenses............................ 28
Interest Expense and Other Income..................................... 28
Provision for Income Taxes for Continuing Operations.................. 28
Deferred Income Taxes................................................. 28
Income (Loss) from Discontinued Operations............................ 28
Liquidity and Capital Resources....................................... 29
Effects of Inflation.................................................. 29
RISK FACTORS.............................................................. 30
Competition............................................................. 30
Limited Manufacturing Experience; Scale Up Risk; Product Recall Risk.... 30
Contracting with the U.S. Government.................................... 30
Research and Development................................................ 31
Manufacturing Processes and Equipment................................... 31
Dependence Upon Key Personnel........................................... 31
Dependence Upon Key Suppliers........................................... 31
Availability of Cost of Additional Funds................................ 32
Uncertainty of Tax Consequences......................................... 32
No Prior Public Market for Common Stock; Potential Volatility of Stock
Price.................................................................. 32
Anti-Takeover Effects of Delaware Law and Certain Charter Provisions;
Stockholder Rights Plan................................................ 32
Uncertainty of Future Profitability..................................... 33
Uncertainty of Dividends................................................ 33
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................... 33
Directors............................................................... 33
Classified Board of Directors........................................... 35
Board Compensation and Benefits......................................... 35
Committees of the Board of Directors.................................... 35
Audit Committee....................................................... 35
Compensation Committee................................................ 35
Compensation Committee Interlocks and Insider Participation............. 35
Certain Relationships................................................... 36
Executive Officers...................................................... 36
EXECUTIVE COMPENSATION.................................................... 37
Executive Compensation Prior to the Distribution........................ 37
Electronics Stock Option Grants and Exercises........................... 38
Employment Agreements................................................... 38
NEW INCENTIVE PLANS OF BEI TECHNOLOGIES, INC.............................. 39
1997 Equity Incentive Plan.............................................. 39
401(k) Plan............................................................. 40
Management Incentive Bonus Plan......................................... 40
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 40
Elimination of Liability of Directors................................... 40
Indemnification of Directors and Officers............................... 40
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OWNERSHIP OF TECHNOLOGIES COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .............................................................. 41
DESCRIPTION OF CAPITAL STOCK.............................................. 43
Authorized Capital Stock................................................ 43
Company Common Stock.................................................... 43
Company Preferred Stock................................................. 43
Common Stock Dividend Policy............................................ 43
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, THE BYLAWS AND STATE LAW.................................. 43
Classified Board of Directors........................................... 43
Number of Directors; Removal; Filling Vacancies......................... 44
No Stockholder Action by Written Consent; Special Meetings.............. 44
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 45
Preferred Stock......................................................... 46
Amendment of Certain Provisions of the Certificate and Bylaws........... 47
Anti-Takeover Legislation............................................... 47
Fair Price Provision.................................................... 47
Comparison with Certain Rights of Holders of Electronics Common Stock... 48
STOCKHOLDER RIGHTS PLAN................................................... 49
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Technologies has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") a Registration Statement on Form 10 (the
"Registration Statement") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to its Common Stock described
herein. The Registration Statement became effective on September , 1997.
This Information Statement does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is made hereby to the Registration Statement
and such exhibits and schedules. The Commission also maintains a World Wide
Web site (http://www.sec.gov.) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, it is expected that reports,
proxy statements and other information concerning the Company will be
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copies obtained at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of
the Commission at 7 World Trade Center, 13th floor, New York, New York 10048;
1401 Buckell Avenue, Suite 200, Miami, Florida 33131; Northwest Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661; 1801 California Street,
Suite 4800, Denver, Colorado 80202; and 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, California 90036. Copies of such information can be obtained by
mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish audited financial statements to its stockholders in connection with
its annual meetings of stockholders.
NO PERSON IS AUTHORIZED BY BEI ELECTRONICS, INC. OR THE COMPANY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS INFORMATION STATEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
iv
<PAGE>
SUMMARY OF CERTAIN INFORMATION
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Information Statement, which should be
read in its entirety. Certain capitalized terms used in this summary are
defined elsewhere in this Information Statement.
This Information Statement contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Information Statement.
THE DISTRIBUTION
Distributing Company........ BEI Electronics, Inc., a Delaware corporation
("Electronics"). The distributing company intends
to continue to pursue the medical device business
through its subsidiary, BEI Medical Systems
Company, Inc. ("Medical").
Distributed Company......... BEI Technologies, Inc., a Delaware corporation
("Technologies" or "the Company"), newly formed.
The primary continuing business of Technologies
will be the established motion sensor and control
business known as BEI Sensors & Systems Company,
Inc. ("Sensors & Systems").
Distribution Ratio.......... Each Electronics shareholder will receive one
share of Technologies Common Stock for every one
share of Electronics Common Stock held on the
Record Date. The shares of Technologies Common
Stock being distributed hereunder are referred to
herein as "Technologies Stock."
Shares to be Distributed....
Approximately 7,115,000 shares of Technologies
Common Stock (par value, $.001 per share) will be
distributed, based on approximately 7,115,000
shares of Electronics Common Stock outstanding on
September 24, 1997.
Trading Market.............. There is not currently a public market for
Company Common Stock although a "when-issued"
trading market is expected to develop prior to
the Effective Date. The Company Common Stock has
been approved for listing on the Nasdaq National
Market System upon notice of issuance. See "The
Distribution--Listing and Trading of Technologies
Common Stock."
Trading Symbol.............. BEIQ
Record Date................. The close of business on September 24, 1997.
Effective Date.............. The end of the day, September , 1997.
Distribution Agent.......... ChaseMellon Shareholder Services, L.L.C.
Mailing Date................
Distribution by the Distribution Agent of
certificates representing shares of Technologies
Common Stock distributed in the transaction is
expected to take place on or about October 10,
1997. Electronics shareholders shall not be
required to make any payments or take any other
action to receive their Company Common Stock. See
"The Distribution--Manner of Effecting the
Distribution."
v
<PAGE>
Reasons for the
Distribution............... The Board of Directors of Electronics believes
that the Distribution is in the best interests of
Electronics and its shareholders for various
reasons, including (a) improving Technologies'
and Medical's ability to meet their respective
financing needs by increasing Technologies' debt
capacity and lowering the cost of equity for both
Technologies and Medical, (b) offering incentives
that are more attractive and appropriate for the
recruitment, motivation and retention of
Technologies' and Medical's respective key
employees, (c) creating enhanced acquisition
opportunities using stock of Technologies as
consideration, and (d) permitting Technologies to
pursue the development of its sensors and systems
business without regard to the corporate and
financial objectives and policies of Medical.
Relationship Between
Electronics and
Technologies After the
Distribution............... Immediately following the Distribution, all
outstanding shares of Technologies Common Stock
will be owned by stockholders of Electronics.
Shares of the two companies will trade
independently. Prior to the Distribution, the
Company and Electronics will enter into a
Distribution Agreement, a Technology Transfer and
License Agreement, an Assumption of Liabilities
and Indemnity Agreement, a Trademark Assignment
and Consent Agreement, a Corporate Services
Agreement, an Agreement Regarding Certain
Representations and Covenants and a Tax
Allocation and Indemnity Agreement governing the
relationship between the parties subsequent to
the Distribution. See "The Distribution--
Relationship between Electronics and Technologies
after the Distribution."
Related Transactions........ In connection with the Distribution, and subject
to the noteholders' agreement, Technologies will
assume Electronics' obligations related to the
service and repayment of $22.4 million in Senior
Notes. Management plans to transfer up to $9.0
million in cash from Sensors & Systems to
Electronics which will be funded through a
combination of existing cash balances and
borrowings by Sensors & Systems of up to $9.0
million. The cash transfer will be made to repay
a portion of amounts due from Sensors & Systems
to Electronics resulting from recurring
intercompany transactions. Management estimates
that net intercompany obligations of Electronics
to Sensors & Systems and Defense will be
approximately $4.0 million at the Effective Date.
These net obligations will be assumed by
Technologies in connection with the Distribution.
Technologies intends to establish a bank line of
credit which would permit borrowings after the
Distribution. See "Related Transactions--
Financing Transactions" and "Financing--Bank
Credit Facilities."
Management of the Company... Immediately after the Effective Date, all of the
executive officers of Technologies are expected
to be persons who currently serve as officers of
Electronics or Sensors & Systems. All such
persons will resign from their positions as
executives of Electronics, except Charles
Crocker, who will retain his position as Chairman
of the
vi
<PAGE>
Board of Directors of Electronics, so that
Technologies and Electronics will otherwise have
no executive officers in common. See "Executive
Officers and Directors of the Company."
Post-Distribution Dividend
Policy..................... Electronics has paid a cash dividend of $.02 per
share of Electronics Common Stock each quarter
since Electronics' initial public offering in
1989. The payment of future dividends, if any, by
Electronics or Technologies will be at the
discretion of their respective Boards of
Directors. See "The Distribution--Other
Consequences of the Distribution--Dividend
Policies."
Certain Federal Income Tax
Consequences............... Prior to the Distribution, the Company will
receive an opinion of counsel that, although the
matter is not free from doubt, the Distribution
will qualify as tax free to Electronics and its
Stockholders. Opinions of counsel are not binding
on the Internal Revenue Service or the courts.
See "The Distribution--Certain Federal Income Tax
Consequences of the Distribution" for a more
detailed description of the opinion of counsel
and federal income tax consequences of the
Distribution.
Certain Provisions of
Certificate of
Incorporation and Bylaws;
Rights Plan................ Certain provisions of Technologies' Certificate
of Incorporation and Bylaws, as each will be in
effect following the Distribution, may have the
effect of making more difficult an acquisition of
control of the Company in a transaction not
approved by its Board of Directors. See "Certain
Anti-takeover Effects of Certain Provisions of
the Certificate of Incorporation, Bylaws and
State Law." The Certificate of Incorporation
would eliminate certain liabilities of
Technologies' directors in connection with the
performance of their duties. See "Liability and
Indemnification of Directors and Officers." The
Preferred Share Purchase Rights Plan
("Stockholder Rights Plan") will make more
difficult an acquisition of control of the
Company in a transaction not approved by its
Board of Directors. See "Stockholder Rights
Plan."
Principal Office of BEI
Technologies, Inc. ........ One Post Street, Suite 2500, San Francisco,
California 94104, telephone (415) 956-4477
vii
<PAGE>
STOCKHOLDERS WITH QUESTIONS MAY CALL:
For questions relating to the Distribution and delivery of Company stock
certificates, call ChaseMellon Shareholder Services at:
In San Francisco Bay Area: (415) 954-9516
Anywhere in the U.S.: (800) 356-2017
---------------
For other questions please call Electronics at: (415) 956-4477
Available 9:00 a.m. to 4:00 p.m. Pacific Time
viii
<PAGE>
SUMMARY FINANCIAL INFORMATION
BEI TECHNOLOGIES, INC.
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following summary historical balance sheet data at September 30, 1995 and
September 28, 1996 and statement of operations data for the three years in the
period ended September 28, 1996 have been derived from combined financial
statements of Technologies audited by Ernst & Young LLP, independent auditors,
included elsewhere herein. The following summary historical balance sheet data
at October 3, 1992, October 2, 1993 and October 1, 1994 and statement of
operations data for the two years in the period ended October 2, 1993 have been
derived from unaudited combined financial statements not included in this
Information Statement. The summary statement of financial data at June 28, 1997
and for the nine-month periods ended June 29, 1996 and June 28, 1997 have been
derived from unaudited interim combined financial statements included elsewhere
herein. In the opinion of management, the unaudited interim combined financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company at June 29, 1996 and June 28, 1997, and the results of its operations
for the nine-month periods then ended. The historical combined financial
statements of the Company do not necessarily reflect the results of operations
or financial position that would have resulted had the Company been a separate,
independent company and are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year. The historical
financial data does not include the effect of anticipated financing
transactions in connection with the Distribution (See "The Distribution--
Related Transactions"). See "Selected Unaudited Pro Forma Financial Data,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Summary Unaudited Pro forma
Financial Data" and "Combined Financial Statements" and accompanying notes
thereto. See also Note 1 of Notes to Combined Financial Statements for
explanation of shares used in pro forma earnings per share calculations.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $105,080 $89,391 $82,361 $90,475 $96,746 $71,398 $74,437
Income from continuing
operations before
interest expense and
income taxes........... 5,819 2,310 2,835 739 6,729 5,992 4,127
Depreciation and
amortization........... 4,502 5,354 5,602 5,913 5,915 4,333 4,296
Income (loss) from
continuing operations.. 2,840 599 321 (964) 2,873 2,706 1,794
Income (loss) from
discontinued operations
....................... 4,633 4,329 392 (1,077) 1,698 1,139 1,389
Net income (loss)....... 7,473 4,928 713 (2,041) 4,571 3,845 3,183
Pro forma earnings from
continuing operations
per common and common
equivalent share ...... $ 0.40 $ 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... $ 0.24 $ 0.20
Pro forma earnings per
common and common
equivalent share ...... $ 0.64 $ 0.45
Shares used in computing
pro forma earning per
common and common
equivalent share....... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $17,098 $35,052 $39,179 $29,774 $27,775 $28,829 $26,711
Total assets............ 91,106 92,361 97,852 92,418 92,171 90,900 86,668
Payable to BEI
Electronics, Inc....... 13,707 10,314 17,727 10,404 6,062 9,098 3,896
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,840 29,765 24,137 24,142 18,516
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 32,461 41,663
</TABLE>
ix
<PAGE>
BEI TECHNOLOGIES, INC.
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following summary unaudited pro forma financial data of the Company give
effect to certain planned financing transactions in connection with the
Distribution as if such transactions had occurred at the beginning of each
period presented for statement of operations data, and as of the balance sheet
date for balance sheet data. The planned financing transactions include
borrowings by Sensors & Systems of up to $9.0 million and the transfer of up to
$9.0 million in cash to Electronics as repayment of a portion of amounts
payable from Sensors & Systems to Electronics. The planned financing
transactions also include the assumption by Technologies of net obligations
payable by Electronics to Sensors & Systems and Defense, estimated to be
approximately $4.0 million at the time of the Distribution. Interest charges on
net amounts payable to Electronics have not been significant.
The summary unaudited pro forma statement of operations data do not purport
to represent what the Company's results of operations would have been if the
financing transactions had occurred as of such dates or what such results will
be for any future periods. See "Selected Unaudited Pro forma Financial Data,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Combined Financial
Statements" and accompanying notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 28, JUNE 28,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................................ $96,746 $74,437
Operating income..................................... 6,487 3,881
Depreciation and amortization........................ 5,915 4,296
Income from continuing operations.................... 2,503 1,449
Pro forma earnings from continuing operations per
common and common equivalent share.................. $ 0 .35 $ 0.20
Shares used in computing pro forma earnings from
continuing operations per common and common
equivalent share ................................... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
JUNE 28,
1997
-----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working Capital..................................................... $26,711
Total Assets........................................................ 86,668
Payable to (Receivable from) BEI Electronics, Inc................... (1,104)
Long-Term Debt (excluding current portion).......................... 27,516
Stockholders' Equity................................................ 37,663
</TABLE>
x
<PAGE>
FORWARD-LOOKING STATEMENTS
This Information Statement may contain forward-looking statements that
involve risks and uncertainties. When used in this Information Statement, the
words "anticipate", "believe", "estimate", "expect" and similar expressions as
they relate to Electronics or the Company or their respective Boards of
Directors or management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "The Business," in "Risk Factors," in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Information Statement.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of Electronics, after careful study and analysis, has
concluded that it is in the best interests of Electronics and its stockholders
to undertake the Distribution based on its belief that each of its businesses
would enjoy substantially improved performance and access to capital markets
if its business, strategy, organization and employee incentives were tightly
focused on closely associated products and markets. The Board of Directors
believes that the Distribution should be beneficial to each of Electronics'
current businesses, because it will separate businesses with distinct
financial, investment and operating characteristics so that each can adopt
strategies and pursue objectives more appropriate to its specific businesses
than is possible under Electronics' present combined structure and so that
each company can be valued independently of the other. It is much easier for
management, employees and capital markets to focus on and understand the
business goals and objectives of a corporation that focuses on customers with
related needs and that specializes in products that have related engineering,
manufacturing, and marketing characteristics.
The Board of Directors of Electronics believes strategic planning should
begin with a review of the business environment and a company's competitive
position with other industry participants. In that setting, organizational
structure, personnel selection and incentive systems (in particular, stock
options, which provide long-term motivation to employees) can properly be
based on the specific business goals and strategies for the specific industry
in which the company operates. The Board believes it is substantially easier
for employees to relate to, internalize and endorse the business strategy of a
specific industry rather than an aggregation of different industries.
The Board of Directors of Electronics believes that Technologies' growth
will be better facilitated in several ways as a separate public company.
Foremost among the anticipated benefits is the expectation that, as a separate
public company, Technologies will be able to obtain needed financing on more
favorable terms than its businesses now can as a part of Electronics. In
addition, management believes that it will be better able to attract and
motivate existing and new key employees by providing stock-based incentive
compensation tied directly to the results of their efforts as reflected in the
market price of the Technologies Common Stock. The establishment of the
Technologies Common Stock as a separate, publicly-traded equity security
should provide Technologies enhanced acquisition opportunities by using
Technologies Common Stock as consideration.
The Board of Directors of Electronics foresees similar benefits for Medical
if it were a separate company. Financing is expected to be more readily
available from that portion of the equity market that desires to specialize in
emerging medical device companies in contrast with the present condition in
which medical, industrial and defense businesses are all co-mingled inside
Electronics. The ability to attract and to provide incentives to employees who
wish to make a career with a medical products company should also be enhanced,
as will the ability to make acquisitions of medical companies using Medical
stock as currency.
Finally, the Board of Directors of Electronics expects that the Distribution
will enable capital markets to better recognize and evaluate the different
merits of Technologies and Medical as separate public companies,
1
<PAGE>
enhancing the likelihood that each will achieve appropriate market recognition
of its performance and prospects. Electronics' management believes that the
financial and investment communities do not fully value Electronics, in large
part because Electronics operates businesses in disparate industries. The
Board of Directors of Electronics believes that the separation of Technologies
and Medical would allow potential lenders and equity investors to understand
more clearly the business of each company and will thereby reduce each
company's cost of capital.
For the reasons stated above, the Electronics Board of Directors believes
that the Distribution is in the best interests of Electronics and its
stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
As a condition to the completion of the Distribution, Electronics and the
Company will receive an opinion from Davis Polk & Wardwell, special tax
counsel to Electronics, to the effect that, although the matter is not free
from doubt, the Distribution will qualify as tax-free to Electronics and its
stockholders under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"). The tax opinion will be based upon factual
determinations and upon legal issues as to which there are no regulations,
published rulings or judicial decisions directly on point, and accordingly,
the opinion will be qualified as being not free from doubt. In addition,
opinions of counsel are not binding on the Service or the courts, and the
Service may challenge positions taken based upon this opinion. However, Davis
Polk & Wardwell is of the opinion that, although the matter is not free from
doubt, if the Service were to assert that the Distribution did not qualify as
tax-free, the Service would not prevail in a judicial proceeding in which the
issues and facts were properly presented.
Assuming that the Distribution qualifies as tax-free for federal income tax
purposes:
(i) An Electronics stockholder will not recognize gain or loss as a
result of the Distribution.
(ii) An Electronics stockholder will apportion its tax basis for its
Electronics Common Stock between its Electronics Common Stock and
Technologies Common Stock received in the Distribution in proportion to the
relative fair market values of the Electronics Common Stock and
Technologies Common Stock on the Effective Date.
(iii) An Electronics stockholder's holding period for the Technologies
Common Stock received in the Distribution will include the period during
which the stockholder held the Electronics Common Stock with respect to
which the Distribution was made, provided that the Electronics Common Stock
is held as a capital asset by the stockholder as of the Effective Date.
(iv) Except to the extent of any excess loss accounts or deferred
intercompany gains, no gain or loss will be recognized to Electronics as a
result of the Distribution.
The tax opinion will rely upon, among other things, certain representations
made by Electronics and Technologies to Davis Polk & Wardwell. If it were
subsequently determined that those representations were inaccurate or
incomplete, the conclusion in the tax opinion could not be relied upon.
If the Distribution does not qualify as a tax-free distribution, the fair
market value of the shares of Technologies Common Stock received by the
Electronics stockholders would be taxable as a dividend. In that event, the
tax basis of the shares of Technologies Common Stock held by the Electronics
stockholders after the Distribution would not change and the tax basis of the
shares of Technologies Common Stock would be equal to their fair market value
on the Effective Date. In addition, Electronics would recognize a capital gain
equal to the difference between the fair market value of the shares of
Technologies Common Stock and Electronics' basis in the shares.
Current U.S. Department of Treasury ("Treasury") regulations require each
Electronics stockholder who receives Technologies Common Stock pursuant to the
Distribution to attach to such stockholder's federal income tax return for the
year in which the Distribution occurs a descriptive statement concerning the
Distribution.
2
<PAGE>
Electronics (or the Company on its behalf) will make available requisite
information to each Electronics stockholder of record as of the Record Date.
ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
PARTICULAR FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM.
For a description of agreements pursuant to which Electronics and the
Company have provided for certain tax sharing and other tax matters, see
"Relationship Between Electronics and Technologies After the Distribution--Tax
Agreement."
MANNER OF EFFECTING THE DISTRIBUTION
Electronics will effect the Distribution on the Distribution Date by
delivering approximately 7,115,000 shares of Technologies Common Stock to
ChaseMellon Shareholder Services, L.L.C. as the distribution agent (the
"Distribution Agent"), for distribution to the holders of record of
outstanding shares of Electronics Common Stock on the Record Date. The
Distribution will be made on the basis of one share of Technologies Common
Stock for every one share of Electronics Common Stock outstanding on the
Record Date. All such shares will be fully paid, nonassessable and free of
preemptive rights. Upon completion of the Distribution, there will be
approximately 7,115,000 shares of Technologies Common Stock outstanding. No
portion of the shares that will be issued and outstanding upon completion of
the Distribution is being, or has been proposed to be, publicly offered by
Technologies. All of these shares will be immediately eligible for sale in the
public market without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except that any shares owned by affiliates of
Technologies may generally only be sold in compliance with the applicable
provisions of Rule 144 promulgated by the SEC under the Securities Act. See
"Description of Capital Stock."
The Distribution Agent will mail, beginning on or about October 10, 1997,
certificates representing Technologies Common Stock to the Electronics
stockholders. Electronics stockholders will not be required to pay for shares
of Technologies Common Stock received in the Distribution or to surrender or
exchange shares of Electronics Common Stock to receive shares of Technologies
Common Stock. No vote of Electronics stockholders is required or sought in
connection with the Distribution, and Electronics stockholders have no
appraisal rights in connection with the Distribution.
OPINION OF FINANCIAL ADVISOR
Electronics retained SBC Warburg Dillon Read, Inc., formerly Dillon, Read &
Co. Inc. ("Dillon Read"), to act as Electronics' financial advisor in
connection with the Distribution and related matters based upon Dillon Read's
experience and expertise. Dillon Read rendered a written opinion to the Board
of Directors of Electronics that, as of the date of its opinion and subject to
the considerations set forth in such opinion, the proposed Distribution is
fair from a financial point of view to the holders of shares of Electronics
Common Stock.
THE FULL TEXT OF DILLON READ'S WRITTEN OPINION DATED SEPTEMBER 11, 1997,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX A TO THIS INFORMATION STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO, AND
SHOULD, READ THE DILLON READ OPINION CAREFULLY AND IN ITS ENTIRETY. THE DILLON
READ OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF ELECTRONICS AND CONCERNS
THE FAIRNESS OF THE PROPOSED DISTRIBUTION FROM A FINANCIAL POINT OF VIEW TO
THE HOLDERS OF SHARES OF ELECTRONICS COMMON STOCK, AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE DISTRIBUTION. DILLON READ'S OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CURRENT OR PROSPECTIVE STOCKHOLDER OF EITHER ELECTRONICS
OR TECHNOLOGIES AS TO ANY ACTION OR INVESTMENT DECISION SUCH PARTY OR PERSON
MAY TAKE. THE SUMMARY OF THE DILLON READ OPINION SET FORTH IN THIS INFORMATION
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
3
<PAGE>
In arriving at its opinion, Dillon Read (i) conducted discussions with
members of the senior management of Electronics and with the senior management
of Technologies with regard to the business and prospects of each company;
(ii) analyzed certain historical business and financial information related to
Electronics and Technologies prepared by Electronics management; (iii)
reviewed certain financial projections for Electronics and Technologies
prepared by Electronics management; (iv) reviewed public information relating
to Electronics, including Electronics' Annual Report and Form 10-K for the
five fiscal years ended September 28, 1996; (v) reviewed public information
with respect to certain other companies engaged in businesses which Dillon
Read believed to be generally comparable to certain of the businesses
conducted by Electronics and Technologies; (vi) reviewed the Information
Statement; and (vii) conducted such other studies, analyses and investigations
and reviewed such other economic and market data as Dillon Read deemed
necessary or appropriate.
In connection with the delivery of its opinion, Dillon Read discussed with
the Board, among other things, Dillon Read's analysis of the possible post-
Distribution market values of Electronics Common Stock and Technologies Common
Stock. The analysis was based on a range of price/earnings multiples of 1997
and 1998 calendar year earnings estimates for the Company and equity market
capitalizations less cash for Electronics. The price/earnings multiples and
equity market capitalizations less cash used in the analysis were compared to
the price/earnings multiples and equity market capitalizations less cash for
certain publicly-traded companies which Dillon Read deemed generally
comparable to the Company and Electronics, respectively. The analysis
generally indicated that, on a post-Distribution basis, based on the earnings
estimates and price/earnings multiples and equity market capitalizations less
cash that were considered most appropriate, the combined implied market value
of one share of Electronics Common Stock and one share of Technologies Common
Stock would exceed the closing market price per share of Electronics Common
Stock on the day prior to the Board's determination to pursue the
Distribution.
In addition, Dillon Read analyzed the financial effects of the Distribution,
including (i) the ability to enhance the value of the Company's businesses as
an independent company with a lower cost of new debt and equity financing,
simplified management structure and focused management incentives, (ii) the
ability to reposition Electronics with a greater emphasis on its medical
devices business, (iii) creating enhanced acquisition opportunities using
stock as consideration, (iv) the enhanced focus of Electronics' and the
Company's management teams, and (v) the tax-free nature of this transaction.
Dillon Read also discussed with the Board Dillon Read's view of certain
potential detriments of the Distribution, including potential redistribution
of Technologies Common Stock for a period of time following the Distribution.
In rendering its opinion, Dillon Read with the Board's consent, assumed and
relied upon, without independent verification, the accuracy and completeness
of the information reviewed by Dillon Read for the purposes of its opinion.
With respect to the financial budgets and forecasts, Dillon Read, at the
Board's direction, assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Electronics and the Company. Dillon Read did not make
any independent valuation or appraisal of the assets or liabilities,
contingent or otherwise, of Electronics or the Company, nor has Dillon Read
been furnished with any such appraisals.
Dillon Read noted that Electronics, as a condition to the Distribution,
expects to receive an opinion from Davis Polk & Wardwell to the effect that,
although the matter is not free from doubt, the Distribution will not be a
taxable transaction to Electronics or to the stockholders of Electronics under
federal income tax laws. In that regard, Dillon Read assumed that such opinion
will be delivered to Electronics.
Dillon Read's opinion was rendered on the basis of securities markets,
economic and general business and financial conditions prevailing as of the
date of its opinion, and the conditions and prospects, financial and
otherwise, of Electronics and the Company as they were represented to Dillon
Read as of the date of its opinion or as they were reflected in the
information and documents reviewed by Dillon Read. Dillon Read's opinion
assumed that the Distribution will be completed substantially on the basis set
out in the Information Statement.
4
<PAGE>
Dillon Read was not asked to, and did not, provide any opinion as to the
valuation or long-term viability of Electronics or the Company as independent
public companies following the Distribution. In rendering its opinion, Dillon
Read did not opine as to the price at which the common stock of Electronics or
the Company will trade after the Distribution is effected.
As financial advisor to Electronics in connection with the Distribution,
Dillon Read has been paid an advisory fee of $100,000 which compensated Dillon
Read for the time and efforts expended in rendering advice in connection with
the Distribution and upon consummation of the Distribution, Dillon Read will
be paid a transaction fee of $400,000. Electronics has agreed to reimburse
Dillon Read for its out-of-pocket expenses incurred in connection with its
services as financial advisor. Electronics has also agreed to indemnify Dillon
Read and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Dillon Read or any of its
affiliates against certain liabilities, including liabilities under the
federal securities laws, and expenses related to Dillon Read's engagement.
Dillon Read was selected by the Electronics' Board to act as Electronics'
financial advisor based upon Dillon Read's qualifications, expertise and
reputation. Dillon Read is a nationally recognized investment banking firm and
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings and private
placements.
RELATIONSHIP BETWEEN ELECTRONICS AND TECHNOLOGIES AFTER THE DISTRIBUTION
Immediately following the Distribution, all outstanding shares of
Technologies Common Stock will be owned by stockholders of Electronics. Shares
of the two companies will trade independently.
Subsequent to the Distribution, Technologies will operate independently from
Electronics. Electronics and Technologies are not expected to become
competitors because the companies will be engaged in the development and
marketing of different types of products with different applications in
different markets. See "Description of the Business--Competition."
Because Electronics has provided Sensors with treasury, management,
financial and other administrative services in the past, Technologies will
expand its financial, tax and administrative staffs as a result of the
Distribution.
Distribution Agreement. The general terms and conditions of the Distribution
are set forth in the Distribution Agreement to be entered into between
Electronics and Technologies prior to the Distribution. The following is a
summary of the principal provisions of the Distribution Agreement.
The Distribution Agreement provides for the contribution to Technologies of
the equity interests of the Sensors & Systems business, the Defense Systems
business and miscellaneous other assets that relate to these businesses and
the executive office function which are held by Electronics in exchange for
the Technologies Common Stock. See "The Business--Introduction and Historical
Overview."
The Distribution Agreement also provides for assumption by Technologies of
$22.4 million in Senior Note obligations of Electronics, the renegotiation and
assumption by Technologies of the existing credit agreement between
Electronics and Canadian Imperial Bank of Commerce ("CIBC"), the repayment of
certain intercompany accounts and the assumption by Technologies of
approximately $4.0 million in intercompany obligations due Electronics by
Sensors & Systems and Defense at the time of the Distribution. See "Related
Transactions--Assumption of Note Obligations," and "Financing--Bank Credit
Facilities" below.
The Distribution Agreement provides that Technologies has the right to hire
certain individuals approved by Electronics who are or have been employees of
Electronics. Electronics will have no further responsibility or
5
<PAGE>
liability with respect to the employment relationship of such employees upon
the effectiveness of the Distribution, other than with respect to the final
settlement of obligations with respect to such employees under existing
Electronics incentive and benefit plans.
The Distribution Agreement provides that in connection with the transfer of
assets and the assumption of liabilities relating to the separation of the
businesses of Technologies and Electronics, Technologies and Electronics shall
execute or cause to be executed various conveyancing and assumption
instruments in such forms as the parties to the Distribution Agreement shall
agree.
Pursuant to the Distribution Agreement, Electronics agrees to obtain all
consents, permits and authorizations necessary to transfer and agrees to
transfer to Technologies any assets associated with Technologies business that
have not been transferred by the Effective Date. In addition, Electronics
agrees to obtain consents, permits and authorizations necessary to permit
Technologies to assume any liabilities associated with Technologies business
that have not been assumed by Technologies by the Effective Date. There are no
material assets or liabilities related to the business of the Company that
will not be transferred to the Company effective on or shortly following the
Effective Date. The Distribution Agreement also provides that expenses
associated with the Distribution will be charged to and paid by Electronics
and allocated to the parties on an equitable basis.
Assumption of Liabilities and Indemnification Agreement. Under the
Assumption of Liabilities and Indemnification Agreement, except as provided in
the Tax Agreement described below, Technologies and Electronics will each be
responsible for all claims and liabilities relating to their respective
businesses, whether or not such claims and liabilities are asserted prior to
the Distribution, and will each indemnify the other against such claims and
liabilities. Electronics will have no continuing financial interest in
Technologies, except that it may remain an obligor or guarantor for certain
existing obligations of Technologies pursuant to the Distribution Agreement.
Technologies has agreed to indemnify Electronics to the extent of any payments
made on those obligations. In connection with the Distribution, Electronics
will attempt to obtain releases from its existing guarantees relating to
certain of Technologies' obligations. To the extent it is unsuccessful,
Electronics will remain liable after the Distribution on such guarantees,
subject to Technologies' indemnification of Electronics.
Corporate Services Agreement. Electronics and Technologies will make
available to each other for a transition period generally not expected to
exceed the end of calendar year 1998 certain personnel, services and records,
with each party being reimbursed for any costs and expenses incurred in
connection therewith. The Corporate Services Agreement further provides for
Medical's continued use, during such period, of certain centralized staff
services and systems, such as health claims administration, oversight of
compliance with public company reporting requirements, the preparation and
filing of tax returns and the administration of retirement plan asset
investment services, with Technologies being paid on an arm's length basis for
such services.
Tax Agreement. Prior to the Distribution, agreements will also be entered
into that reflect each party's rights and obligations with respect to
deficiencies and refunds of federal, state or other income taxes relating to
the business of Electronics that are attributable to periods ending prior to
or on the Effective Date (the "Tax Agreement"). The Tax Agreement also
expresses each party's intention with respect to certain tax attributes of
Technologies after the Distribution. The Tax Agreement provides that
Electronics shall be responsible for federal, state and local income taxes
relating to the Sensors & Systems and Defense Systems businesses of
Technologies for periods up to and including the Effective Date. The Tax
Agreement provides for payments between the two companies for certain audit
adjustments made after the Distribution that cover pre-Distribution tax
liabilities. Other provisions cover the handling of audits, settlements, stock
options, elections, accounting methods, and return filings in cases where both
companies have an interest in the results of these activities. In addition,
the Tax Agreement requires Electronics and Technologies to cooperate in
preparing those filings that cover overlapping taxable periods that include
the Effective Date.
Pursuant to the Tax Agreement the Company will agree to refrain from
engaging in certain transactions for two years following the Effective Date
unless it shall first provide Electronics with a ruling from the Internal
6
<PAGE>
Revenue Service or an unqualified opinion of nationally recognized tax counsel
that the transaction will not cause the Distribution to become taxable.
Transactions subject to these restrictions will include, among other things,
the liquidation, merger, or consolidation with another company, the issuance
or redemption of Company Common Stock, the sale, distribution or other
disposition of assets out of the ordinary course of business, and the
discontinuation of certain businesses, except as such transaction relates to
the discontinuation of the Defense business. The Company will generally agree
to indemnify Electronics against any tax liability resulting from the
Company's breach of any covenant or representation contained in the Tax
Agreement with respect to such transactions. In addition, the Company and
Electronics have each agreed that neither party will take any action
inconsistent with the information furnished by it in connection with the
rendering of the legal opinion regarding the tax-free nature of the
Distribution and, until the expiration of the statute of limitations period
applicable to the taxable year in which the Distribution occurs, neither party
will make or change any accounting method, amend any tax return or take any
tax position on any tax return, change the manner in which it conducts its
business, or take (or omit to take) another action that results in any
increased tax liability relating to a pre-Distribution tax period. The Company
and Electronics have each agreed to indemnify the other for liabilities
arising as a result of the breach by the Company or Electronics, as the case
may be, of the Tax Agreement.
Technology Transfer and License Agreement. The Technology Transfer and
License Agreement provides for the assignment of intellectual property and
technology other than trademarks to the party that utilized it prior to the
Distribution. Technologies also grants Electronics an irrevocable, royalty
free, worldwide, nonexclusive license to utilize the intellectual property and
technology assigned to Technologies to produce medical devices if such
intellectual property and technology had been used by Electronics or its
subsidiaries prior to the Distribution.
Trademark Assignment and Consent Agreement. The Trademark Assignment and
Consent Agreement assigns existing trademarks between the parties based upon
usage prior to the Distribution.
The foregoing summary of certain agreements is qualified in its entirety by
reference to the full text of such agreements, which have been filed as
Exhibits to the Registration Statement of which this Information Statement is
a part.
RELATED TRANSACTIONS
Assumption of Note Obligations. Electronics currently has $22.4 million of
outstanding Series A and Series B Senior Notes. The Series A Notes call for
principal repayments of $3.4 million on October 1 of each year through the
year 2000. The Series B Notes call for principal repayments of $2.2 million on
November 15 through the year 2000. The interest on the Notes was 6.73%. In
connection with the Distribution, Technologies will assume the Senior Note
obligations subject to the noteholders' agreement, at a revised rate of
interest of 7.23% and the modification of certain financial covenants to be
more favorable to the Company. The repayment terms on the Notes will not
change as a result of the assumption. See Note 5 of Notes to Combined
Financial Statements.
Financing Transactions. Prior to the Distribution, Sensors & Systems plans
to transfer up to $9.0 million in cash to Electronics to repay a portion of
amounts due from Sensors & Systems to Electronics from recurring intercompany
transactions. The net balance of intercompany obligations owed to Electronics
by Sensors & Systems and Defense was $3.9 million on June 28, 1997. At the
Distribution date and including the effects of the cash transfer, management
estimates the net intercompany obligations of Electronics to Sensors & Systems
and Defense will be approximately $4.0 million. See Note 15 of Notes to
Combined Financial Statements.
Management anticipates the cash transfer will be funded by a combination of
Sensors & Systems' existing cash balances and new borrowings by Sensors &
Systems of up to $9.0 million as described under "Financing--Bank Credit
Facilities" below. The net intercompany obligations of Electronics will be
assumed by Technologies and all the other assets and liabilities of Sensors &
Systems and Defense will be contributed to Technologies as
7
<PAGE>
part of the Distribution. Technologies is establishing a credit facility with
Canadian Imperial Bank of Commerce ("CIBC"). There can be no assurance that
Sensors & Systems or the Company will be able to obtain such financing on
terms acceptable to the Company or that such financing, if obtained, will be
sufficient for the Company's needs.
LISTING AND TRADING OF TECHNOLOGIES COMMON STOCK
There is not currently a public market for Technologies Common Stock. Prices
at which Technologies Common Stock may trade prior to the Distribution on a
"when-issued" basis (see the following paragraph) or after the Distribution
cannot be predicted. Until Technologies Common Stock is fully distributed and
an orderly market develops, the prices at which trading in such stock occurs
may fluctuate significantly. The prices at which Technologies Common Stock
trades will be determined by the marketplace and may be influenced by many
factors, including, among others, the depth and liquidity of the market for
Technologies Common Stock, investor perception of Technologies and of the
industries in which Technologies operates, Technologies' dividend policy and
general economic and market conditions.
In "when-issued" trading, contracts for the purchase and sale of shares of
stock are made prior to the issuance of such shares in the same manner as
currently issued shares, except that when-issued contracts are settled by
delivery of and payment for the shares on a date chosen by the particular
exchange on which such shares are to be listed. Ordinarily, in connection with
a distribution of stock such as described in this Information Statement, the
date fixed for settlement of when-issued contracts relating to such stock is
the sixth business day after distribution of such stock. Stockholders who may
wish to effect a when-issued trade in Technologies Common Stock should consult
their brokers for additional details.
Technologies Common Stock has been approved for listing on the Nasdaq
National Market System, upon notice of issuance, under the symbol "BEIQ."
Technologies initially will have approximately 400 stockholders of record and
an additional 800 beneficial holders, based on the number of record holders
and the estimated number of beneficial holders of Electronics Common Stock at
September 22, 1997, and approximately 7,115,000 shares of Technologies Common
Stock will be outstanding. The Transfer Agent and Registrar for the
Technologies Common Stock will be ChaseMellon Shareholder Services, L.L.C. For
certain information regarding options to purchase Technologies Common Stock
that are expected to become outstanding after the Distribution, see "--Other
Consequences of the Distribution--Stock Options" and "New Incentive Plans of
BEI Technologies, Inc.--1997 Equity Incentive Plan."
It is anticipated that certain investment banking firms will make a market
in Technologies Common Stock following the Distribution. Any such market
making activity may be discontinued at any time, without notice. There can be
no assurance that an active trading market in Technologies Common Stock will
develop, or, if a market does develop, at what prices Technologies Common
Stock will trade.
Shares of Technologies Common Stock distributed to Electronics stockholders
in the Distribution will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act. Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company and may
include certain officers and directors of the Company as well as principal
stockholders of the Company, if any. Persons who are affiliates of the Company
will be permitted to sell their shares of Technologies Common Stock only
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 or another exemption from the registration requirements
of the Securities Act.
OTHER CONSEQUENCES OF THE DISTRIBUTION
Dividend Policies. Electronics has paid a cash dividend of $.02 per share of
Electronics Common Stock each quarter since its initial public offering in
1989. The payment of future dividends, if any, by Electronics or the Company
will be at the discretion of the Electronics Board of Directors and the
Company's Board of Directors, respectively.
8
<PAGE>
Certain Anti-takeover Effects. The Certificate of Incorporation and Bylaws
of the Company contain several provisions that may make the acquisition of
control of the Company more difficult or expensive. With respect to certain of
these provisions, the Certificate of Incorporation of the Company differs from
the Certificate of Incorporation of Electronics. In addition, the Board of
Directors of the Company has adopted a Stockholder Rights Plan that has
certain anti-takeover effects. See "Certain Anti-takeover Effects of Certain
Provisions of the Certificate of Incorporation, the Bylaws and State Law" and
"Stockholder Rights Plan."
Stock Options. Holders of vested incentive and nonstatutory stock options to
purchase Electronics Common Stock ("Vested Options") will be entitled to
exercise such Vested Options prior to the Record Date and thereafter to
receive shares of Technologies Common Stock as part of the Distribution.
Holders of Vested Options who do not exercise such Options prior to the Record
Date, together with holders of unvested incentive and nonstatutory stock
options to purchase Electronics Common Stock ("Unvested Options"), will have
such unexercised Vested Options and such Unvested Options converted to vested
and unvested incentive stock options and nonstatutory stock options, as
appropriate, to purchase Technologies Common Stock issued under the 1997
Technologies Equity Incentive Plan. As a result of the conversion to vested
and unvested incentive stock options and nonstatutory stock options to
purchase Technologies Common Stock, the Vested Options and Unvested Option to
purchase Electronics Common Stock will be cancelled. Based on options to
purchase Electronics Common Stock outstanding as of the Record Date, it is
anticipated that approximately 318,000 options to purchase shares of
Technologies Common Stock will be issued pursuant to the conversion. The
conversion will be based on the following criteria:
(i) the excess of the aggregate fair market value of the shares of
Technologies Common Stock subject to the option immediately after the
conversion over the aggregate option price of such shares may not be more
than the excess of the aggregate fair market value of the shares of
Electronics Common Stock subject to the option immediately before such
conversion over the aggregate option price of such shares;
(ii) on a share by share comparison, the ratio of the option price to the
fair market value of the shares of Technologies Common Stock subject to the
option immediately after the conversion may not be more favorable to the
optionee than the ratio of the option price to the fair market value of the
shares of Electronics Common Stock subject to the option immediately before
the conversion; and
(iii) the new option does not give the option holder additional benefits
that such holder did not have under the old option.
RESTRICTED STOCK. As of August 1, 1997, 352,550 shares of Electronics'
Common Stock had been issued and remain outstanding pursuant to awards of
restricted stock granted under the Electronics' 1992 Restricted Stock Plan
("Electronics' Restricted Stock"), including 94,636 shares issued to
individuals who will continue as directors or officers of the Company after
the Distribution. See "Executive Compensation--Executive Compensation Prior to
the Distribution--Summary Compensation Table." In addition, 257,914 shares of
Electronics Restricted Stock have been issued to individuals who will continue
as employees of the Company or a subsidiary of the Company after the
Distribution.
Each holder of the shares of Electronics Restricted Stock will receive as a
result of the Distribution of Technologies Common Stock vested and unvested
shares in amounts equal to the number of vested and unvested shares of
Electronics Restricted Stock held by such holder on the Record date. Based on
the number of shares of Electronics Restricted Stock outstanding on August 1,
1997, it is anticipated that a total of 352,550 shares of Technologies Stock
will be issued in connection with the Distribution to holders of Electronics
Restricted Stock.
The Company has adopted a 1997 Equity Incentive Plan under which
consultants, employees and directors of the Company are eligible to receive
bonus stock awards. See "New Incentive Plans of BEI Technologies, Inc.--1997
Equity Incentive Plan."
9
<PAGE>
FINANCING
Electronics' practice has been to incur long-term debt at the parent company
level rather than the subsidiary level, even when the funds obtained from such
borrowings have been used in the businesses of its subsidiaries. Accordingly,
financing requirements of Sensors & Systems generally have been funded through
intercompany accounts with Electronics.
BANK CREDIT FACILITIES
In order to support its initial funding needs, including the transfer by
Sensors & Systems of up to $9.0 million to Electronics prior to the
Distribution to repay a portion of amounts payable to Electronics, Sensors &
Systems plans to borrow up to $9.0 million under a note from Canadian Imperial
Bank of Commerce. After the Distribution, Technologies is establishing a line
of credit with CIBC. See "The Distribution--Related Transactions--Financing
Transactions". Interest on borrowings under the line of credit will be based
upon either the Prime Commercial Lending Rate of CIBC or the rate which would
be offered by CIBC to prime banks in the interbank Eurodollar market,
depending on the term of the loan. Management believes that as a result of the
Distribution, Technologies will be able to obtain new financing on more
favorable terms than new financing Electronics could obtain absent the
Distribution. However, there can be no assurance that Sensors & Systems or
Technologies will be able to obtain such financing from CIBC or other sources
on terms acceptable to Technologies or that such financing if obtained will be
sufficient for Technologies needs.
Under the line of credit, CIBC will also issue standby letters of credit. At
the Effective Date, approximately $0.4 million is expected to be available to
fund letters of credit issued on behalf of the Company.
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CAPITALIZATION
(IN THOUSANDS)
The following table sets forth, as of June 28, 1997, the capitalization of
Technologies on a historical basis, and on a pro forma basis giving effect to
the Distribution, including the borrowing of up to $9.0 million by Sensors &
Systems, the transfer of up to $9.0 million in cash to Electronics to repay a
portion of amounts payable from Sensors & Systems to Electronics, and the
assumption by Technologies of net intercompany obligations of Electronics to
Sensors & Systems and Defense, estimated to be approximately $4.0 million at
the time of the Distribution. Technologies intends to establish a bank line of
credit. There can be no assurance that Sensors & Systems or Technologies will
be able to obtain such financing on terms acceptable to the Company or that
such financing, if obtained, will be sufficient for the Company's needs. This
table should be read in conjunction with the "Description of Capital Stock,"
"Selected Unaudited Pro Forma Financial Data," "Selected Historical Financial
Data," and "Combined Financial Statements" and Notes thereto appearing
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
JUNE 28, 1997
----------------
PRO
ACTUAL FORMA
------- -------
<S> <C> <C>
Long-term debt(1):
Current portion............................................ $ 5,627 $ 5,627
Non-current portion........................................ 18,516 27,516
Payable to (Receivable from) BEI Electronics, Inc.(1)........ 3,896 (1,104)
Stockholders' equity:
Preferred Stock, pro forma; $.001 par value; 2,000,000
shares authorized, no shares issued and outstanding....... -- --
Common stock, pro forma $.001 par value; 20,000,000 shares
authorized, 7,006,000 shares issued and outstanding(2).... -- --
Retained earnings............................................ 42,949 38,949
Unearned Restricted Stock.................................... (1,286) (1,286)
------- -------
Total stockholders' equity............................... 41,663 37,663
------- -------
Total capitalization..................................... $69,702 $69,702
======= =======
</TABLE>
- --------
(1) See Notes 5, 7 and 15 of Notes to Combined Financial Statements.
(2) Excludes pro forma effect of Common Stock issuable on exercise of stock
options of Electronics to acquire 159,167 shares of its Common Stock.
11
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THE BUSINESS
INTRODUCTION AND HISTORICAL OVERVIEW
Prior to the Effective Date, the distributing company, Electronics, operated
two separate businesses; namely, that of:
1.) BEI Medical Systems Company, Inc., its 82% owned subsidiary (on a fully
diluted basis); and
2.) BEI Sensors & Systems Company, Inc., its 100% owned subsidiary.
In addition, Electronics produced rocket-propelled ordnance systems for
military use through its subsidiary, Defense Systems Company, Inc. ("Defense
Systems" or "Defense") in fiscal 1996 and prior years. (See Combined Financial
Statements and Note 2 thereto regarding discontinuance of the Defense Systems
segment.)
The management and Board of Directors of Electronics have concluded that it
is in the best interests of Electronics and its stockholders for Electronics
to focus exclusively on the Medical Systems business and to create a separate
company to focus on and further grow the Sensors & Systems business and to
discontinue the operations of the Defense Systems segment. It will do so by
distributing all of the outstanding common stock of a newly formed, wholly
owned subsidiary, BEI Technologies, Inc., to Electronics' stockholders.
Electronics is distributing the shares of Technologies Common Stock based on
management's belief that each of its businesses would enjoy substantially
improved performance and access to capital markets if its business strategy,
organization and employee incentives were tightly focused on closely
associated products and markets. For a more complete discussion of the
business reasons for the distribution, see "The Distribution--Reasons for the
Distribution."
BEI Technologies, Inc., a Delaware corporation newly organized in June 1997,
is currently a wholly-owned subsidiary of Electronics. As of the Effective
Date it will be the parent company of Sensors & Systems, a Delaware
corporation, which designs, manufactures and sells advanced electronic
products to control and drive the motion of machinery and equipment.
Technologies will also be the indirect parent company of Defense, a Delaware
corporation, which from inception through fiscal 1996 manufactured the HYDRA
70 rocket system. Sensors was originally incorporated in 1983, as Motion
Systems Company, Inc. Defense was originally incorporated in 1983 as Defense
Systems Company, Inc.
Technologies' principal executive offices are located at One Post Street,
Suite 2500, San Francisco, California 94104 (telephone number (415) 956-4477).
"BEI" and "BEI GyroChip" are registered trademarks of the Company. Certain
other trademarks of the Company are used in this Information Statement.
Technologies has filed with the Commission the Registration Statement under
the Exchange Act with respect to its Common Stock described herein. The
Registration Statement became effective on September , 1997. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information, reference is made hereby to the Registration Statement and such
exhibits and schedules. Copies of these documents may be inspected without
charge at the principal office of the Commission at 450 5th Street, N.W.,
Washington, D.C. 20549 or at branch locations listed on page iv, and copies of
all or any part thereof may be obtained from the Commission upon payment of
the charges prescribed by the Commission.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish audited financial statements to its stockholders in connection with
its annual meeting of stockholders.
No person is authorized by Electronics or Technologies to give any
information or to make any representations other than those contained in this
Information Statement, and if given or made, such information or
representations must not be relied upon as having been authorized.
Unless the context indicates otherwise, "Technologies" and the "Company"
refer to BEI Technologies, Inc. and its consolidated subsidiaries, including
Sensors & Systems and Defense.
12
<PAGE>
DESCRIPTION OF THE BUSINESS
OF BEI TECHNOLOGIES, INC.
BUSINESS SUMMARY AND STRATEGY
The principal business of Technologies is carried out by its 100% owned
subsidiary, Sensors & Systems. Sensors & Systems designs, manufactures and
sells electronic devices that provide vital sensory input for the control
systems of advanced machinery and automation systems. These sensors, most of
which are concerned with physical motion, provide the information that is
essential to logical, safe and efficient operation of sophisticated machinery.
The Company's long-term strategy is to provide, on a global basis, selected
advanced intelligent sensors based on proprietary technology. Technologies'
management believes that intelligent sensory input to machine control systems
and computers will be increasingly crucial to the productive functioning of a
modern economy. Accordingly, Sensors & Systems' goal is to maintain, develop
and acquire a diverse offering of advanced sensor products. In addition, the
Company will manufacture and sell certain products--such as brushless D.C.
motors--that are complementary to its sensor product line. Finally, the
Company will target proprietary, high margin niche markets for subsystems and
end products in which its sensors and complementary products play an enabling
role. The Company's near term initiatives include: (a) broad commercialization
of the "yaw" quartz rate sensor for the automotive industry (as described
below); (b) development and commercialization of internally developed
technologies that have broad applications and that management believes to be
promising; and (c) expansion of the product line through acquisitions of
complementary technologies.
A key feature of the Company's strategy is to be widely recognized as the
most capable source for the sensor categories it has selected. Its traditional
emphasis is on highly engineered motion sensing components and assemblies. The
Company believes it differentiates itself by offering (a) appropriate
technology to solve a customer problem (including innovative proprietary
technology); (b) quality service; and (c) engineering assistance in
recommending and prescribing technical solutions for its customers'
applications. Sensors' product are not sold as commodities. Its strategy is to
provide technical advice and customer service that, together with the products
themselves, create value and give the customer confidence that the product has
been expertly prescribed and applied.
By way of more specific examples, the Company's engineers regularly address
the following typical machine control requirements of customers:
(1) A pick and place robot needs to know how far its elbow and wrist joints
have moved in order to control the speed and position of its "hand."
(2) After a power outage, an elevator system needs to know exactly where
each car is before permitting motion to resume. (Is the car between floors or
not? Are the doors open or closed?) In both the foregoing examples, the
Company's encoders could measure speed, distance, or exact location.
(3) An antenna on a moving ship needs to be actively stabilized so that the
antenna will continuously point at a satellite or another ship's pencil beam
laser signal. For such an application the Company might provide its
proprietary "GyroChip" quartz rate sensor. It might also provide motor-
encoders and actuators to drive the compensating action of such a system.
(4) Some luxury automobiles now have computer-controlled stability
enhancement systems to assist drivers in maintaining control of the vehicle in
slippery conditions. In some of these systems one of the Company's sensors
tells the computer system the present direction and angle of the steering
wheels, while another of the Company's sensors instantly measures and reports
the presence of "yaw" forces which--if not corrected--could cause the vehicle
to spin out or "fishtail". The automation system in this case relies on
sensors to compare the driver's indicated directions and the actual result.
The system can then take corrective action automatically. Here the Company
provides special "GyroChip" quartz sensors as well as encoder and
potentiometer combinations.
13
<PAGE>
(5) Advanced engine control systems in tractors, trucks, and materials
handling and construction equipment need to know throttle position data in
order to assure efficient and clean combustion and safe and reliable gear
changes and other automated functions. The Company's potentiometers provide
the necessary throttle position data.
(6) Semiconductor production equipment requires extremely fast yet accurate
control of start-move-stop action on x-y positioners and tools. The Company's
magnetic actuators provide the energizing force for such tasks.
(7) Process automation systems and various medical systems such as those for
cryosurgery and respiration therapy require compact, high reliability pressure
measurement and fast acting valves, which are accommodated by the Company's
silicon pressure sensors and/or magnetic actuators.
CUSTOMERS AND MARKETS
The foregoing examples illustrate a few of the thousands of machine control
situations for which the sensors of the Company are used. Customers who buy
the Company's products are makers and users of many different kinds of
machinery and systems used in diverse markets and industries. Important market
categories include factory automation, process automation, transportation
(including cars, trucks, mass transit, construction and farm equipment),
health care and scientific equipment, and military, space and
telecommunications.
The Company considers its large number of customers and the vast scope of
existing and potential applications for its products to be a source of the
Company's existing business strength and an opportunity for substantial long
term growth.
The Company's brands have been well established in North America for many
years and were distributed during the past fiscal year through Sensors &
Systems' direct sales force to more than 6,400 different commercial customers,
principally in the United States. These customers included both end users and
original equipment manufacturers. The value of individual orders from
commercial customers--which account for approximately two thirds of total
sales--is typically less than $100,000.
Sales from continuing operations to the U.S. Government (or prime
contractors who manage government funded projects) represented approximately
27% of the Company's sales in fiscal 1996, 32% in fiscal 1995 and 40% in
fiscal 1994. No commercial customer accounted for more than 10% of sales in
fiscal year 1996, 1995 or 1994. The Company sells approximately 10% of its
products in international markets. The Company has initiated actions which it
believes will increase its penetration of international markets.
The Company also seeks to use its proprietary sensor capabilities to create
value-added subsystems or products. The goal is to make such high margin
products, enabled by the Company's proprietary technology, a growing part of
the Company's business. For example, the Company's success in providing
components for pointing and stabilizing telecommunications antennae has led to
it exploring the market for a unique stabilized platform for optical systems
that the Company may offer as a product.
PRODUCTS AND PROPRIETARY SYSTEMS
The Company's main product groups may be categorized as follows:
1. Sensors (for motion and pressure measurement),
2. Products Complementary to Sensors (motors and actuators), and
3. Engineered Subsystems (such as inertial guidance units, electronic servo
control systems, scanner assemblies and cryocoolers)
14
<PAGE>
A more detailed description of the products and systems designed,
manufactured and sold by the Company follows below:
Sensors:
Shaft Encoders. Shaft encoders translate the motion of rotating shafts
directly into digitally coded electronic signals. These digitally coded
signals facilitate interpretation of the sensed motion by microcomputer
processors that are used to control the operation of machinery and equipment.
Sensors & Systems offers a wide array of encoders to serve a variety of
applications. The most common applications are for factory automation, office
automation, and transportation equipment, but specialized versions are also
used for military and space hardware. Value-added assemblies which employ
shaft encoders include servo motors and servo drive electronic control
systems.
Precision Potentiometers. Similar in basic function to encoders,
potentiometers measure motion by analog (not digital) changes in electrical
potential. These changes may sometimes be subsequently translated into digital
code. Potentiometers are used as economical motion or position-sensing devices
for throttle, steering, suspension, and seat and mirror position controls in
automobiles and in some heavy equipment, such as earth movers, and
construction and farm machinery. They are also used as position sensors in
such applications as actuators on molding presses, saw mills and numerous
other types of industrial equipment and in oil well logging calipers.
Incorporating Sensors & Systems' potentiometer technology with its proprietary
shaft encoder technology has resulted in a highly engineered steering wheel
position sensor used for intelligent stability control systems for automobiles
and potentially for other vehicles in the future.
Rate Sensors and Accelerometers. These products provide precise and reliable
measurement of minute linear and angular motion for control, guidance and
instrumentation. In general, these devices operate without need for direct
linkage to the driving mechanisms. Such measurements are required for heading
and attitude reference instruments in aircraft and missiles, stabilization of
satellites, pointing and control of antennae on aircraft, ships and other
moving platforms, navigation of oil well drill bit assemblies, and for
intelligent vehicle stability and navigation systems in the automotive
industry.
Mechanical accelerometers and rate sensors using traditional technology
(e.g., a moving mass suspended by a pivot and jewel mechanism) rely on the
movement of complex machined metallic parts to measure motion. In contrast,
Sensors & Systems' miniature, solid state accelerometers and rate sensors are
based on innovative and proprietary chemical micro-machining of a single
element from crystalline quartz using photolithographic methods similar to
those used in the manufacture of silicon semiconductor chips. The advantages
of quartz rate sensors and accelerometers over traditional mechanical units
are increased reliability, reduced size, and lower production and life cycle
costs.
BEI GyroChip(R) Sensors. The Company's family of GyroChip quartz rate
sensors, developed primarily for commercial gyro applications, have found use
in such varied requirements as navigation of autonomous (robotic) guided
vehicles, ocean buoy and sea-state monitoring, and stabilization of pointing
systems for antennas and optical systems. The most frequent use of GyroChip
units is as yaw sensors in stability control or spin-out prevention systems
for automobiles. GyroChip sensors provide performance suitable for commercial
applications while offering ruggedness, longer life and smaller size at a
lower cost than military versions of quartz rates sensors.
Pressure Sensors. Pressure sensors measure absolute or differential pressure
from vacuum to 10,000 psi. Various sensing technologies are used such as thick
film potentiometric devices for high temperature applications; thin film
devices used for commercial/industrial systems; and silicon micromachined
structures used for high volume medical, commercial and automotive markets.
The Company provides standard products as well as application specific
solutions to pressure measurement requirements.
15
<PAGE>
Micro-Electromechanical Sensors (MEMS). MEMS are a new category of ultra
small devices, usually micro-machined from crystalline materials such as
quartz or silicon. The GyroChip sensors and other quartz devices discussed
above are examples of MEMS currently being sold by Electronics. Management
expects Sensors & Systems' MEMS research and development programs to lead to
new devices for sensing motion, pressure and other physical parameters.
Products Complementary to Sensors:
Brushless DC Motors. Brushless DC Motors give high performance and
efficiency in compact, lightweight packages and ease of interface with
microprocessors. The motors, which feature high energy magnets, are
characterized by long life and low acoustic and electrical noise. They are
well suited to high speed, high reliability applications, such as in operating
rooms where the risk of sparks from a brush motor would be hazardous or where
electrical noise could disrupt computers or computer-controlled equipment.
Magnetic Actuators. Magnetic actuators are used in place of motors or
solenoids to achieve precise control of short stroke linear or limited rotary
motion. Actuators using very high energy magnets are also produced for
specialized applications requiring intense force, torque or acceleration
relative to the size of the device.
Engineered Subsystems:
Avionics Controls. In 1995, Electronics discontinued production of rocket
propelled ordnance systems. Certain avionics control units (electronic black
boxes), which were part of the rocket system product mix, continue in backlog,
however, and will in the future be reported as a part of Technologies'
continuing Sensors & Systems business.
Cryocoolers. The Company's proprietary, compact and lightweight stirling
cycle refrigerators are designed for cooling advanced electronic vision
sensors to liquid nitrogen temperatures. These cryocoolers are utilized in
infrared cameras used in surveillance, night vision pilotage systems and
superconducting applications.
Inertial Measurement Units (IMU's). These subsystems are a fundamental
element of virtually all inertial navigation and position or attitude
reporting systems. Even systems that rely on the Global Positioning Satellite
(GPS) network frequently must have an IMU built in to assure a back-up in case
the GPS signal is interrupted. Technologies' quartz rate sensors have made new
breakthroughs in size, reliability and cost for the proprietary IMU subsystems
Technologies builds.
Scanner Assemblies. Scanner assemblies are an integral subsystem of the
optics in military night vision systems that guide the infrared image to the
focal plane sensor array. These subsystems consist of spinning or
reciprocating mirrors, a motor and an encoder in a precision servo loop. The
Company's motion control know-how helps assure that the scanner delivers
jitter-free, well-resolved images.
Servo Systems. Servo Systems are closed-loop electronic systems that control
the position or velocity of rotating shafts or other moving parts by accepting
a desired rate or position input from computers or keyboards, monitoring the
position or rate of movement (using an appropriate encoder or other sensor)
and constantly providing feedback that indicates whether the desired
performance has been achieved.
BACKLOG
The Company's commercial operations typically ship standard products within
30 to 90 days after receipt of a purchase authorization. Management of the
Company believes that its competitive position depends in part on minimizing
the time that elapses between receipt and shipment of an order. Products that
require special analysis, design or testing, such as those produced for
customers in the aviation, defense or space technology markets, are generally
shipped from six to eighteen months after receipt of the purchase
authorization.
16
<PAGE>
Backlog of the Company's continuing businesses at June 28, 1997 and at June
29, 1996, was as follows:
<TABLE>
<CAPTION>
JUNE JUNE
28, 29,
1997 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Backlog.................................................. $47,197 $42,239
</TABLE>
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the next twelve months of scheduled deliveries under existing
contracts. Some contracts undertaken by Sensors & Systems extend beyond one
year. Accordingly, portions of such contracts are carried forward from one
year to the next as part of backlog. Approximately 46% of the backlog as of
June 28, 1997 is scheduled for shipment during fiscal 1997; all of the
remainder of the backlog is scheduled for shipment during fiscal 1998.
In the case of U.S. Government contracts, backlog includes only the
applicable portion of contracts that are fully funded by a procuring
Government agency. All U.S. Government contracts and subcontracts are subject
to termination by the U.S. Government for convenience. There can be no
assurance that all existing contract backlog will eventually result in revenue
and, accordingly, the amount of backlog at any date is not necessarily a
reliable indicator of future revenue or profitability trends.
COMPETITION
Competitors for various products offered by the Company are found among
certain divisions or product lines of large, diversified companies such as
Allied-Signal, Boeing, Danaher Corp., Litton, Northrop, Honeywell and
Rockwell. Smaller or product-specific companies, some of whose products
compete include Encoder Products, Kollmorgen, Kulite Semiconductor, Dynamics
Research Corp., Pacific Scientific, Papst, Renco Encoders, Axsys Technologies,
and Servo Magnetics.
In its principal markets, the Company believes that competition is based
primarily on design, performance, reliability, price, delivery, service and
support. The Company believes that it competes favorably with respect to these
factors.
MANUFACTURING
The Company's manufacturing operations provide a mix of standard catalog
products and products designed to meet the specialized requirements of a
particular customer. The Company's products, whether standard or "custom", are
normally manufactured in response to customers' orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies that
are proprietary to the Company.
A special code pattern generator designed by and proprietary to the Company
is used to produce shaft encoder parts. Special quartz micromachining
equipment is used for the production of QRS units. Special high throughput
automated or semi-automated equipment is used for the production of QRS
assemblies, brushless motors and potentiometers. Some parts are fabricated
under clean room conditions.
RESEARCH AND DEVELOPMENT
The major research and development focus has been to improve performance and
yield of existing products, with special emphasis on the quartz sensors used
in high accuracy IMU's and high volume yaw rate sensors for the automotive
industry. Substantial effort has also been devoted to the development of
manufacturing methods necessary to deliver competitive prices and quality in
the automotive market. Other development has focused on expanding applications
of existing sensors.
The Company has also produced prototypes of future products incorporating
silicon micro-electromechanical sensors (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
17
<PAGE>
Management of the Company believes that its future success will depend in
part on its ability to continue to enhance its existing products, and to
develop and introduce new products that maintain technological leadership,
meet a wider range of customer needs and achieve market acceptance.
Accordingly, the Company's internally funded research, development and related
engineering expenditures were approximately $3.6 million, $4.0 million and
$6.1 million in fiscal 1996, 1995 and 1994, respectively. In addition,
customer funded research and development expenditures charged to cost of sales
were $3.0 million, $6.3 million and $5.4 million, respectively, for the same
periods.
EMPLOYEES
As of June 28, 1997, the units that will comprise Technologies had 948
employees, including 122 in research, development and engineering, 74 in
administration, 71 in marketing and sales, and 681 in operations. The Company
believes that its continued success depends on its ability to attract and
retain highly qualified personnel. The Company's employees are not covered by
collective bargaining agreements. The Company has not experienced any work
stoppages and considers its relationship with its employees to be good.
INTELLECTUAL PROPERTY
The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive position. In addition the Company and its
subsidiaries own 82 U.S. patents and 50 foreign patents with expiration dates
ranging from October 1997 to August 2014. Because many of these patents relate
to technology that is important to certain of the Company's products, the
Company considers these patents to be significant to its business.
While management believes that the Company's intellectual property rights
are important, management also believes that because of the rapid pace of
technological change in the industries in which the Company competes, factors
such as innovative skills, technical expertise, the ability to adapt quickly
to technological change and evolving customer requirements, product support
and customer relations are of equal competitive significance.
ENVIRONMENTAL MATTERS
The Company uses certain controlled or hazardous materials in its research
and manufacturing operations and, as a result, is subject to federal, state
and local regulations governing the storage, use and disposal of such
materials. Management of the Company believes that it is currently in
compliance with such laws and regulations.
18
<PAGE>
PROPERTIES
Technologies' principal executive offices are located in leased office space
in San Francisco, California, under a lease which expires in 1998. The Company
owns or operates 8 other facilities which relate to the business and maintains
office space in various locations throughout the United States for sales and
technical support. None of the owned principal properties is subject to any
encumbrance material to the consolidated operations of the Company's business.
In addition to its executive offices, the Company's principal facilities are
as follows:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION OF FACILITY
-------- -----------------------
<C> <S>
Maumelle, Arkansas...... Own 50,000 square foot manufacturing, engineering,
administrative and research and development
facility.
Campbell, California.... Sublease 5,000 square foot manufacturing,
administrative and research and development
facility.
Concord, California..... Own 101,000 square foot manufacturing, engineering
and administrative facilities.
Goleta, California...... Own 22,000 square foot manufacturing, engineering and
administrative facility.
San Marcos, California.. Lease 35,000 square foot manufacturing, engineering
and administrative facilities.
Sylmar, California...... Sublease 83,000 square foot manufacturing,
engineering and administrative facility.
Tustin, California...... Lease 80,000 square foot manufacturing, engineering
and administrative facility.
Euless, Texas........... Own 72,000 square foot manufacturing facility
presently being offered for sale. Sublease 2,000
square foot warehouse facility, used primarily for
record storage.
</TABLE>
LEGAL PROCEEDINGS
The Company has pending various legal actions arising in the normal course
of business. Management believes that none of these legal actions,
individually or in the aggregate, will have a material impact on the Company's
business, financial condition or results of operations.
19
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected historical financial data which relates to the
balance sheets at September 30, 1995 and 1996 and statements of operations
data for the three years in the period ended September 28, 1996 have been
derived from the combined financial statements of Technologies audited by
Ernst & Young, LLP, independent auditors, included elsewhere herein. The
following selected historical financial data which relate to the balance
sheets at October 3, 1992, October 2, 1993 and October 1, 1994 and statements
of operations data for the two years in the period ended October 2, 1993 are
derived from unaudited combined financial statements not included in this
Information Statement. The selected historical financial data at June 28, 1997
and for the nine-month periods ended June 29, 1996 and June 28, 1997 have been
derived from unaudited financial statements included elsewhere herein. In the
opinion of management, the unaudited combined financial statements include all
adjustments consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position of the Company at June 29, 1996
and June 28, 1997 and the results of operations for the nine-month periods
then ended. The historical combined financial statements of the Company do not
necessarily reflect the results of operations or financial position that would
have been obtained had the Company been a separate, independent company and
are not necessarily indicative of the results to be expected for any other
interim period or any future fiscal year. See "Selected Unaudited Pro Forma
Financial Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Combined Financial Statements" and
accompanying notes thereto. See also Note 1 of Notes to Combined Financial
Statements for explanation of shares used in pro forma per share calculations.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $105,080 $89,391 $82,361 $90,475 $96,746 $71,398 $74,437
Income from continuing
operations before
interest expense and
income taxes........... 5,819 2,310 2,835 739 6,729 5,992 4,127
Depreciation and
Amortization........... 4,502 5,354 5,602 5,913 5,915 4,333 4,296
Income(loss) from
continuing operations . 2,840 599 321 (964) 2,873 2,706 1,794
Income(loss) from
discontinued operations
....................... 4,633 4,329 392 (1,077) 1,698 1,139 1,389
Net income(loss)........ 7,473 4,928 713 (2,041) 4,571 3,845 3,183
Pro forma earnings from
continuing operations
per common and common
equivalent share ...... 0.40 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share ...... 0.24 0.20
Pro forma earnings per
common and common
equivalent share ...... 0.64 0.45
Shares used in computing
pro forma earnings per
common and common
equivalent share....... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $17,098 $35,052 $39,179 $29,774 $27,775 $28,829 $26,711
Total assets............ 91,106 92,361 97,852 92,418 92,171 90,900 86,668
Payable to BEI
Electronics, Inc. ..... 13,707 10,314 17,727 10,404 6,062 9,098 3,896
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,860 29,765 24,137 24,142 18,156
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 32,461 41,663
</TABLE>
20
<PAGE>
BEI TECHNOLOGIES
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data give effect to
certain planned financing transactions in connection with the Distribution as
if such transactions had occurred at the beginning of each period for
statement of operations data, and as of the balance sheet date for balance
sheet data. The planned financing transactions include borrowings by Sensors &
Systems of up to $9.0 million and the transfer of up to $9.0 million in cash
to Electronics as repayment of a portion of amounts payable from Sensors &
Systems to Electronics. The planned financing transactions also include the
assumption by Technologies of net obligations payable by Electronics to
Sensors & Systems and Defense, estimated to be approximately $4.0 million at
the time of the Distribution. Interest charges on net amounts payable to
Electronics have not been significant.
The selected unaudited pro forma statements of operations data do not
purport to represent what the Company's results of operations would have been
if the financing transactions had occurred as of such dates or what such
results will be for any future periods. See "Selected Historical Financial
Data", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Combined Financial Statements" and accompanying
notes thereto.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA,
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $96,746 $ -- $96,746
Cost of Sales.............................. 60,494 -- 60,494
------- ----- -------
36,252 -- 36,252
Selling, general and administrative
expenses.................................. 26,157 -- 26,157
Research, development and related expenses. 3,608 -- 3,608
------- ----- -------
29,765 -- 29,765
------- ----- -------
Operating income........................... 6,487 -- 6,487
Other income............................... 242 -- 242
Interest expense........................... (2,444) (617)(3) (3,061)
------- ----- -------
Income before income taxes................. 4,285 (617) 3,668
------- ----- -------
Income taxes............................... 1,412 (247)(3) 1,165
------- ----- -------
Income from continuing operations.......... $ 2,873 $(370) $ 2,503
======= ===== =======
Pro forma earnings from continuing
operations per common and common
equivalent share, as adjusted(4).......... $ 0.35
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share(5)................ 7,108
=======
</TABLE>
See accompanying notes.
21
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $74,437 $ -- $74,437
Cost of Sales.............................. 48,383 -- 48,383
------- ------ -------
26,054 -- 26,054
Selling, general and administrative
expense................................... 19,014 -- 19,014
Research, development and related expenses. 3,159 -- 3,159
------- ------ -------
22,173 -- 22,173
------- ------ -------
Operating income........................... 3,881 -- 3,881
Other income............................... 246 -- 246
Interest expense........................... (1,392) (510)(3) (1,902)
------- ------ -------
Income before income taxes................. 2,735 (510) 2,225
------- ------ -------
Income taxes............................... 941 (165)(3) 776
------- ------ -------
Income from continuing operations.......... $ 1,794 $ (345) $ 1,449
======= ====== =======
Pro forma earnings from continuing
operations per common and common
equivalent share, as adjusted(4).......... $ 0.20
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share(5)................ 7,131
=======
</TABLE>
22
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets............................ $49,018 $ -- $49,018
Equipment, furniture and fixtures, net.... 25,107 -- 25,107
Other assets.............................. 12,543 -- 12,543
------- ------- -------
Total assets.............................. $86,668 $ -- $86,668
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities....................... $22,307 $ -- $22,307
Long-term debt, less current portion...... 18,516 9,000 (1) 27,516
Payable to(receivable from) BEI
Electronics, Inc......................... 3,896 (9,000)(1) --
-- 4,000 (2) (1,104)
Other liabilities......................... 286 -- 286
Stockholders' equity
Preferred stock........................... -- -- --
Common stock.............................. -- -- --
Retained earnings......................... 42,949 (4,000)(2) 38,949
Unearned restricted stock................. (1,286) -- (1,286)
------- ------- -------
Total stockholders' equity.............. 41,663 (4,000) 37,663
------- ------- -------
Total liabilities and stockholders'
equity................................. $86,668 $ -- $86,668
======= ======= =======
</TABLE>
See accompanying notes.
23
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed combined balance sheet as of June 28, 1997
and combined statements of operations for the nine months ended June 28, 1997
and for the year ended September 28, 1996, give effect to the following
adjustments:
(1) Reflects borrowing of $9.0 million by Sensors & Systems and transfer of
up to $9.0 million in cash to Electronics as repayment of a portion of amounts
payable by Sensors & Systems to Electronics.
(2) Reflects the assumption by Technologies of net intercompany obligations
payable by Electronics to Sensors & Systems and Defense, estimated to be
approximately $4.0 million at the time of the Distribution.
(3) Reflects interest expense incurred on the $9.0 million of proforma
indebtedness as if the debt was issued by the Company at the beginning of each
period presented using the Company's incremental borrowing rate, which is
based on the terms of Electronics' currently available line of credit.
Management believes that as a result of the Distribution, Technologies will be
able to obtain financing on more favorable terms than new financing
Electronics could obtain absent the Distribution. However, there can be no
assurance that Sensors & Systems or Technologies will be able to obtain such
financing on terms acceptable to the Company or that such financing , if
obtained, will be sufficient for the Company's needs. The pro forma income tax
benefit of such interest charges has been computed using the Company's
historical tax rate.
(4) Pro forma earnings from continuing operations per share as adjusted,
reflects the impact of the adjustments described above.
(5) Pro forma earnings from continuing operations per common and common
equivalent share are computed using the weighted average number of shares of
common stock outstanding plus the dilutive effect of common equivalent shares
from stock options and restricted stock using the treasury stock method
assuming that upon exercise the holder would receive one share of Technologies
common stock for each share of Electronics common stock acquired through
exercise of such options.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in this
section and risks discussed in "The Business," in "Risk Factors" and elsewhere
in this Information Statement.
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items in the Company's
historical Combined Statements of Operations.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------- -----------------
JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales.......................... 59.6 62.8 62.5 62.2 65.0
----- ----- ----- ----- -----
Gross profit........................... 40.4 37.2 37.5 37.8 35.0
Operating expenses:
Selling, general and administrative
expenses............................ 29.7 28.3 27.0 25.8 25.5
Provision for royalty and related
expenses............................ -- 3.9 -- -- --
Research, development and related
expenses............................ 7.4 4.4 3.7 3.8 4.2
----- ----- ----- ----- -----
Operating income....................... 3.3 0.6 6.8 8.2 5.3
Other income........................... 0.1 0.2 0.2 0.2 0.3
Interest expense....................... (2.6) (2.5) (2.5) (2.6) (1.9)
----- ----- ----- ----- -----
Income (loss) before income taxes from
continuing operations................. 0.8 (1.7) 4.5 5.8 3.7
Provision for income taxes (credit).... 0.4 (0.7) 1.5 2.0 1.3
----- ----- ----- ----- -----
Income (loss) from continuing
operations............................ 0.4 (1.0) 3.0 3.8 2.4
Income (loss) from discontinued
operations, net of income taxes....... 0.5 (1.3) 1.7 1.6 1.9
Net Income (loss)...................... 0.9% (2.3)% 4.7% 5.4% 4.3%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
RESULTS OF OPERATIONS
Net Sales
Net sales from continuing operations for the first nine months of fiscal
1997 increased $3.0 million or 4.3% from the prior year. Sales of automotive
and other commercial products increased $1.9 million and $6.7 million,
respectively, but were partially offset by decreases in sales to government
contractors or subcontractors of $5.5 million.
Cost of Sales
Continuing operations cost of sales as a percentage of net sales increased
from 62.2% to 65.0%. Continuing operations incurred cost overruns on the
development of some products for aerospace applications. In addition, average
costs of goods sold as a percentage of sales for new automotive applications
are higher than for other commercial products due to start-up efforts.
Selling, General and Administrative Expenses
Continuing operations selling, general and administrative expenses as a
percentage of net sales decreased from 25.8% in the first nine months of
fiscal 1996 to 25.5% in the first nine months of fiscal 1997. Actual selling,
25
<PAGE>
general and administrative expenses increased from $18.5 million in the first
nine months of fiscal 1996 to $19.0 million in the first nine months of fiscal
1997, including $1.7 million in charges associated with the settlement of a
legal dispute by arbitration in the first quarter of fiscal year 1997. See
Note 11 of Notes to the Combined Financial Statements.
Research, Development and Related Expenses
Research, development and related expenses as a percentage of net sales for
the first nine months of fiscal 1997 have increased 0.5% from the same period
in fiscal 1996 due to increased research spending to support the production of
MEMS and the development of automotive and other commercial products.
Interest Expense and Other Income
Interest costs in the first nine months of fiscal 1997 decreased by $0.5
million from the same period in fiscal 1996. The lower interest expense is the
result of the repayment of $5.6 million of debt in the first quarter of 1997.
Income from Continuing Operations
The decline in income from continuing operations, from $2.7 million in the
first nine months of fiscal 1996 to $1.8 million in the first nine months of
fiscal 1997, primarily reflects the after tax charge in fiscal year 1997 of
$1.1 million incurred in connection with an arbitration to settle a royalty
dispute and a 2.8% decrease in gross profit as a percentage of sales.
Income from Discontinued Operations
In June 1997, the Board of Directors of Electronics approved a formal plan
for discontinuation of the operations of the Defense Systems business segment.
This segment was primarily a manufacturer of Hydra 70 ("H 70") military
rockets whose production was shut down at the end of fiscal 1996. Accordingly,
the results of operations of the Defense Systems segment have been reported as
discontinued operations for all periods presented. Defense Systems' income
decreased slightly from $0.6 million in the third quarter of fiscal 1996 to
$0.5 million in the third quarter of fiscal 1997. Defense Systems' improved
gross profit on the non-H 70 products, together with a $1.3 million decline in
selling, general and administration expenses due to the closure of the H 70
production line, resulted in income from discontinued operations increasing to
$1.4 million in the first nine months of fiscal 1997 from $1.1 million in the
first nine months of fiscal 1996.
Liquidity and Capital Resources
During the first nine months of fiscal 1997, operations provided $2.9
million in cash. Operating cash inflows consisted primarily of income adjusted
for the positive impact of non-cash charges from depreciation and amortization
of $4.3 million, and changes in assets and liabilities of discontinued
operations of Defense Systems of $2.7 million. Offsetting these inflows were
inventory increases of $3.1 million, the negative impact of a change in
deferred taxes of $1.8 million, and a net decrease in trade payables and
accrued expenses and other liabilities of $3.6 million, primarily due to a
payment $5.3 million of amounts accrued in fiscal 1996 and in the first
quarter of fiscal 1997 in connection with the final settlement of an
arbitration. See Note 11 of Notes to the Combined Financial Statements.
Cash used in investing activities in the first nine months of fiscal 1997
consisted primarily of $6.0 million for capital expenditures, which is
consistent with spending in the first nine months of the prior fiscal year.
Capital equipment requirements may increase in future periods and the Company
may expand the use of lease financing to fund such requirements.
The Company had no material capital commitments at June 28, 1997.
26
<PAGE>
The Internal Revenue Service (IRS) audited Electronics' income tax returns
for the fiscal years 1993 through 1995. In the third quarter of fiscal year
1997, Electronics reached a settlement with the IRS for all issues raised for
these years, resulting in the payment of $1.7 million in additional taxes for
those years, of which approximately $1.0 million relates to Technologies. The
settlement related primarily to the timing of deductions resulting from
acquisitions made by Electronics. The payment of these additional taxes
resulted in an increase in deferred tax assets and did not affect the
provision for income taxes in the third quarter of fiscal year 1997.
As of June 28, 1997, the Company was in compliance with all financial
covenants on outstanding debt.
In connection with the Distribution and subject to the noteholders
agreement, the Company will assume existing indebtedness of Electronics in the
amount of approximately $22.4 million. In order to support its initial funding
needs, including the transfer by Sensors & Systems of up to $9.0 million to
Electronics prior to the Distribution to repay a portion of amounts payable to
Electronics, Sensors & Systems plans to borrow up to $9.0 million under a note
from Canadian Imperial Bank of Commerce. After the Distribution, Technologies
intends to establish a line of credit with CIBC. See "The Distribution--
Related Transactions--Financing Transactions". Interest on borrowings under
the line of credit will be based upon either the Prime Commercial Lending Rate
of CIBC or the rate which would be offered by CIBC to prime banks in the
interbank Eurodollar market, depending on the term of the loan. Management
believes that as a result of the Distribution, Technologies will be able to
obtain new financing on more favorable terms than new financing Electronics
could obtain absent the Distribution. However, there can be no assurance that
Sensors & Systems or Technologies will be able to obtain such financing from
CIBC or other sources on terms acceptable to the Company or that such
financing if obtained will be sufficient for the Company's needs.
FISCAL YEARS 1996, 1995 AND 1994
Net Sales
In fiscal 1996, net sales from continuing operations increased 6.9% to $96.7
million from $90.5 million in fiscal 1995. This increase reflects the
continued growth in sales of commercial product lines, including those for
industrial, automotive and medical markets.
In fiscal 1995, net sales from continuing operations increased 9.9% to $90.5
million from $82.4 million in fiscal 1994, primarily reflecting the continued
growth in sales of commercial product lines, including those for industrial,
automotive and medical markets.
The Company's sales to international customers were approximately 11.3%,
10.7% and 9.6% of the Company's net sales from continued and discontinued
operations for fiscal 1996, 1995 and 1994, respectively.
Cost of Sales
During fiscal 1996, the Sensors & Systems segment cost of sales as a
percentage of sales from continuing operations remained relatively flat,
decreasing 0.3% to 62.5% from 62.8% in fiscal 1995. Cost of sales as a
percentage of sales increased 3.2% to 62.8% in fiscal 1995 from 59.6% in
fiscal 1994 primarily due to a lower priced product mix.
Downward pressure on gross profit margins is expected to continue,
especially for military contracts. The Company's gross profit margins from
sales to the U.S. Government for military and space products are generally
lower than gross profit margins from sales of commercial and industrial
products. Management is continuing measures intended to reduce costs and
improve average margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
from continuing operations were 27.0%, 28.3% and 29.7% in fiscal 1996, 1995
and 1994, respectively.
27
<PAGE>
Fiscal 1996 selling, general and administrative expenses increased $0.6
million from $25.6 million in fiscal 1995 to $26.2 million. Selling, general
and administrative expenses increased to support operations selling commercial
products, with a portion of the increase offset by declines in operations
selling government products.
Fiscal 1995 selling, general and administrative expenses increased to $25.6
million from $24.4 million in fiscal 1994. The Company experienced higher
selling, general and administrative expenses to support sales growth in
commercial product lines. In addition to selling, general and administrative
expense, the Company recorded a charge in the fourth quarter of fiscal 1995 in
the amount of 3.9% of net sales ($3.5 million) for royalty and related costs
incurred on the basis of an interim arbitration ruling.
Research, Development and Related Expenses
The Company's internally funded research, development and related expenses
as a percentage of net sales from continuing operations were 3.7%, 4.4% and
7.4% for fiscal 1996, 1995 and 1994, respectively.
Research and development expenses declined slightly in fiscal 1996 as
engineering effort was shifted to manufacturing support as production of new
automotive sensors began to ramp up.
Research and development spending in fiscal 1995 was concentrated in support
of the growth of the commercial product lines. Consequently, certain programs
were phased out while emphasis on development of sensors for the automotive
industry was increased.
The Company believes that the continued timely development of new products
and enhancements to its existing products is essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will increase in absolute amount, but may fluctuate as a percentage of sales
depending on the Company's success in acquiring customers or, in some cases,
U.S. Government funding.
Interest Expense and Other Income
Interest expense was $2.4 million, $2.3 million and $2.2 million in fiscal
1996, 1995 and 1994 respectively. Interest is paid primarily on the Senior
Note debt. There was no new long-term debt issued during fiscal 1996.
Other income in fiscal 1996, 1995, and 1994 is comprised of royalty income
and interest income earned on highly liquid investments.
Provision for Income Taxes for Continuing Operations
The Company's effective tax (benefit) rate was 33.0%, (38.4%), and 50.2%,
for fiscal 1996, 1995 and 1994, respectively. The effective tax rate reflects
the statutory federal tax rate and the weighted average tax rate of the states
in which the Company conducts business. The fiscal 1996 tax rate reflects
realization of additional federal and state tax credits for research and
development identified in 1996. The fiscal 1995 effective tax rate was lower
than the effective rate in fiscal 1994 due to losses in certain states where
realization of the benefits of the losses is uncertain.
Deferred Income Taxes
At September 28, 1996, the Company had net deferred tax assets of $1,852,000
composed of deferred tax assets of $5,139,000, net of the valuation allowance
of $94,000, and deferred tax liabilities of $3,287,000. The Company believes
it is likely that the benefits of the deferred tax assets will be realized
through the reduction of future taxable income and the reversal of existing
deferred tax liabilities.
Income (Loss) from Discontinued Operations
Income (loss) for Defense Systems was $1.7 million, $(1.1) million and $0.4
million in fiscal 1996, 1995 and 1994, respectively. The fiscal 1996 income
reflects the receipt of a $3.6 million pre-tax settlement for a prior
28
<PAGE>
year H 70 contract. The $(1.1) million loss in 1995 was due primarily to
additional contract completion costs of $1.5 million associated with the wind
up of rocket related business.
Liquidity and Capital Resources
During fiscal 1996, operations provided $13.5 million in cash, including
cash provided by discontinued operations of $6 million. Net income of $4.6
million plus non-cash charges for depreciation and amortization of $4.2
million and $1.7 million, respectively, and a decrease in deferred tax assets
of $0.7 million, were partially offset by inventory purchases of $2.2 million
and an increase in trade receivables of $0.8 million.
Investing activities in fiscal 1996 consisted primarily of the purchase of
$3.6 million in capital equipment.
The Company paid BEI Electronics, Inc. $4.3 million in fiscal 1996.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
29
<PAGE>
RISK FACTORS
The following factors are applicable to Technologies which is expected to
report as a single business segment. These factors should be considered in
evaluating Technologies and its business prospects. This Information Statement
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth herein and elsewhere in this Information Statement.
COMPETITION
Competitors for various products offered by Technologies' Sensors & Systems
business are noted above under "Description of the Business--Competition". In
addition, the Company also may compete with manufacturers of competing
technologies, such as resolvers, inductosyns, laser and fiber optic gyros and
magnetic encoders. Many of the Company's existing competitors in each market,
and also a number of potential entrants into these markets, have significantly
greater financial resources and manufacturing capabilities, are more
established, have larger marketing and sales organizations and larger
technical staffs. There can be no assurance that other companies will not
develop more sophisticated, more cost-effective or otherwise superior products
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK; PRODUCT RECALL RISK
Technologies is in the process of scaling up production of its automotive
yaw sensors for the quantities required by the automobile market. The Company
has relatively limited experience in large-scale manufacturing. The Company
currently manufactures moderate quantities of its automotive yaw sensor in the
Concord, California facility and its steering sensor in the Tustin, California
facility. Manufacturers sometimes encounter difficulties in scaling up
production of new products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel. If such difficulties were encountered by the Company in
manufacturing scale-up, they could have a material adverse effect on its
business, financial condition and results of operations. There can be no
assurance that future manufacturing difficulties or product recalls, either of
which could have a material adverse effect on the Company's business,
financial condition and results of operations, will not occur.
CONTRACTING WITH THE U.S. GOVERNMENT
Approximately 27%, 32% and 40% of the net sales of units comprising the
continuing operations of Technologies in fiscal 1996, 1995 and 1994,
respectively, were derived from contracts with the U.S. Government or under
subcontract to other prime contractors to the Government. Because a
significant portion of Technologies' business is derived from contracts with
the Department of Defense or other agencies of the Government, the Company's
business is sensitive to changes in Government spending policies, which can
have significant variations from year to year. At various times, the Company's
results have been adversely affected by contract cutbacks and there can be no
assurance that the Company's results of operations will not in the future be
materially and adversely affected by changes in Government procurement
policies or reductions in Government expenditures for products furnished by
the Company.
Under applicable regulations, various audit agencies of the Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. The Government also has the right to review retroactively the
cost records under most Government contracts. Contract prices may be adjusted
in the event the Government determines that the Company submits incomplete,
inaccurate or obsolete cost or pricing data. Government contracts and
subcontracts generally provide for either a fixed price, negotiated fixed
price or cost-plus-fixed-fee basis for remuneration. The majority of the
contracts with the Government are competitive fixed price or negotiated fixed
price contracts, although cost-plus-fixed-fee contracts were approximately 5%
of the Company's net sales from continuing operations in fiscal 1996. For
fixed price contracts, the Company bears the
30
<PAGE>
risk of cost overruns and derives the benefits from cost savings. As a result,
greater risks are involved under fixed price contracts than under cost-plus
contracts because failure to anticipate technical problems, estimate costs
accurately or control costs during contract performance may reduce or
eliminate the contemplated profit or may result in a loss.
All Government contracts contain termination clauses that allow the contract
to be terminated either for contractor default or for the convenience of the
Government. In the event of termination for the convenience of the Government,
the clause typically provides that the contractor will receive payment for
work-in-progress, including profit. To date, termination of Sensors & Systems'
contracts by the Government has not had any significant effect on the
Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's
results of operations in the future.
Portions of the Company's government business are sometimes classified. As a
result, the Company may be prohibited from disclosing the substance or status
of such business.
RESEARCH AND DEVELOPMENT
The Company depends in part on its research and development initiatives to
provide new products and product improvements which will maintain the
Company's favorable reputation in its various markets. There can be no
assurance that the outcome of its research and development activity will yield
the desired results.
MANUFACTURING PROCESSES AND EQUIPMENT
The Company manufactures certain products such as quartz rate sensors and
some shaft encoders using highly complex proprietary processes and equipment.
The possibility exists that equipment could be damaged or that process
disciplines and controls could be temporarily lost. Such events could disrupt
production, which could have a material adverse effect on the Company's
business and results of operations.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees could have a
material adverse effect on the Company. The Company's success will also depend
on its ability to attract and retain additional highly qualified management
and technical personnel. The Company faces intense competition for qualified
personnel, many of whom are often subject to offers from competing employers.
There can be no assurance that the Company will be able to retain its key
employees, or that it will be able to attract or retain additional skilled
personnel as required. The Company does not currently maintain key person
insurance on any employee. See "Description of the Business of BEI
Technologies, Inc.--Employees" and "Directors and Executive Officers of the
Company."
DEPENDENCE UPON KEY SUPPLIERS
Although the majority of the components used in Company products are
available from multiple sources, several components are built to Technologies'
specifications. Such components include quartz, supplied by Sawyer Research
Products, Inc. scanner motors, supplied by Litton Industries, Inc.; three
types of ASIC's, supplied by National Semiconductor Corporation, Honeywell
Inc. and Semtech Corp.; and two types of LED's, supplied by Optek Technology,
Inc. and Opto Diode Corp. While the Company currently relies on single
suppliers for these components, in each instance, the Company is aware of
alternative suppliers and believes the components could be manufactured by
these alternative suppliers with minimal supply reduction should the need
arise to change vendors. To date, the Company has not experienced any
significant interruptions in the supply of these components, but there can be
no assurance that there will not be a significant disruption in the supply of
such components in the future, or in the event of such disruption, that the
Company will be able to locate alternative suppliers of the components with
the same quality at an acceptable price. An interruption in the supply of
components used in the manufacture of the Company's products, particularly as
the Company scales up its manufacturing activities in support of commercial
sales, could have a material adverse effect on the Company's business,
financial condition and results of operations.
31
<PAGE>
AVAILABILITY AND COST OF ADDITIONAL FUNDS
Management believes that new financing will be available to Technologies on
more favorable terms as a result of the Distribution than new financing for
Electronics absent the Distribution. However, Technologies has no assurance
that, as an independent public company, it will be able to obtain financing
upon terms as favorable as those obtained by Electronics prior to the
Distribution, or that available financing will be sufficient for the Company's
needs.
UNCERTAINTY OF TAX CONSEQUENCES
As a condition to the completion of the Distribution, Electronics and the
Company will receive an opinion from Davis Polk & Wardwell to the effect that,
although the matter is not free from doubt, the Distribution will qualify as a
tax-free spin-off under Section 355 of the Code.
The tax opinion will rely upon, among other things, certain representations
made by Electronics and Technologies to Davis Polk & Wardwell. If it were
subsequently determined that those representations were inaccurate or
incomplete, the conclusion in the tax opinion could not be relied upon. As
reflected in the tax opinion, the applicability of Section 355 to the
Distribution is complex and may be subject to differing interpretations.
Accordingly, there can be no assurance that the Internal Revenue Service will
not successfully challenge the applicability of Section 355 to the
Distribution, or assert that the Distribution fails the requirements of
Section 355 on the basis of facts either existing at the Effective Date or
that may arise after the Effective Date. See "The Distribution--Certain
Federal Income Tax Consequences of the Distribution."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Distribution, there has been no public market for Company
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or will continue after the Distribution. Until
the Common Stock is fully distributed and an orderly market develops, the
prices at which the Common Stock trades may fluctuate significantly. The
market price of Electronics Common Stock has been subject to significant
fluctuation in recent years. Accordingly, the market price of Company Common
Stock may be subject to wide fluctuations in response to quarter-to-quarter
fluctuations in operating results, announcements of technological innovations
or new products by the Company or its competitors, general industry and market
conditions, changes in earnings estimates by analysts and other events or
factors.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS;
STOCKHOLDER RIGHTS PLAN
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. While the Company has no present
intention to issue shares of Preferred Stock, such issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law (the "Delaware Law"),
and the Company's Certificate of Incorporation contains a fair price
provision, the combined effect of which prohibits the Company from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 and the fair price provision
could have the effect of delaying or preventing a change of control of the
Company. The Company's Certificate of Incorporation provides for staggered
terms for the members of the Board of Directors. The staggered Board of
Directors and certain other provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying or preventing changes
in control or management of the Company, which could adversely affect the
market price of the Company's
32
<PAGE>
Common Stock. Furthermore, the Board of Directors of the Company has adopted a
Stockholder Rights Plan that has certain anti-takeover effects. Rights issued
under the plan will cause substantial dilution to a person or group that
attempts to acquire the Company on terms not approved by the Company's Board
of Directors. See "Certain Anti-Takeover Effects of Certain Provisions of the
Certificate of Incorporation, the Bylaws and State Law" and "Stockholder
Rights Plan."
UNCERTAINTY OF FUTURE PROFITABILITY
As a subsidiary of Electronics, Sensors & Systems was profitable in fiscal
1994 and 1996, but sustained an operating loss in fiscal 1995. The Company's
ability to increase revenues and sustain profitability will be largely
dependent on the market acceptance of products currently under development as
well as the successful implementation of the Company's business and marketing
strategy. There can be no assurance that the Company will be able to sustain
or increase sales or sustain profitability. See "Selected Historical and Pro
Forma Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNCERTAINTY OF DIVIDENDS
No assurance can be given that the Company's Board of Directors will in the
future authorize the payment of dividends.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company and their ages as of
August 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles Crocker.............. 58 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary D. Wrench............... 64 Senior Vice President, Chief Financial
Officer and Director
Dr. Asad Madni............... 49 Vice President and Director
Dr. Lawrence A. Wan.......... 58 Vice President, Chief Technical Officer
Robert R. Corr............... 51 Secretary, Treasurer & Controller
Richard M. Brooks(1)(2)...... 69 Director
George S. Brown(2)........... 75 Director
C. Joseph Giroir, Jr.(1)(2).. 58 Director
Dr. William G. Howard, Jr.(1) 55 Director
Dr. Robert Mehrabian(1)...... 55 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS
Following is information concerning the individuals who have agreed to serve
as directors of Technologies following the Distribution:
Mr. Brooks will have served as a director of Electronics from November 1987
until his resignation immediately before the Distribution. He is currently an
independent financial consultant. From 1987 to 1990, he served as President of
SFA Management Corporation, the managing general partner of St. Francis
Associates, an investment partnership. He currently serves as a director of
Longs Drug Store Corporation, Granite Construction Incorporated and the
Western Farm Credit Bank, a private company. Mr. Brooks holds a B.S. from Yale
University and an M.B.A. from the University of California, Berkeley.
33
<PAGE>
Mr. Brown, a founder of Electronics, will have served as a director of
Electronics from October 1974 until his resignation immediately before the
Distribution. Mr. Brown served as President and Chief Executive Officer of
Electronics from October 1974 until his retirement from that position in July
1990, when he became a consultant to Electronics. Prior to founding
Electronics, Mr. Brown served from 1971 until 1974 as Executive Vice President
and General Manager of Baldwin Electronics, Inc., a subsidiary of D.H. Baldwin
Company and the predecessor of Electronics. Mr. Brown holds a B.S.E.E. from
the University of Oklahoma.
Mr. Crocker, a founder of Electronics, has served as Chairman of the Board
of Directors of Electronics since October 1974, and will continue as Chairman
for both Electronics and Technologies following the Distribution. Mr. Crocker
assumed the positions of President and Chief Executive Officer of Electronics,
effective October 1, 1995. Mr. Crocker will resign as President and CEO of
Electronics and assume those positions for Technologies following the
Distribution. Mr. Crocker served as President of Crocker Capital Corporation,
a Small Business Investment Company, from 1970 to 1985, and as General Partner
of Crocker Associates, a venture capital investment partnership, from 1970 to
1990. He currently serves as a director of Fiduciary Trust Company
International, Pope & Talbot, Inc. and KeraVision. Mr. Crocker holds a B.S.
from Stanford University and an M.B.A. from the University of California,
Berkeley.
Mr. Giroir will have served as a director of Electronics from 1978, until
his resignation immediately before the Distribution. He served as the
Secretary of Electronics from 1974 to early 1995. He is currently a member of
the law firm of Giroir, Gregory, Holmes & Hoover, plc. From 1965 to 1988,
Mr. Giroir was a member of Rose Law Firm, a Professional Association. Both law
firms have rendered services to Electronics. Mr. Giroir holds a B.A. and an
L.L.B. from the University of Arkansas and an L.L.M. from Georgetown
University.
Dr. Madni will be appointed Vice President of the Company and will serve as
a director following the Distribution. Dr. Madni was appointed President of
Sensors & Systems in October 1993, which was formed by the consolidation of
BEI Motion Systems Company and the BEI Sensors and Controls Group, of which
Dr. Madni was President since October 1992. Prior to joining BEI in 1992, he
served for 17 years in various executive and technical management positions
with Systron Donner Corporation, a manufacturer of avionics and aerospace
sensors and subsystems. He was most recently Chairman, President and CEO of
Systron Donner Corporation, a subsidiary of Thorn/EMI. Dr. Madni's degrees
include a Bachelor of Science and Master of Science in Engineering from the
University of California, Los Angeles and a Ph.D. in Engineering from
California Coast University.
Dr. Howard will have served as a director of Electronics from December 1992
until his resignation immediately prior to the Distribution. He is currently
an independent consulting engineer in microelectronics and technology-based
business planning. From 1987 to 1990, Dr. Howard served as Senior Fellow of
the National Academy of Engineering and, prior to that time, held various
technical and management positions with Motorola, Inc., most recently as
Senior Vice President and Director of Research and Development. He currently
serves as a director of Credence Systems, Inc., RAMTRON International Corp.,
VLSI Technologies, Inc., and Xilinx, Inc.. Dr. Howard holds a B.E.E. and an
M.S. from Cornell University and a Ph.D. in electrical engineering and
computer sciences from the University of California, Berkeley.
Dr. Mehrabian will have served as a director of Electronics from June 1997
until his resignation immediately prior to the Distribution. From 1990 through
June 1997, he was president of Carnegie Mellon University. He is an
internationally recognized materials scientist, is currently on the faculty of
Carnegie Mellon University and is a Distinguished Visiting Professor at the
University of California at Santa Barbara where he was Dean of Engineering
from 1983 to 1990. He serves on the boards of directors of Allegheny Teledyne,
Inc., DQE and Duquesne Light Company, Mellon Bank Corporation, Mellon Bank,
N.A., and PPG Industries. Dr. Mehrabian holds B.S. and Ph.D. degrees from
Massachusetts Institute of Technology (MIT).
Mr. Wrench will have served as Senior Vice President and Chief Financial
Officer of Electronics from July 1993 until immediately prior to the
distribution and will continue in that position for Technologies following the
Distribution. He has served as a Director of Electronics since February 1986,
and will continue to serve as a
34
<PAGE>
director of Electronics and of Technologies following the Distribution. From
April 1985 to July 1993, he served as Vice President of Electronics and
President and Chief Executive Officer of BEI Motion Systems Company, Inc.,
then a wholly owned subsidiary of Electronics that is now a part of Sensors &
Systems. Other experience includes twenty years with Hughes Aircraft Company
including an assignment as President of Spectrolab, Inc., a Hughes subsidiary.
Mr. Wrench holds a B.A. from Pomona College and an M.B.A. from the University
of California, Los Angeles.
CLASSIFIED BOARD OF DIRECTORS
The Company has a classified Board of Directors, which may have the effect
of deterring hostile takeovers or delaying changes in control of management of
the Company. For purposes of determining their term of office, directors are
divided into three classes, with the term of office of the first class to
expire at the 1998 annual meeting of stockholders, and the term of office of
the second class to expire at the 1999 annual meeting of stockholders and the
term of office of the third class to expire at the 2000 annual meeting of
stockholders. Class I consists of Mr. Brown and Mr. Crocker; Class II consists
of Mr. Giroir, Dr. Madni and Mr. Wrench; and Class III consists of Mr. Brooks,
Dr. Howard and Dr. Mehrabian. Directors elected to succeed those directors
whose terms expire will be elected to a three year term of office. All
directors hold office until the next annual meeting of stockholders at which
their terms expire and until their successors have been duly elected and
qualified. Executive officers serve at the discretion of the Board. There are
no family relationships among any of the officers and directors.
BOARD COMPENSATION AND BENEFITS
Each non-employee director of the Company will receive a monthly fee of
$1,000. Each non-employee director of the Company will also receive a fee of
$500 for each Board or committee meeting attended and a fee of $250 for each
telephone conference Board meeting in which such director participated. The
members of the Board of Directors will also be eligible for reimbursement for
their expenses incurred in connection with attendance at Board meetings in
accordance with Company policy.
COMMITTEES OF THE BOARD OF DIRECTORS
Technologies will establish Audit and Compensation Committees of the Board.
Members of the Audit and Compensation Committees will not be employees of
Technologies.
Audit Committee. The Audit Committee will meet with the Company's
independent accountants at least annually to review the results of the annual
audit and to discuss the financial statements; will recommend to the Board the
independent accountants to be retained; will receive and consider the
accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with audit and financial controls;
and will periodically review the results of the Company's internal audit
program and responses by management. The Audit Committee will be composed of
four directors: Mr. Brooks, who will be the Chairman of the Committee,
Mr. Giroir, Dr. Howard and Dr. Mehrabian.
Compensation Committee. The Compensation Committee will make recommendations
concerning salaries and incentive compensation, award stock options and
restricted stock to eligible executives, employers and consultants under the
Company's equity incentive plan, will administer the Company's option plan,
and will otherwise determine compensation levels and perform such other
functions regarding compensation as the Board may delegate. The Compensation
Committee will be composed of three non-employee directors: Mr. Brown, who
will be the Chairman of the Committee, and Messrs. Brooks and Giroir.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Brown, who will serve as a member of the Compensation Committee of the
Company and who until his resignation as a director of Electronics served as
Chairman of the Compensation Committee of Electronics,
35
<PAGE>
is a founder of Electronics and served as President and Chief Executive
Officer of BEI Electronics from October 1974 until his retirement from that
position in July 1990. Mr. Brown has served as a consultant to Electronics and
will continue in that capacity with the Company.
Mr. Giroir, who will serve as a member of the Compensation Committee of the
Company, served as Corporate Secretary of Electronics from 1974 until early
1995, for which he received no compensation in addition to that received as
director's fees.
CERTAIN RELATIONSHIPS
Mr. Brown provided consulting services to Electronics pursuant to which he
was paid a retainer of $3,000 per month and a fee of $750 per day of service.
In the fiscal year ended September 28, 1996, Electronics paid Mr. Brown
$41,250 under the agreement.
Pursuant to his consulting agreement with Electronics, Mr. Brown
participated in the Electronics medical and life insurance plans. In fiscal
1996, Electronics paid $4,800 in premiums on behalf of Mr. Brown.
Dr. Howard provides consulting services to Electronics pursuant to an
agreement under which he is paid $1,000 per day of service in addition to his
monthly director's fee of $1,000. In the fiscal year ended September 28, 1996,
Electronics paid Dr. Howard $500 under the agreement.
EXECUTIVE OFFICERS
In addition to Messrs. Crocker and Wrench and Dr. Madni, whose positions
with Electronics and Technologies, experience and educational background are
described under "Directors" above, the following persons will also serve as
Executive Officers of Technologies:
Dr. Wan is Vice President of Engineering of Sensors & Systems and is
President of Sensors & Systems' subsidiary, SiTek Inc. Dr. Wan has also served
as Vice President, Corporate Technology for Electronics since April 1991. Dr.
Wan will resign from his current position with Electronics immediately prior
to the Distribution and will become Vice President, and Chief Technical
Officer for Technologies. From 1984 until 1990, Dr. Wan served as Vice
President, Engineering for Systron Donner Corporation. Between 1979 and 1984,
he held various technical and general management positions with Systron Donner
Corporation. From 1968 to 1979, he served as Chief Executive Officer for
Sycom, Inc. a commercial electronics company which he founded. From 1964 to
1968, he worked for Hughes Aircraft Company, where he headed the Radar Systems
Section of the Hughes Ground Systems Group. In 1962, Dr. Wan and two other
professors established an Engineering School at University of California,
Santa Barbara, where he also taught Engineering. Dr. Wan holds a B.S., M.S.
and Ph.D. degrees in Engineering and Applied Sciences from Yale University.
Mr. Corr will serve as Secretary, Treasurer and Controller of Technologies.
Mr. Corr was named Secretary of Electronics in February 1995 and has served as
Controller since November 1989 and Treasurer since November 1987. Mr. Corr
will resign from his current positions with Electronics immediately prior to
the Distribution. From 1978 to 1987, he was employed by AMPEX Corporation, an
electronics and magnetic media company, in various financial positions. From
1975 to 1978, he was an Auditor with Arthur Andersen & Co. Mr. Corr received a
B.B.A. from Loyola University and is a Certified Public Accountant in the
State of California.
36
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PRIOR TO THE DISTRIBUTION
All of the information set forth in the following tables reflect
compensation earned based on services rendered to Electronics by its Chief
Executive Officer and its four other most highly compensated executive
officers (the "Named Executive Officers"), each of whom has assumed similar
positions with Technologies.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) RESTRICTED
--------------------- STOCK ALL OTHER
SALARY(2) BONUS AWARDS(3)(4) COMPENSATION(5)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- --------------------------- ---- --------- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mr. Charles Crocker........ 1996 260,775 35,000 0 3,252
Chairman of the Board, 1995 195,150 0 0 3,240
President and 1994 195,150 0 0 3,830
Chief Executive Officer
Mr. Gary D. Wrench......... 1996 264,000 35,000 48,750 4,370
Senior Vice President and 1995 264,000 0 0 4,223
Chief Financial Officer 1994 246,000 0 0 5,314
Dr. Asad M. Madni.......... 1996 239,312 95,000 65,000 5,488
President, BEI Sensors &
Systems Company, Inc.
Dr. Lawrence A. Wan........ 1996 190,922 45,000 26,000 7,792
Vice President, Corporate 1995 182,100 45,000 15,000 6,920
Technology 1994 187,100 0 10,247 6,631
Mr. Robert R. Corr......... 1996 149,600 16,000 13,000 3,681
Secretary, Treasurer and 1995 139,600 12,000 7,875 3,635
Controller 1994 132,600 8,000 6,958 3,235
</TABLE>
- --------
(1) As permitted by rules promulgated by the Commission, no amounts are shown
for "Other Annual Compensation" because no Named Executive Officer
received "perquisites" in an amount exceeding the lesser of 10 % of annual
salary plus bonus or $50,000.
(2) Includes annual cash payments designated as automobile allowances, which
did not exceed $11,400 for any individual in any year; also includes
amounts earned but deferred at the election of the Named Executive Officer
pursuant to Electronics' Retirement Savings Plan.
(3) Represents the dollar value of shares awarded, calculated by multiplying
the market value based on the closing sales price on the date of grant by
the number of shares awarded. At September 28, 1996, the aggregate
holdings and value (based on the closing sales price at fiscal year-end
1996 of Electronics' Common Stock as reported on the Nasdaq National
Market multiplied by the number of shares held) of restricted stock of the
Named Executive Officers was as follows: Mr. Wrench, 18,419 shares, valued
at $202,609; Dr. Madni, 32,267 shares, valued at $354,937; Dr. Wan, 14,250
shares, valued at $156,750; Mr. Corr, 9,700 shares, valued at $106,700.
The restrictions on awards of restricted stock lapse with respect to 15%
of the total number of shares per year on the first, second, third, fourth
and fifth anniversaries of the date of grant and with respect to the
remaining shares subject to such award on the sixth anniversary of the
date of grant. Dividends are paid on shares of restricted stock when, as
and if the Electronics' Board of Directors declares dividends on the
Common Stock of Electronics.
(4) During fiscal 1996, Electronics did not grant any stock options
or issue any stock appreciation rights to any Named Executive Officer.
(5) Includes $2,078, $3,000, $2,999, $3,164 and $2,988 paid in fiscal 1996 to
Messrs. Crocker, Wrench, Madni, Wan and Corr, respectively, and $2,150,
$2,655, $2,796 and $2,854 paid in fiscal 1995 and $2,602, $3,936,
37
<PAGE>
$2,790 and $2,471 paid in fiscal 1994 to Messrs. Crocker, Wrench, Wan and
Corr, respectively, as a normal contribution pursuant to Electronics'
Retirement Savings Plan. The remaining sum for each Named Executive Officer
is attributable to premiums paid by Electronics for group term life
insurance.
ELECTRONICS STOCK OPTION GRANTS AND EXERCISES
Electronics granted options to its executive officers and key employees
under its Amended 1987 Incentive Stock Option Plan (the "Plan"). As of June
28, 1997, options to purchase a total of 389,162 shares had been granted and
were outstanding under the Plan and options to purchase 473,819 shares
remained available for grant thereunder. During the fiscal year ended
September 28, 1996, there were no stock options granted to the Named Executive
Officers. Electronics has not issued any stock appreciation rights. The
following table shows, for fiscal 1996, certain information regarding options
exercised, and held at year end, by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1996, AND FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
---------------------------- ----------------------------
NAME EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(3)
---- ---------------------------- ----------------------------
<S> <C> <C>
Mr. Charles Crocker..... 0/0 0/0
Mr. Gary D. Wrench...... 92,000/0 624,500/0
Dr. Asad M. Madni....... 20,000/0 75,000/0
Dr. Lawrence A. Wan..... 20,000/0 162,400/0
Mr. Robert R. Corr...... 16,000/0 85,000/0
</TABLE>
- --------
(1) Mr. Wrench exercised an option to purchase 4,000 shares of the Common
Stock. None of the other Named Executive Officers exercised any stock
options.
(2) Includes both "in-the-money" and "out-of-the-money" options.
(3) The fair market value of the underlying shares on the last day of the
fiscal year less the exercise price. See "The Distribution--Other
Consequences of the Distribution--Stock Options" for information regarding
the effect of the Distribution on outstanding Electronics stock options.
EMPLOYMENT AGREEMENTS
The employment agreement between Electronics and Mr. Wrench, Senior Vice
President, Chief Financial Officer and a director of the Company, will be
assumed by Technologies. The employment agreement provides that if Mr. Wrench
is terminated by the Company, or a change in control occurs, he will receive
from the Company his then full-time current salary for twelve months after
such termination.
The employment agreement between Electronics and Dr. Madni, President of
Sensors & Systems, will be assumed by Technologies. The employment agreement
renews annually on the anniversary date of the agreement. The agreement
provides that if the Company terminates Dr. Madni without cause or a change in
control of the Company occurs and Dr. Madni executes a general release of
liability, he will receive from the Company his then current full-time salary
and medical, dental and life insurance benefits for the 12 months following
the termination or change of control, his annual bonus prorated to the date of
termination or change in control and an amount equal to the average of the
bonuses paid Dr. Madni over the prior three completed fiscal years, including,
as applicable, bonuses paid by Electronics.
The Company will enter into Executive Change in Control Benefit Agreements
with each of the Named Executive Officers. Under such an agreement, an
executive will receive a lump sum severance payment of one year's base pay
plus the average annual bonus over the preceding three fiscal years
(including, if applicable, prior service with Electronics) if the executive's
employment with the Company terminates voluntarily or involuntarily within
twelve months following a change in control of the Company, as defined in the
agreement, unless the termination is for cause, as defined in the agreement.
The Company will also pay for the executive's
38
<PAGE>
and his/her dependents' health coverage for up to eighteen months following a
termination of employment for which the executive received a severance payment
under the agreement.
NEW INCENTIVE PLANS OF BEI TECHNOLOGIES, INC.
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in September 1997. The Incentive Plan provides for
the grant or issuance of incentive stock options to employees and nonstatutory
stock options, restricted stock purchase awards, and stock bonuses to
consultants, employees and directors (collectively, "Stock Awards"). A total
of 1,600,000 shares of common stock is available for stock awards under the
Incentive Plan. To date no options, awards or bonuses have been granted under
the Incentive Plan. Incentive stock options granted under the Incentive Plan
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code.
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors which, in the case of stock options, determines optionees
and the terms of options granted, including the exercise price, the number of
shares subject to the option and the exercisability thereof.
The terms of options granted under the Incentive Plan may not exceed ten
years from the date of grant. It is anticipated that shares covered by options
under the Incentive Plan will typically vest at the rate of 33% on the first
anniversary of the vesting start date, 33% on the second anniversary of the
vesting start date and 34% on the third anniversary of the vesting start date,
although shares may be subject to different vesting terms. No Stock Award
(including restricted stock purchase awards and stock bonuses for as long as
they remain subject to the agreements pursuant to which they were awarded) may
be transferred by the holder other than by will or the laws of descent or
distribution or (except for incentive stock options) pursuant to a "qualified
domestic relations order." An optionee whose relationship with the Company or
any of its subsidiaries ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three-month period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such shorter or longer period determined by the Board of
Directors.
Shares subject to Stock Awards granted under the Incentive Plan that have
lapsed or terminated may again be subject to Stock Awards granted under the
Plan. The Board of Directors has the authority to effect, with the consent of
affected holders, the cancellation of outstanding Stock Awards in return for
the grant of new Stock Awards for the same or a different number of Stock
Awards with an exercise price per share of 85%, 100% or, under certain
circumstances, 110% of fair market value of the Company Common Stock on the
new grant date, with the shares subject to the outstanding Stock Awards being
canceled again becoming available for grant under the Incentive Plan.
In the event of a dissolution or liquidation of the Company, specified type
of merger or other corporate reorganization, to the extent permitted by law,
all outstanding Stock Awards will either be assumed by the surviving entity or
continue in full force and effect. In the event that the surviving entity
declines to assume or substitute similar awards, then the time during which
such Stock Awards may be exercised will be accelerated and the Awards
terminated if not exercised prior to the event. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise to obtain control of the Company.
The Incentive Plan will terminate on September 10, 2007 unless sooner
terminated by the Board of Directors.
See "The Distribution--Other Consequences of the Distribution--Stock
Options" for information regarding the conversion of outstanding options to
purchase Electronics Common Stock into options to purchase Technologies Common
Stock and "The Distribution--Other Consequences of the Distribution--Restated
Stock" for information regarding the issuance of shares of restricted stock of
Technologies to holders of restricted stock of Electronics.
39
<PAGE>
401(K) PLAN
The Company will adopt a tax qualified employee savings and retirement plan
(the "401(k) Plan") under which eligible employees may elect to defer their
current compensation by up to certain statutorily prescribed annual limits
($9,500 in 1997) and to contribute such amount to the 401(k) Plan. The 401(k)
Plan will permit, but not require, additional matching contributions to the
401(k) Plan by the Company on behalf of all participants in the 401(k) Plan.
The 401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. The trustee under the 401(k)
Plan, at the direction of each participant, will invest the 401(k) Plan
employee salary deferrals in selected investment options.
MANAGEMENT INCENTIVE BONUS PLAN
Technologies' Board of Directors intends to adopt a Management Incentive
Bonus Plan for fiscal 1998 ("MIB Plan") covering employees of Technologies,
including Sensors & Systems. On the basis of goals relating to return on
equity, and subject to predetermined limits under the MIB Plan, the
Technologies Compensation Committee will in its discretion determine a bonus
fund for each company following the end of the year. Based upon
recommendations from management of each company, the Compensation Committee
may in its discretion approve individual awards to employees of the respective
companies, subject to final approval of the Technologies Board of Directors.
Electronics has had management incentive bonus plans in place for over 8
years. Incentive awards totalling approximately $608,250 were made with
respect to fiscal year 1996. The amounts of such incentive payments to Messrs.
Crocker, Wrench and Corr and to Drs. Madni and Wan are included in the
"Summary Compensation Table" under "Compensation of Executive Officers--
Executive Compensation Prior to the Distribution."
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation of the Company (the "Certificate") provides
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Law, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the Delaware Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Company shall be eliminated or limited to the fullest extent
permitted by the Delaware Law, as so amended from time to time.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of the Company only if he or
she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws (the "Bylaws") provide that the Company will indemnify
its directors and executive officers and may indemnify its other officers,
employees and other agents to the extent not prohibited
40
<PAGE>
by the Delaware Law. Under the Bylaws, indemnified parties are entitled to
indemnification to the fullest extent permitted by law. The Bylaws also
require the Company to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the indemnified
party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification.
OWNERSHIP OF TECHNOLOGIES COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
expected to be owned following the Distribution, directly or indirectly by:
(i) each director; (ii) each of the Named Executive Officers; (iii) all
executive officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent of its
Common Stock, based on the ownership by such persons of Electronics Common
Stock as of August 1, 1997. The ownership information presented below assumes
no change in beneficial ownership of Electronics Common Stock or of the stock
underlying options between August 1, 1997 and the Record Date.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
--------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(2)
---------------- --------- ----------
<S> <C> <C>
Mr. Charles Crocker(3)............................... 1,557,904 22.2%
One Post Street
Suite 2500
San Francisco, CA
Brinson Partners, Inc.(4)............................ 614,600 8.7%
209 S. LaSalle Street
Chicago, IL
Dimensional Fund Advisors, Inc.(5)................... 431,000 6.1%
1299 Ocean Avenue
Penthouse
Santa Monica, CA 90402-1005
So Gen International Fund, Inc.(6)................... 427,000 6.1%
1221 Avenue of the Americas
8th Floor
New York, NY 10020
Kennedy Capital Management, Inc...................... 424,100 6.0%
10829 Olive Blvd.
St. Louis, MO
Mr. Richard M. Brooks(7)............................. 10,000 *
Mr. George S. Brown(7)(8)............................ 96,752 1.4%
Mr. Robert R. Corr(7)................................ 28,700 *
Mr. C. Joseph Giroir, Jr.(7)......................... 10,000 *
Dr. William G. Howard, Jr. .......................... --
Dr. Asad M. Madni(7)................................. 80,267 1.1%
Dr. Robert Mehrabian................................. --
Dr. Lawrence A. Wan(7)............................... 39,250 *
Mr. Gary D. Wrench(7)(9)............................. 120,419 1.7%
All executive officers and directors as a group (10
persons)(10)........................................ 1,943,292 26.9%
</TABLE>
- --------
* Less than one percent.
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(1) This table is based upon information supplied by officers, directors and
principal stockholders of the Company and upon any Schedules 13D or 13G
filed with the SEC. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, the
Company believes that each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated as
beneficially owned.
(2) Applicable percentages are based on 7,025,843 shares outstanding on
August 1, 1997, adjusted as required by rules promulgated by the SEC.
Outstanding shares do not include 934,424 shares held as Treasury Stock
as of August 1, 1997.
(3) Includes 400,000 shares held by Charles Crocker as trustee for his adult
children, as to which Mr. Crocker disclaims beneficial ownership. Also
includes 54,936 shares held in a trust of which Mr. Crocker is
beneficiary and sole trustee. Mr. Crocker has the power to vote and
dispose of the shares in each of these trusts.
(4) Represents shares held by Brinson Partners, Inc. ("Partners"), which has
the sole power to vote and dispose of the shares held by it; and shares
held by Brinson Trust Company ("Trust"), which has the sole power to vote
and dispose of the shares held by it. Trust is a wholly-owned subsidiary
of Partners which is a wholly-owned subsidiary of Brinson Holdings, Inc.
("Holdings"). Holdings may be deemed to share the power to vote and
dispose of all shares held by Partners and Trust, and Partners may be
deemed to share the power to vote and dispose of all shares held by
itself or Trust. Therefore, both Holdings and Partners each may be deemed
a beneficial owner of all the shares held by Partners and Trust.
(5) Represents shares held by Dimensional Fund Advisors, Inc., DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company. Officers of
Dimensional Fund Advisors, Inc. have sole power to vote and dispose of
shares beneficially owned by it, including shares held by DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company.
(6) Represents shares held by So Gen International Fund, Inc., Sogen
International SICAV and Ohio National Fund, Global Contrarian, each of
which shares the power to vote and dispose of such shares with Societe
Generale Asset Management Corp.
(7) Includes shares which certain officers and directors have the right to
acquire within 60 days after the date of this table pursuant to
outstanding options as follows: Mr. Brooks, 10,000 shares; Mr. Brown,
39,624 shares; Mr. Corr, 16,000 shares; Mr. Giroir, 10,000 shares; Dr.
Madni, 20,000 shares; Dr. Wan, 20,000 shares; Mr. Wrench, 78,400 shares;
and all executive officers and directors as a group, 194,024 shares. See
"The Distribution--Other Consequences of the Distribution--Stock Options"
for information regarding the conversion of outstanding options to
purchase Electronics Common Stock into options to purchase Technologies
Common Stock. Also includes shares that certain officers and directors
have the right to vote pursuant to unvested portions of restricted stock
awards as follows: Mr. Corr, 8,374 shares; Dr. Madni, 47,047 shares; Dr.
Wan, 12,814 shares; Mr. Wrench, 15,105 shares; and all executive officers
and directors as a group, 83,340 shares.
(8) Includes 57,128 shares held in a revocable trust of which Mr. Brown and
his wife, Mildred S. Brown, are beneficiaries and sole trustees. Mr. and
Mrs. Brown, acting alone, each has the power to vote and dispose of such
shares.
(9) Includes 25,276 shares held in a revocable trust of which Mr. Wrench and
his wife, Jacqueline Wrench, are beneficiaries and sole trustees. Mr. and
Mrs. Wrench, acting alone, each has the power to vote and dispose of such
shares. Also includes 16,743 shares which Mr. Wrench, acting alone, has
power to vote and dispose of.
(10) Includes the shares described in the Notes above.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 2,000,000 shares of
preferred stock, par value $.001 per share (the "Company Preferred Stock"),
and 20,000,000 shares of Company Common Stock. No shares of Company Preferred
Stock will be issued in connection with the Distribution. Based on the number
of shares of Electronics Common Stock outstanding at September 22 , 1997,
approximately 7,115,000 shares of Company Common Stock will be issued to the
stockholders of Electronics in the Distribution. All of the shares of Company
Common Stock issued in the Distribution will be validly issued, fully paid and
nonassessable.
COMPANY COMMON STOCK
The holders of Company Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of
directors, and, except as otherwise required by law or provided in any
resolution adopted by the Board with respect to any series of Company
Preferred Stock, the holders of such shares exclusively will possess all
voting power. The Certificate of Incorporation of the Company does not provide
for cumulative voting in the election of directors. Thus, under the Delaware
Law, the holders of more than one-half of the outstanding Company Common Stock
generally will be able to elect all of the directors of the Company then
standing for election. Subject to any preferential rights of any outstanding
series of Company Preferred Stock created by the Board from time to time, the
holders of Company Common Stock will be entitled to such dividends as may be
declared from time to time by the Board from funds available therefor, and
upon liquidation will be entitled to receive pro rata all assets of the
Company available for distribution to such holders.
COMPANY PREFERRED STOCK
Under the Certificate, the Board will be authorized to provide for the issue
of shares of Company Preferred Stock, in one or more series, and to fix for
each such series such powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the
Board providing for the issue of such series and as are permitted by the
Delaware Law. See "Certain Anti-takeover Effects of Certain Provisions of the
Certificate of Incorporation, the Bylaws and State Law--Preferred Stock" and
"Stockholder Rights Plan."
COMMON STOCK DIVIDEND POLICY
The payment and amount of cash dividends on the Common Stock after the
Distribution will be subject to the discretion of the Company's Board of
Directors.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION,
THE BYLAWS AND STATE LAW
The Certificate and the Bylaws of the Company contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to
the Certificate and the Bylaws.
CLASSIFIED BOARD OF DIRECTORS
The Certificate and Bylaws provide that the Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The Board consists of the persons referred to under "Directors and
Executive Officers of the Company" above. The Certificate and the Bylaws
provide that, of the initial directors of the Company, approximately one-third
will continue to serve until the 1998 annual meeting
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of stockholders, approximately one-third will continue to serve until the 1999
annual meeting of stockholders, and approximately one-third will continue to
serve until the 2000 annual meeting of stockholders. Of the initial directors,
Mr. Brown and Mr. Crocker will serve until the 1998 annual meeting of
stockholders, Mr. Giroir, Dr. Madni and Mr. Wrench will serve until the 1999
annual meeting of stockholders and Mr. Brooks, Dr. Howard and Dr. Mehrabian
will serve until the 2000 annual meeting of stockholders. Starting with the
1998 annual meeting of stockholders, one class of directors will be elected
each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board. At least
two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board. Such a delay may help
ensure that the Company's directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as
well as any available alternatives to the proposal and to act in what they
believe to be the best interest of the stockholders. The classification
provisions will apply to every election of directors, however, regardless of
whether a change in the composition of the Board would be beneficial to the
Company and its stockholders and whether or not a majority of the Company's
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. The
classification of the Board could thus increase the likelihood that incumbent
directors will retain their positions. In addition, because the classification
provisions may discourage accumulations of large blocks of the Company's stock
by purchasers whose objective is to take control of the Company and remove a
majority of the Board, the classification of the Board could tend to reduce
the likelihood of fluctuations in the market price of the Company Common Stock
that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Company Common Stock at a higher market price than might
otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that, subject to any rights of holders of Company
Preferred Stock to elect additional directors under specified circumstances,
the number of directors will be fixed from time to time exclusively pursuant
to a resolution adopted by the Board. In addition, the Bylaws provide that,
unless the Board otherwise determines, any vacancies will be filled only by
the affirmative vote of a majority of the remaining directors, though less
than a quorum. Accordingly, the Board could prevent any stockholder from
enlarging the Board and filling the new directorships with such stockholder's
own nominees.
Under the Delaware Law, unless otherwise provided in the Certificate,
directors serving on a classified board may only be removed by the
stockholders for cause. In addition, the Certificate and the Bylaws provide
that directors may be removed only for cause and only upon the affirmative
vote of holders of at least 80% of the voting power of all the then
outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate and the Bylaws provide that stockholder action can be taken
only at an annual or special meeting of stockholders and prohibit stockholder
action by written consent in lieu of a meeting. The Bylaws provide that
special meetings of stockholders can be called by a majority of the Board or
by resolution of the Board. Stockholders are not permitted to call a special
meeting of stockholders or to require that the Board call a special meeting.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by the Company.
The provisions of the Certificate and the Bylaws prohibiting stockholder
action by written consent may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special
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meeting is called at the request of a majority of the Board. These provisions
would also prevent the holders of a majority of the Voting Stock from
unilaterally using the written consent procedure to take stockholder action
and from taking action by written consent. Moreover, a stockholder could not
force stockholder consideration of a proposal over the opposition of the Board
by calling a special meeting of stockholders prior to the time a majority of
the Board believes such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of stockholders of the Company (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder who has
given timely written notice to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company. The Stockholder Notice Procedure provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Board or by a stockholder who has
given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, for notice of stockholder nominations to be made
at an annual meeting to be timely, such notice must be received by the Company
not less than 60 days nor more than 90 days prior to the first anniversary of
the previous year's annual meeting (or if no annual meeting was held in the
previous year or the date of the annual meeting is changed by more than 30
days from the date contemplated in the previous years' proxy statement, not
earlier than the 90th day prior to such meeting and not later than the later
of (x) the 60th day prior to such meeting and (y) the 10th day after public
announcement of the date of such meeting is first made, if public announcement
of such meeting was made less than 10 days prior to the date of such meeting).
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director must contain
certain information, including, without limitation, the name, age, business
address and residence address of such nominee, the principal occupation or
employment of the nominee, the class and number of shares of the corporation
which are beneficially owned by the nominee, a description of all arrangements
or understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, the identity and address, as
they appear on the Company's books, of the nominating stockholder, the class
and number of shares of stock of the Company which are beneficially owned by
such stockholder, and all information regarding the proposed nominee that
would be required to be included in a proxy statement soliciting proxies for
the proposed nominee.
Under the Stockholder Notice Procedure, a stockholder's notice relating to
the conduct of business other than the nomination of directors must contain
certain information about such business and about the proposing stockholder,
including, without limitation, a brief description of the business the
stockholder proposes to bring before the meeting, the reasons for conducting
such business at such meeting, the name and address of such stockholder, the
class and number of shares of stock of the Company beneficially owned by such
stockholder, any material interest of such stockholder in the business so
proposed, and any other information required to be provided by the stockholder
pursuant to Regulation 14A under the Exchange Act in his capacity as a
proponent to a stockholder proposal. If the chairman of the meeting determines
that a person was not nominated, or other business was not brought before the
meeting, in accordance with the Stockholder Notice Procedure, such person will
not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance
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notice of other proposed business, the Stockholder Notice Procedure will also
provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board,
will provide the Board with an opportunity to inform stockholders, prior to
such meetings, of any business proposed to be conducted at such meetings,
together with any recommendations as to the Board's position regarding action
to be taken with respect to such business, so that stockholders can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the Bylaws do not give the Board any power to approve or disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
PREFERRED STOCK
The Certificate authorizes the Board to establish one or more series of
Company Preferred Stock and to determine, with respect to any series of
Company Preferred Stock, the terms and rights of such series, including
(i) the designation of the series, (ii) the number of shares of the series,
which number the Board may thereafter (except where otherwise provided in the
Preferred Stock designation) increase or decrease (but not below the number of
shares thereof then outstanding), (iii) whether dividends, if any, will be
cumulative or noncumulative and the dividend rate of the series, (iv) the
dates at which dividends, if any, will be payable, (v) the redemption rights
and price or prices, if any, for shares of the series, (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares
of the series, (vii) the amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security,
of the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion price or prices
or rate or rates, any adjustments thereof, the date or dates as of which such
shares shall be convertible and all other terms and conditions upon which such
conversion may be made, (ix) restrictions on the issuance of shares of the
same series or of any other class or series, and (x) the voting rights, if
any, of the holders of such series.
The Company believes that the ability of the Board to issue one or more
series of Company Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Company Preferred
Stock, as well as shares of Company Common Stock, will be available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. The Nasdaq currently requires stockholder approval as a prerequisite
to listing shares in several instances, including where the present or
potential issuance of shares could result in an increase in the number of
shares of common stock, or in the amount of voting securities, outstanding of
at least 20%. If the approval of the Company's stockholders is not required
for the issuance of shares of Company Preferred Stock or Company Common Stock,
the Board may determine not to seek stockholder approval.
Although the Board has no intention at the present time of doing so, it
could issue a series of Company Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Board will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its
stockholders. The Board, in so acting, could issue Company Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the Board, including a
tender offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock. See "Stockholder Rights Plan" below.
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AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS
Under the Delaware Law, the stockholders have the right to adopt, amend or
repeal the bylaws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, the Bylaws may be
adopted, amended or repealed by the board of directors. The Certificate
provides that the affirmative vote of the holders of at least 80% of the
voting power of the outstanding shares of Voting Stock, voting together as a
single class, is required to amend provisions of the Certificate relating to
the prohibition of stockholder action without a meeting; the number, election
and term of the Company's directors; the removal of directors; the limitation
of a director's personal liability for breaches of his fiduciary duty in
certain circumstances; the amendment of the Certificate; or the Fair Price
Provision. The vote of the holders of 66 2/3% of the outstanding shares of
Voting Stock is required to amend all other provisions of the Certificate. The
Certificate further provides that the Bylaws may be amended by the Board or by
the affirmative vote of the holders of at least a majority of the voting power
of the outstanding shares of Voting Stock, voting together as a single class,
although any amendment by the stockholders to the provisions of the Bylaws
related to annual and special meetings of stockholders, the prohibition on
stockholder action by written consent in lieu of a meeting, the size and
powers of the Board, the classification of the Board, filling of Board
vacancies and the removal of Board members, the indemnification of Board
members and officers against liabilities incurred in connection with the
performance of their duties, and amendment of the Bylaws, requires the
affirmative vote of the holders of at least 80% of the outstanding Voting
Stock. These 80% voting requirements will have the effect of making more
difficult any amendment by stockholders of the Bylaws or of any of the
provisions of the Certificate described above, even if a majority of the
Company's stockholders believe that such amendment would be in their best
interests.
ANTI-TAKEOVER LEGISLATION
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. Except as specified in Section 203
of the Delaware Law, an interested stockholder is defined to include (x) any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at
any time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person.
FAIR PRICE PROVISION
The Certificate contains a provision (the "Fair Price Provision") that
requires the approval of the holders of 80% of the Company's Voting Stock,
voting as a single class, as a condition to a merger or certain other business
transactions (a "business combination") between the Company and a holder of
more than 10% of the Company's voting power and certain assignees of such 10%
holders (an "interested stockholder"), except in cases where the disinterested
directors approve the transaction or certain minimum price criteria and other
procedural requirements are met. The minimum price criteria are complex, but
generally require that in a transaction in which stockholders are to receive
payments, holders of Common Stock must receive a value equal to the highest
price paid by the interested stockholder for Common Stock (i) during the two
years prior to the date of announcement of the business combination, or (ii)
if the interested stockholder becomes an interested stockholder more than two
years prior to the date of announcement of the business combination, in the
transaction in which it became an interested stockholder, whichever is higher,
and that such payment be made in cash or in the type of consideration paid by
the interested stockholder for the greatest portion of its shares. Any
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solicitation of stockholder approval of a transaction subject to the Fair
Price Provision must be pursuant to a proxy statement meeting the requirements
of the proxy rules under the Exchange Act.
The Fair Price Provision is intended to provide some protection against
certain forms of two-tiered corporate takeovers in which the acquiror seeks as
a first step to acquire a controlling equity interest in a company and then as
a second step to acquire the remaining equity interest with cash or securities
that have a value substantially below the consideration paid to acquire
control. The Company's Board of Directors believes that the Fair Price
Provision will help assure that all the Company's stockholders will be treated
similarly if certain kinds of business combinations are effected. However, the
Fair Price Provision may make it more difficult to accomplish certain
transactions that are opposed by the incumbent Board of Directors and that
could be beneficial to stockholders.
COMPARISON WITH CERTAIN RIGHTS OF HOLDERS OF ELECTRONICS COMMON STOCK
The Company's Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the outstanding Voting Stock to amend
provisions in the Certificate of Incorporation providing for the determination
of the number of directors, the existence of a classified Board of Directors,
the removal of a director from office, the filling of vacancies on the Board
of Directors, the inability of stockholders to act by written consent, the
elimination of director liability in certain circumstances, a fair price
provision and the amendment of the Certificate of Incorporation. The
Electronic's Restated Certificate of Incorporation requires the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting shares to
amend provisions in the Certificate of Incorporation providing for the
determination of the number of directors, the existence of a classified Board
of Directors, the removal of a director from office, the filling of vacancies
on the Board of Directors, a fair price provision and the amendment of the
Restated Certificate of Incorporation.
The Company's Certificate of Incorporation provides for the amendment of
selected provisions of the Company's Bylaws with the affirmative vote of the
holders of at least 80% of the Company's outstanding voting shares and of the
balance of the Bylaw provisions with the vote of the holders of at least 66
2/3% of the voting shares. Electronics' Bylaws provides for the amendment of
the Bylaws by the stockholders on terms similar to those contained in the
Company's Certificate of Incorporation. Both the Company's Certificate of
Incorporation and Electronic's Restated Certificate of Incorporation provide
for the amendment of each company's Bylaws by the respective Board of
Directors.
The Company's fair price provision contained in its Certificate of
Incorporation requires the affirmative vote of the holders of at least 80% of
the outstanding shares of the Company's Voting Stock to approve specified
forms of business combinations entered into by the Company. The fair price
provision contained in the Restated Certificate of Incorporation of
Electronics requires the affirmative vote of the holders of at least 66 2/3%
of the outstanding shares of Electronic's voting stock to approve similar
forms of business combinations entered into by Electronics.
The Restated Certificate of Incorporation of Electronics allows for the
removal of a director from office with the affirmative vote of the holders of
a majority of the voting stock if the removal is for cause, and with the
affirmative vote of the holders of 66 2/3% of the outstanding shares of voting
stock of the removal is without cause. The Certificate of Incorporation of the
Company only provides for the removal of directors with cause, and only with
the affirmative vote of the holders of 80% of the outstanding shares of voting
stock.
The Restated Certificate of Incorporation of Electronic's allows the
stockholders to fill newly created directorships or vacancies on the Board of
Directors with an affirmative vote of the holders of a majority of the
outstanding shares of voting stock. Unless otherwise determined by resolution
of the Board of Directors, the Company's Certificate of Incorporation provides
for the filling of newly created directorships and vacancies on the Board of
Directors by the affirmative vote of a majority of the directors.
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Electronics' charter documents are substantially similar to the Company's
Certificate and Bylaws with respect to (i) the elimination of directors'
liabilities in certain circumstances, (ii) determining the size of the board
of directors and the directors' terms of office, (iii) a fair price provision
and (iv) the application of Section 203 of the Delaware Law.
STOCKHOLDER RIGHTS PLAN
In September, 1997 the Board of Directors of the Company approved the
adoption of a Stockholder Rights Plan (the "Plan"). The terms of the Plan
provide for a dividend distribution of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.001 per share
(the "Common Shares"), of the Company. The dividend is payable on September
29, 1997 to the stockholders of record on that date (the "Rights Record
Date"). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $.001 per share (the "Preferred Shares"), at a price of $70 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. Each one one-hundredth of a share of the Preferred Shares has
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions which make its value approximately equal to the
value of a Common Share. The description and terms of the Rights are set forth
in a Rights Agreement (the "Rights Agreement"), dated as of September 11, 1997
entered into between the Company and ChaseMellon Shareholder Services, L.L.C.
as rights agent (the "Rights Agent").
Initially, the Rights will be evidenced by the stock certificates
representing the Common Shares outstanding from time to time, and no separate
Right Certificates, as defined below, will be distributed. Until the earlier
to occur of (i) the date of a public announcement that a person, entity or
group of affiliated or associated persons have acquired beneficial ownership
of 15% or more of the outstanding Common Shares (an "Acquiring Person") or
(ii) 10 business days (or such later date as may be determined by action of
the Board of Directors prior to such time as any person or entity becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to commence, a tender offer or exchange offer the consummation of
which would result in any person or entity becoming an Acquiring Person (the
earlier of such dates being called the "Rights Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Rights Record Date, by such Common Share certificate
with or without a copy of the Summary of Rights, which is included in the
Rights Agreement as Exhibit C thereto (the "Summary of Rights").
Until the Rights Distribution Date, the Rights will be transferable with and
only with the Common Shares. Until the Rights Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Rights Record Date, upon transfer or new issuance of Common Shares,
will contain a notation incorporating the Rights Agreement by reference. Until
the Rights Distribution Date (or earlier redemption or expiration of the
Rights), the surrender or transfer of any certificates for Common Shares
outstanding as of the Rights Record Date, even without such notation or a copy
of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business
on the Rights Distribution Date and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on September 10, 2007 (the "Final Expiration Date"), unless
the Rights are earlier redeemed or exchanged by the Company, in each case, as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or other property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion
price, less than the then current
49
<PAGE>
market price of the Preferred Shares or (iii) upon the distribution to holders
of the Preferred Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Preferred Shares) or of subscription rights or warrants
(other than those referred to above). The exercise of Rights for Preferred
Shares is at all times subject to the availability of a sufficient number of
authorized but unissued Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidation or combinations of the Common Shares occurring, in any case,
prior to the Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares would be entitled to a
minimum preferential liquidation payment of $100 per share, but would be
entitled to receive an aggregate payment equal to 100 times the payment made
per Common Share. Each Preferred Share will have 100 votes, voting together
with the Common Shares. Finally, in the event of any merger, consolidation or
other transaction in which Common Shares are exchanged, each Preferred Share
will be entitled to receive 100 times the amount of consideration received per
Common Share. These rights are protected by customary anti-dilution
provisions. Because of the nature of the Preferred Shares' dividend and
liquidation rights, the value of one one-hundredth of a Preferred Share should
approximate the value of one Common Share. The Preferred Shares would rank
junior to any other series of the Company's preferred stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring
Person and its associates and affiliates (which will thereafter be void), will
for a 60-day period have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the
Right (or, if such number of shares is not and cannot be authorized, the
Company may issue Preferred Shares, cash, debt, stock or a combination thereof
in exchange for the Rights). This right will terminate 60 days after the date
on which the Rights become nonredeemable (as described below), unless there is
an injunction or similar obstacle to exercise of the Rights, in which event
this right will terminate 60 days after the date on which the Rights again
become exercisable.
Generally, under the Plan, an "Acquiring Person" shall not be deemed to
include (i) the Company, (ii) a subsidiary of the Company, (iii) any employee
benefit or compensation plan of the Company, (iv) any entity holding Common
Shares for or pursuant to the terms of any such employee benefit or
compensation plan, or (v) an Excluded Person which shall mean Mr. Crocker so
long as he and any trust or other fiduciary account for the benefit of Mr.
Crocker or his ancestors, descendents, siblings or spouse (a "Trust")
beneficially own 30% or less of the outstanding Common Shares; provided,
however, that Mr. Crocker and any Trust shall not be an Excluded Person if
such persons beneficially own more than 30% of the outstanding Common Shares
without the prior approval of the Board of Directors of the Company. In
addition, except under limited circumstances, no person or entity shall become
an Acquiring Person as the result of the acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such person or entity to
15% or more of the Common Shares then outstanding.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its associates or affiliates or certain
other persons in which such persons have an interest, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,
that number of shares of common stock of the acquiring company which at the
time of such transaction will have a market value of two times the exercise
price of the Right.
At any time after an Acquiring Person becomes an Acquiring Person and prior
to the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company
50
<PAGE>
may exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share, per Right (or, at the
election of the Company, the Company may issue cash, debt, stock or a
combination thereof in exchange for the Rights), subject to adjustment.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of
a Preferred Share issuable upon the exercise of one Right, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the earliest of (i) the day of the first public
announcement that a person has become an Acquiring Person or (ii) the Final
Expiration Date, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $.001 per Right (the "Redemption
Price"). Following the expiration of the above period, the Rights become
nonredeemable. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as the rights are distributed no such amendment may adversely
affect the interest of the holders of the Rights excluding the interests of an
Acquiring Person.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors since the Rights may be amended to permit such acquisition
or redeemed by the Company at $.001 per Right prior to the earliest of (i) the
time that a person or group has acquired beneficial ownership of 15% or more
of the Common Shares or (ii) the final expiration date of the rights.
51
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Operations.......................................... F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Stockholders' Equity................................ F-6
Notes to Combined Financial Statements..................................... F-7
Schedule of Valuation and Qualifying Accounts.............................. S-1
Report of Ernst & Young LLP, Independent Auditors, as to Schedule.......... S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BEI Electronics, Inc.
We have audited the accompanying combined balance sheets of the businesses
to comprise BEI Technologies, Inc. (as described in Note 1 to the combined
financial statements) as of September 28, 1996 and September 30, 1995, and
related combined statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended September 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of BEI Technologies,
Inc. at September 28, 1996 and September 30, 1995, and the combined results of
its operations and its cash flows for each of the three years in the period
ended September 28, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young, LLP
San Francisco, California
November 20, 1996,
except for Note 1 and the first
paragraphs of Notes 2 and 7, as to which
the date is June 30, 1997
and Note 16, as to which the date is
September 11, 1997
F-2
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JUNE 28,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents--Note 14.... $ 2,667 $ 8,201 $ 3,622
Trade receivables:
United States Government............. 5,072 5,175 2,118
Commercial customers, less allowance
for doubtful accounts (1997-$621;
1996-$607; 1995-$395) .............. 11,087 11,537 14,445
------- ------- -------
16,159 16,712 16,563
Inventories--Note 3................... 16,972 19,201 22,304
Refundable income taxes............... 518 388 --
Deferred income taxes--Note 6......... 3,667 2,564 4,387
Current assets of discontinued
operations--Note 2................... 9,764 6,508 743
Other current assets.................. 2,005 1,925 1,399
------- ------- -------
Total current assets............... 51,752 55,499 49,018
PROPERTY, PLANT AND EQUIPMENT--NOTE 5
Land.................................. 4,093 4,093 4,093
Structures............................ 7,216 7,409 8,796
Equipment............................. 32,796 35,947 40,624
Leasehold improvements................ 1,301 1,284 1,034
------- ------- -------
45,406 48,733 54,547
Less allowances for depreciation and
amortization......................... 22,627 26,542 29,440
------- ------- -------
22,779 22,191 25,107
OTHER ASSETS
Tradenames, patents and related
assets, less amortization (1997-
$2,474; 1996-$2,335; 1995-$2,149).... 2,125 1,939 1,800
Technology acquired under license
agreements, less amortization (1997-
$3,990; 1996-$3,269; 1995-$2,342).... 8,125 6,939 6,218
Goodwill, less amortization (1997-
$379; 1996-$340; 1995-$288).......... 759 707 668
Non-current assets of discontinued
operations-Note 2.................... 3,836 1,962 1,687
Other................................. 3,042 2,934 2,170
------- ------- -------
17,887 14,481 12,543
------- ------- -------
$92,418 $92,171 $86,668
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Trade accounts payable................ $ 3,963 $ 5,025 $ 5,574
Accrued expenses and other
liabilities--Note 4.................. 14,295 12,602 9,218
Current portion of long-term debt--
Note 5............................... 72 5,625 5,627
Current liabilities of discontinued
operations--Note 2................... 3,648 4,472 1,888
------- ------- -------
Total current liabilities.......... 21,978 27,724 22,307
Long-term debt, less current portion--
Notes 5 and 14....................... 29,765 24,137 18,516
Payable to BEI Electronics, Inc.--
(Note 15)............................ 10,404 6,062 3,896
Deferred income taxes--Note 6......... 1,140 712 --
Other liabilities..................... 268 290 286
Commitments and contingencies--Notes
2, 10 and 11......................... -- -- --
STOCKHOLDERS' EQUITY--NOTES 7 AND 8
Preferred stock....................... -- -- --
Common stock.......................... -- -- --
Retained earnings..................... 29,593 34,164 42,949
------- ------- -------
29,593 34,164 42,949
Less: Unearned restricted stock--Note
8.................................... (730) (918) (1,286)
------- ------- -------
Total stockholders' equity......... 28,863 33,246 41,663
------- ------- -------
$92,418 $92,171 $86,668
======= ======= =======
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
-------------------------------------- ----------------
JUNE JUNE
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, 29, 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales--Note 12 and
13..................... $82,361 $90,475 $96,746 $71,398 $74,437
Cost of sales--Note 13.. 49,081 56,841 60,494 44,390 48,383
------- ------- ------- ------- -------
33,280 33,634 36,252 27,008 26,054
------- ------- ------- ------- -------
Selling, general and
administrative
expenses............... 24,426 25,641 26,157 18,500 19,014
Provision for royalty
and related expenses... -- 3,500 -- -- --
Research, development
and related expenses... 6,117 3,964 3,608 2,682 3,159
------- ------- ------- ------- -------
30,543 33,105 29,765 21,182 22,173
------- ------- ------- ------- -------
Operating Income........ 2,737 529 6,487 5,826 3,881
Other income............ 98 210 242 166 246
Interest expense........ (2,190) (2,303) (2,444) (1,879) (1,392)
------- ------- ------- ------- -------
Income (loss) before
income taxes........... 645 (1,564) 4,285 4,113 2,735
Income taxes--Note 6.... 324 (600) 1,412 1,407 941
------- ------- ------- ------- -------
Income (loss) from
continuing operations.. 321 (964) 2,873 2,706 1,794
Income (loss) from
discontinued
operations, net of
income taxes--Note 2... 392 (1,077) 1,698 1,139 1,389
------- ------- ------- ------- -------
Net income (loss)....... $ 713 $(2,041) $ 4,571 $ 3,845 $ 3,183
======= ======= ======= ======= =======
Pro forma earnings from
continuing operations
per common and common
equivalent share....... $ 0.40 $ 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... 0.24 0.20
------- -------
Pro forma earnings per
common and common
equivalent share--Notes
7 and 8................ $ 0.64 $ 0.45
======= =======
Shares used in computing
pro forma earnings per
common and common
equivalent shares--
Notes 1, 7 and 8....... 7,108 7,131
======= =======
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
-------------------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 713 $(2,041) $4,571 $3,845 $ 3,183
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED (USED) BY
OPERATING ACTIVITIES:
Depreciation............ 4,384 4,456 4,204 3,131 3,094
Amortization............ 1,218 1,457 1,711 1,202 1,202
Provision for losses on
trade receivables...... 50 119 282 173 46
(Gain) Loss on sale of
assets................. 41 79 174 5 29
Deferred income taxes... (558) (2,630) 675 370 (1,765)
Other................... 258 (681) (577) 32 (595)
CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Trade receivables....... (1,945) (2,541) (835) (21) 103
Inventories............. (2,204) (882) (2,229) (1,700) (3,103)
Other current assets.... (501) 175 80 (531) 526
Trade accounts payable,
accrued expenses and
other liabilities ..... 1,637 3,401 (609) (1,736) (3,478)
Refundable income taxes. (2,399) 1,043 130 878 966
Assets and liabilities
of discontinued
operations............. 4,210 7,617 5,954 2,243 2,730
------- ------- ------ ------ -------
Net cash provided (used)
by operating
activities............. 4,904 9,572 13,531 7,891 2,940
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property,
plant and equipment.... (8,469) (2,573) (3,624) (3,106) (6,032)
Other................... (900) 35 44 144 698
------- ------- ------ ------ -------
Net cash used by
investing activities... (9,369) (2,538) (3,580) (2,872) (5,334)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on
long-term debt......... (121) (138) (75) (70) (19)
Increase (decrease) in
payable to BEI
Electronics, Inc....... 7,413 (7,323) (4,342) (3,604) (2,166)
------- ------- ------ ------ -------
Net cash provided (used)
by financing
activities............. 7,292 (7,461) (4,417) (3,674) (2,185)
------- ------- ------ ------ -------
Net increase (decrease)
in cash and cash
equivalents............ 2,827 (427) 5,534 1,345 (4,579)
Cash and cash
equivalents at
beginning of period.... 267 3,094 2,667 2,667 8,201
------- ------- ------ ------ -------
Cash and cash
equivalents at end of
period................. $ 3,094 $ 2,667 $8,201 $4,012 $ 3,622
======= ======= ====== ====== =======
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Increase (decrease) in
long-term debt of BEI
Electronics, Inc. to be
assumed by BEI
Technologies, Inc. .... $11,200 $ -- $ -- $ -- $(5,600)
======= ======= ====== ====== =======
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON RETAINED RESTRICTED
STOCK EARNINGS STOCK TOTAL
------ -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCES AT OCTOBER 2, 1993............. $ 42,121 $ (803) $ 41,318
Net income for 1994..................... -- 713 -- 713
Restricted Stock Plan--Note 8........... -- -- 97 97
Increase in long-term debt of BEI
Electronics, Inc. to be assumed by BEI
Technologies, Inc...................... -- (11,200) -- (11,200)
--- -------- ------- --------
BALANCES AT OCTOBER 1, 1994............. -- 31,634 (706) 30,928
Net loss for 1995....................... -- (2,041) -- (2,041)
Restricted Stock Plan--Note 8........... -- -- (24) (24)
--- -------- ------- --------
BALANCES AT SEPTEMBER 30, 1995.......... -- 29,593 (730) 28,863
Net income for 1996..................... -- 4,571 -- 4,571
Restricted Stock Plan--Note 8........... -- -- (188) (188)
--- -------- ------- --------
BALANCES AT SEPTEMBER 28, 1996.......... -- 34,164 (918) 33,246
Net income (unaudited).................. -- 3,183 -- 3,183
Restricted Stock Plan--Note 8
(unaudited)............................ -- -- (366) (366)
Decrease in long-term debt of BEI
Electronics, Inc. to be assumed by BEI
Technologies, Inc. (unaudited)......... -- 5,600 -- 5,600
--- -------- ------- --------
BALANCES AT JUNE 28, 1997 (UNAUDITED)... -- $ 42,947 $(1,284) $ 41,663
=== ======== ======= ========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for the nine months ended June 28, 1997 and June 29, 1996, is
unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: On June 30, 1997, the Board of Directors of BEI
Electronics, Inc. (Electronics) approved a plan of distribution to holders of
Electronics common stock of one share of common stock of BEI Technologies,
Inc. (Technologies or the Company), a newly formed subsidiary, for each share
of Electronics common stock held (the Distribution). In connection with the
Distribution, Electronics will transfer to Technologies all of the assets,
liabilities and operations of its Sensors & Systems and Defense Systems
business segments. As further described in Note 2, on June 30, 1997, the Board
of Directors of Electronics also approved a formal plan to discontinue the
operations of its Defense Systems segment.
The accompanying combined financial statements of Technologies present the
combined financial position and results of operations of BEI Sensors & Systems
Company, Inc. and Defense Systems Company, Inc., wholly-owned subsidiaries of
Electronics, which are predecessor entities to the Company. All intercompany
accounts and transactions have been eliminated. The financial position and
results of operations of the Sensors & Systems business segment are presented
as continuing operations and those of the Defense Systems business segment are
presented as discontinued operations. Intercompany accounts and transactions
between Technologies and Electronics are summarized in Note 15. Long-term debt
of Electronics that will be assumed by Technologies in connection with the
Distribution has been included in the accompanying combined balance sheets as
described in Note 5.
The Sensors & Systems business provides sensors, engineered subsystems and
associated components which are used for controlled precision machinery and
equipment in industrial, medical, automotive, aerospace and military
applications.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest
September 30. Fiscal years 1996, 1995 and 1994 each contained 52 weeks.
Interim Financial Information: The combined financial statements for the
nine months ended June 28, 1997 and June 29, 1996 are unaudited but include
all adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its financial position and
results of operations. Operating results for the nine months ended June 28,
1997 are not necessarily indicative of the results that may be expected for
any future periods.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Concentration of Credit Risk: The Company's products are primarily sold to
commercial customers throughout the United States and in various foreign
countries and to the United States government. Substantially all foreign sales
are denominated in U.S. dollars. The Company performs ongoing credit
evaluations of its commercial customers and generally does not require
collateral. The Company maintains reserves for potential credit losses.
Historically, such losses have been within the expectations of management.
Revenue Recognition: Revenue is recognized under fixed price contracts using
the percentage of completion method, with percentage of completion determined
primarily by units delivered. Units are considered delivered
F-7
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
when accepted by the customer. Revenue for products not sold under fixed price
contracts is recognized as units are shipped. Sales under cost reimbursement
contracts are recognized as costs are incurred and include a proportion of the
fees expected to be realized on the contracts. Amounts related to billed
retainages, amounts not billed and amounts of uncertain claims are immaterial.
Inventories: Inventories consist of costs incurred under fixed price
contracts in process less anticipated losses, if any, on the contracts. Other
inventories are carried principally at the lower of cost (first-in, first-out
method) or fair value. Provisions for contract costs in excess of inventory
are reflected as accrued contract costs in current liabilities.
Depreciation and Amortization: Property, plant and equipment are recorded at
cost. Depreciation and amortization are provided in amounts sufficient to
amortize the cost of such assets over their estimated useful lives, which
range from 3 to 30 years, using the straight-line method for structures and
the accelerated or straight-line methods for equipment.
Leasehold improvements are amortized over the shorter of the lease term or
their estimated useful life.
Long Lived Assets: The Company accounts for its long-lived assets using
Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No. 121 ("FAS No. 121") "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of". The Company adopted FAS
No. 121 on October 1, 1995. The Company recognizes impairment losses on long-
lived assets, including property, plant and equipment and other assets, when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amounts of the
assets.
Tradenames, patents and related assets are being amortized over their
remaining lives at the date of acquisition up to a period of seventeen years.
Technology acquired under license agreements consists primarily of the cost
of exclusive rights to make, use and sell products utilizing quartz rate
sensing technology. Technology acquired is being amortized over thirteen
years, which approximates its estimated useful life from the date of
acquisition.
Goodwill consists of the excess of cost over fair value of net tangible
assets acquired in purchase acquisitions. Goodwill is amortized by the
straight-line method over 20 years.
Research and Development: Costs to develop the Company's products are
expensed as incurred in accordance with Statement of Financial Accounting
Standards No. 2 "Accounting for Research and Development Costs", which
establishes accounting and reporting standards for research and development.
Stock-Based Compensation: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-Based Compensation," which established a
fair-value based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies who elect not to adopt the
new method of accounting. The Company will be required to adopt FAS 123 in
fiscal year 1997. The Company's intention is to continue to account for
employee stock awards in accordance with APB Opinion No. 25 and to adopt the
disclosure-only alternative described in FAS 123.
Pro Forma Net Income Per Share: Pro forma net income per share is based on
the pro forma weighted average number of shares of outstanding Technologies
common stock and dilutive common equivalent shares from stock options, giving
effect to the planned Distribution of one share of Technologies common stock
for each share of Electronics common stock as if it had occurred at the
beginning of each period presented. Pro
F-8
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
forma common equivalent shares from outstanding stock options of Electronics
held by employees of the Sensors and Systems and Defense Systems business who
will become employees of Technologies are computed using the treasury stock
method assuming that upon exercise the holder would receive one share of
Technologies common stock for each share of Electronics common stock acquired
through the exercise of such options.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share",
which is required to be adopted for the quarter ending December 27, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate earnings (loss) per share for all
prior periods. Had the Statement been implemented for the nine months ended
June 28, 1997 and the year ended September 28, 1996, the impact on the
calculation of pro forma earnings per share would not have been material.
NOTE 2--DISCONTINUED OPERATIONS
In June 30, 1997, the Board of Directors of Electronics announced a formal
plan to discontinue the operations of the Defense Systems segment.
Accordingly, the results of operations of the segment have been presented as
discontinued operations for all periods presented and the assets and
liabilities of the segment have been segregated in the combined balance
sheets. The remaining assets are stated at cost, which management believes
approximates net realizable value and management does not expect any material
loss from the on-going operations or abandonment of the Defense Systems
segment. Previously, in September 1995, Electronics had reached a decision to
exit the HYDRA 70 (H 70) rocket manufacturing line of business which made up a
substantial portion of the Defense Systems segment. Additional products of the
segment included weapons management systems and sales under a cost-plus fee
advanced rocket development contract.
As result of the decision to exit the rocket line of business, the Company
has incurred and will incur costs relating to employee severance and the
closure and withdrawal from the leased facility in Camden, Arkansas and
similar costs related to its owned facility in Euless, Texas. The Company
recorded costs of sales of $1,250,000 as exit costs at September 30, 1995
consisting of employee severance of $750,000, leasehold abandonment of
$250,000 and owned facility costs of $250,000. During fiscal 1996, the Company
incurred $726,000 of costs for employee severance and leasehold and facility
costs of $350,000. Additional amounts were accrued during fiscal 1996 for
severance costs of $350,000 and facility costs of $350,000. During fiscal
1996, the Company recorded net losses of $640,000 on disposal of assets of the
rocket business. At September 28, 1996, an additional charge of $313,000 was
recorded to reflect management's estimate of the fair value of the Euless
facility based on current market conditions. At the end of fiscal year 1996,
the balance in the reserve account consisted of $374,000 and $500,000 for
employee severance and facility closure costs, respectively. During the first
nine months of fiscal 1997, the Company accrued an additional $33,000 for
employee severance costs. Costs incurred during the period for severance and
facilities closure of $302,000 and $357,000, respectively, were charged
against the reserve. The balance in the reserve at the end of the third
quarter of fiscal 1997 consisted of $105,000 for employee severance and
$143,000 for facilities closure costs. Management believes at this time the
reserve appears adequate to cover future shutdown costs. At September 28,
1996, substantially all inventory and equipment assets of the rocket business
had been written off or disposed of except the remaining assets at the Euless
facility which management expects to dispose of in fiscal 1997.
F-9
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Net sales of the Defense Systems segment were as follows for the fiscal
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
-------------------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--HYDRA 70......... $ 38,292 $38,517 $37,927 $28,189 $1,947
Other................... 9,327 7,064 4,708 3,311 4,663
-------- ------- ------- ------- ------
$ 47,619 $45,581 $42,635 $31,500 $6,610
======== ======= ======= ======= ======
</TABLE>
NOTE 3--INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JUNE 28,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Finished products...................... $ 554 $ 289 $ 1,281
Work in process........................ 5,906 6,621 7,361
Materials.............................. 9,468 10,873 12,635
Costs incurred under long-term
contracts, including U.S. Government
contracts............................. 26,269 3,840 1,823
Unliquidated progress payments......... (17,621) (451) (138)
-------- ------- -------
24,576 21,172 22,962
Less inventories included in current
assets of discontinued operations, net
of progress payments of (1997--$138;
1996--$451; 1995--$17,621)............ 7,604 1,971 658
-------- ------- -------
Net inventories........................ $ 16,972 $19,201 $22,304
======== ======= =======
</TABLE>
NOTE 4--ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Royalties and related costs........................ $ 3,961 $ 3,951
Vacation........................................... 2,095 1,739
Employee compensation.............................. 1,630 1,661
Insurance.......................................... 332 1,107
Interest........................................... 863 1,105
Contract costs..................................... 1,348 830
Commissions........................................ 519 484
Other.............................................. 5,756 2,898
------- -------
16,929 14,286
Less accrued expenses included in current
liabilities of discontinued operations--Note 2.... 2,634 1,684
------- -------
Accrued Expenses and Other Liabilities............. $14,295 $12,602
======= =======
</TABLE>
F-10
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
6.73% Series A Senior Notes; due in annual
installments of $3,360 from October 1, 1996
through October 1, 2000........................... $16,800 $16,800
6.73% Series B Senior Notes; due in annual
installments of $2,240 from November 15, 1996
through November 15, 2000......................... 11,200 11,200
Mortgage note payable with interest at 7.96%; due
in monthly installments of principal and interest
of $14 until 1998 when the remaining balance of
approximately $1,700 is due; collateralized by
property with a book value of approximately $2,047
at September 28, 1996............................. 1,785 1,762
Capitalized equipment lease obligations............ 71 --
------- -------
29,856 29,762
Less portion included in non-current liabilities of
discontinued operations........................... 19 --
------- -------
29,837 29,762
Less current portion............................... 72 5,625
------- -------
$29,765 $24,137
======= =======
</TABLE>
The Senior Notes, which are obligations of Electronics, have been recorded
in the combined balance sheets of Technologies as the debt was issued to
provide financing for certain acquisitions by Technologies and will be assumed
by Technologies in connection with the Distribution. The interest expense
associated with the Senior Notes has also been allocated to Technologies and
is included in the combined results of operations. The Senior Note Agreement
contains covenants concerning certain financial ratios, dividend payments and
minimum balances of net worth. At September 28, 1996, Electronics was in
compliance with all financial covenants.
Maturities of long-term debt are as follows: fiscal 1997--$5,625,000; 1998--
$8,989,000; 1999--$7,308,000; 2000--$5,600,000; 2001--$2,240,000; thereafter--
none.
Interest of approximately $2,202,000, $2,308,000 and $2,180,000 was paid
during fiscal years 1996, 1995 and 1994, respectively.
NOTE 6--INCOME TAXES
Technologies has been included in the consolidated federal income tax return
of Electronics in accordance with the tax allocation arrangement between the
Companies. Income taxes are allocated generally as if the companies had filed
separate U.S. and state income tax returns. After the Distribution,
Technologies will no longer be included in the Electronics consolidated group
and will instead file a separate federal income tax return.
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and the tax basis of assets and liabilities and
are measured using the enacted tax rates and laws known at this time that will
be in effect when the differences are expected to reverse.
F-11
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's net deferred tax assets as of are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
DEFERRED TAX ASSETS 1995 1996
------------------- ------------- -------------
<S> <C> <C>
Accrued expenses.................................... $2,535 $3,675
Inventory valuation................................. 1,168 80
Contract reserves................................... 564 420
State net operating loss carryovers................. 143 94
Other............................................... 1,665 964
------ ------
Total deferred tax assets......................... 6,075 5,233
Valuation allowance for deferred tax assets....... (143) (94)
------ ------
Total deferred tax assets........................... 5,932 5,139
------ ------
Deferred tax liabilities
Depreciation and property basis difference.......... $2,415 2,309
Prepaid expenses.................................... 311 131
Accrued expenses.................................... 405 252
Other............................................... 274 595
------ ------
Total deferred tax liabilities.................... 3,405 3,287
------ ------
Net deferred tax assets........................... $2,527 $1,852
====== ======
</TABLE>
The provision for income tax expense consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Current
Federal............................... 338 1,306 1,716
State................................. 744 46 47
------ ------- ------
Total Current....................... 1,082 1,352 1,763
Deferred
Federal............................... 48 (2,303) 408
State................................. (606) (327) 267
------ ------- ------
Total Deferred...................... (558) (2,630) 675
------ ------- ------
Total income tax provision (benefit).... $ 524 $(1,278) $2,438
====== ======= ======
Income tax expense (benefit)
attributable to continuing operations.. 324 (600) 1,412
Income tax expense (benefit)
attributable to discontinued
operations............................. 200 (678) 1,026
------ ------- ------
Total income tax provision (benefit).... $ 524 $(1,278) $2,438
====== ======= ======
</TABLE>
F-12
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the income tax determined by
applying the applicable U.S. statutory federal income tax rate as a result of
the following differences (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Income tax (credit) at the statutory
rate of 34%............................ $421 $(1,128) $2,383
Federal income tax effect of state
income taxes........................... (46) 96 (106)
Goodwill amortization................... 10 18 19
Research and development and related
credits................................ -- -- (246)
Other................................... 1 17 74
---- ------- ------
Federal income taxes (credit)......... 386 (997) 2,124
State income taxes (credit)........... 138 (281) 314
---- ------- ------
Provision (credit) for income taxes..... $524 $(1,278) $2,438
==== ======= ======
</TABLE>
Pursuant to the tax sharing agreement with Electronics, the Company's income
taxes have been paid by Electronics and credited to payable to BEI
Electronics, Inc. (see Note 15).
The Internal Revenue Services (IRS) audited Electronics' income tax returns
for the fiscal years 1993 through 1995. In the third quarter of fiscal year
1997, Electronics reached a settlement with the IRS for all issues raised for
these years, resulting in the payment of $1.7 million in additional taxes for
those years, of which approximately $1.0 million relates to Technologies. The
settlement related primarily to the timing of deductions resulting from
acquisitions made by subsidiaries of the Company. The payment of these
additional taxes resulted in an increase in deferred tax assets and did not
affect the provision for income taxes in the third quarter of fiscal year
1997.
NOTE 7--STOCKHOLDERS' EQUITY
The authorized capital stock of BEI Technologies, Inc. consists of 2,000,000
shares of Preferred Stock ($.001 par value) and 20,000,000 shares of Common
Stock ($.001 par value).
The authorized, issued and outstanding capital stock of BEI Sensors &
Systems Company, Inc. and Defense Systems Company, Inc., all of which is held
by Electronics, consists of the following for all periods presented:
<TABLE>
<CAPTION>
SHARES
PAR SHARES ISSUED AND
VALUE AUTHORIZED OUTSTANDING
----- ---------- -----------
<S> <C> <C> <C>
Preferred Stock:
BEI Sensors & Systems Company, Inc............... $.001 200,000 --
Common Stock:
BEI Sensors & Systems Company, Inc............... $.001 300,000 100
BEI Defense Systems Company, Inc................. $1.00 1,000 100
</TABLE>
NOTE 8--STOCK OPTION AND RESTRICTED STOCK PLAN
Under the plan of Distribution, holders of vested stock options to purchase
Electronics common stock will be entitled to exercise such options and receive
an equivalent number of shares of Technologies common stock in connection with
the Distribution. Vested options that are not exercised and unvested
Electronics stock options will be converted to options to purchase
Technologies common stock based on a conversion formula that will provide that
the intrinsic value of the options will not increase as a result of the
conversion, the ratio of the exercise price per option to the market value per
share of common stock will not be reduced, and the new option will not give
the holder any additional benefits.
F-13
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The 1982 Stock Plan of Electronics provided for the granting of options with
exercise prices equal to the fair market value of the stock on the date the
option was granted. The 1982 Stock Plan terminated December 15, 1991; no
further shares can be granted and the options outstanding at June 28, 1997
will expire if not exercised by 1998.
Option activity of the 1982 Stock Plan of Electronics related to employees
of the Sensors & Systems and Defense Systems businesses who will become
employees of Technologies, is summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF
COMMON PRICE PER
SHARES SHARE
------ -----------
<S> <C> <C>
Options outstanding at October 2, 1993.................. 36,000 $3.13-$3.75
Exercised............................................. (8000) $3.13
------ -----------
Options outstanding at October 1, 1994.................. 28,000 $3.75
Exercised............................................. --
------
Options outstanding at September 30, 1995............... 28,000 $3.75
Exercised............................................. (4,000) $3.75
------ -----------
Options outstanding at September 28, 1996............... 24,000 $3.75
Exercised (unaudited)................................. (4,000) $3.75
------ -----------
Options Outstanding at June 28, 1997 (unaudited)........ 20,000 $3.75
====== ===========
</TABLE>
The 1987 Stock Plan of Electronics provides for the granting of options with
exercise prices equal to the fair market value of the stock on the date the
options were granted. The 1987 Supplemental Stock Option Plan which was
combined into the 1987 Stock Plan in January 1997, required that the exercise
price of each option not be less than 50% of the fair market value on the date
the option was granted. Under both plans the options are exercisable in
approximately three equal installments commencing one year from the date of
grant with accumulation privileges.
F-14
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Option activity under the 1987 Stock Plan of Electronics related to
employees of the Sensors & Systems and Defense businesses who will become
employees of Technologies, is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMMON PRICE PER
SHARES SHARE
--------- -----------
<S> <C> <C>
Options outstanding at October 2, 1993............... 820,327 $2.88-$9.13
Granted............................................ 3,000 $6.13
Exercised.......................................... (26,121) $2.88-$7.25
Terminated......................................... (129,741) $3.75-$9.13
-------- -----------
Options outstanding at October 1, 1994............... 667,465 $2.88-$9.13
Granted............................................ 31,000 $5.00
Exercised.......................................... (16,814) $2.88-$4.38
Terminated......................................... (71,256) $4.38-$9.13
-------- -----------
Options outstanding at September 30, 1995............ 610,395 $2.88-$9.13
Granted............................................ 11,000 $6.00-$7.13
Exercised.......................................... (115,922) $2.88-$9.13
Terminated......................................... (48,511) $5.00-$9.13
-------- -----------
Options outstanding at September 28, 1996............ 456,962 $2.88-$9.13
Exercised (unaudited).............................. (65,800) $3.75-$8.50
Terminated......................................... (2,000) $9.13
-------- -----------
Options outstanding at June 28, 1997 (unaudited)..... 389,162 $2.88-$9.13
======== ===========
</TABLE>
As of June 28, 1997, options for 381,484 shares were vested and exercisable.
Under the 1992 Restricted Stock Plan of Electronics, 700,000 shares of
Electronics common stock were authorized to be issued to certain key
individuals subject to forfeiture if employment terminated prior to the end of
prescribed periods. The market value at the date of grant of shares is
recorded as unearned restricted stock. The market value of shares granted is
amortized to compensation expense over the vesting periods. As of June 28,
1997, 399,926 shares had been granted to individuals who will become employees
of Technologies of which 334,250 shares are outstanding, and 125,301 shares
have fully vested. Compensation expense of $406,000, $236,000 and $196,000 was
recorded in fiscal years 1996, 1995 and 1994, respectively.
NOTE 9--EMPLOYEE BENEFIT PLAN
Electronics has a defined contribution retirement plan for the benefit of
all eligible employees. Contributions to the plan by Technologies for the
benefit of its employees for fiscal years 1996, 1995 and 1994 were
approximately $622,000, $684,000, and $726,000 respectively.
F-15
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEASE COMMITMENTS
Operating leases consist principally of leases for structures and land.
Certain of the operating leases contain various options for renewal and/or
purchase of the related assets for amounts approximating their fair market
value at the date of exercise of the option. The future minimum payments for
operating leases consisted of the following at September 28, 1996:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
1997........................................................... $1,335
1998........................................................... 1,207
1999........................................................... 731
2000........................................................... 37
2001........................................................... --
Thereafter..................................................... --
------
Total minimum lease payments................................. $3,310
======
</TABLE>
Total rental expense attributable to property, plant and equipment amounted
to approximately $1,530,000, $2,238,000, and $2,779,000 fiscal years 1996,
1995 and 1994, respectively.
NOTE 11--CONTINGENCIES AND LITIGATION
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In January 1997, BEI Systron Donner Company, a division of the Company, and
the former shareholders of General Precision Industries, Inc. (GPI) reached a
confidential settlement of the last remaining issues of the dispute that had
been in arbitration since 1992. Following the November 1996 ruling by the
arbitration panel that GPI may be due costs and expenses, the parties agreed
in their January 1997 settlement on a final payment to fully resolve the
dispute. The impact of the settlement and related legal expenses in the first
quarter of 1997 was an after tax charge of approximately $1.1 million. The
settlement and all remaining amounts accrued for GPI under prior rulings by
the panel, including royalties for 1993 through 1996, were paid in the second
quarter of fiscal 1997.
Claim against U.S. Government
In August, 1995, Defense Systems filed a claim against the U.S. Government
relative to the fuze technical data problems experienced on previous
contracts. The amount of the claim was approximately $5 million. This claim
was settled with the Government in September 1996 for $3.6 million. The
settlement was effected through a contract modification to increase the
selling price of the related rockets by $3.6 million and was recorded as
additional sales in September 1996. Defense Systems also believes it has
rights for additional claims against the Government arising out of the H 70
contract and a substantial claim was filed in 1996. Due to the uncertainties
inherent in the formal claims process, the Company has not recorded any
recoveries for unresolved claims in the accompanying financial statements.
Other
The Company has pending various legal actions arising in the normal course
of business. Management believes that none of these legal actions will have a
material impact on the Company's financial condition or operating results.
F-16
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--SALES
Net sales to customers in foreign countries amounted to $10,938,000,
$9,680,000 and $7,902,000 in fiscal years 1996, 1995 and 1994, respectively.
In fiscal years 1996, 1995 and 1994, foreign sales did not exceed 10% of
consolidated net sales in any individual geographic area.
Net sales to the U.S. Government for the Sensors and Systems segment's
products amounted to $25,986,000, $28,930,000 and $32,718,000 in fiscal years
1996, 1995 and 1994, respectively. Net sales to the U.S. Government for the
discontinued Defense Systems segment were $41,219,000, $44,012,00 and
$46,043,000 for fiscal years 1996, 1995 and 1994, respectively.
NOTE 13--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for
fiscal years 1996 and 1995:
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
THREE MONTHS ENDED
---------------------------------------------
DECEMBER 30, MARCH 30, JUNE 29, SEPTEMBER 28,
1995 1996 1996 1996
------------ --------- -------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales....................... $22,354 $24,708 $24,336 $25,348
Gross profit.................... 8,183 9,405 9,420 9,244
Income from continuing
operations..................... 649 767 1,019 438
Pro forma earnings from
continuing operations per
common and common equivalent
share.......................... $ 0.09 $ 0.11 $ 0.14 $ 0.06
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1, JULY 1, SEPTEMBER 30,
1994 1995 1995 1995
------------ -------- ------- -------------
<S> <C> <C> <C> <C>
Net sales......................... $20,840 $21,677 $23,809 $24,149
Gross profit...................... 7,888 7,355 9,088 9,303
Income(loss) from continuing
operations....................... 106 (145) 662 (1,587)(1)
</TABLE>
- --------
(1) Loss from continuing operations for the fourth quarter of fiscal 1995
includes after tax charges of $2.1 million related to the GPI
arbitration--(see Note 11).
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
THREE MONTHS ENDED
---------------------------------------------
DECEMBER 30, MARCH 30, JUNE 29, SEPTEMBER 28,
1995 1996 1996 1996
------------ --------- -------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $10,159 $12,841 $8,500 $11,135
Gross profit..................... 1,175 899 1,572 2,875
Income from discontinued
operations...................... 239 335 574 550
Pro forma earnings from
discontinued operations per
common and common equivalent
share........................... $ 0.03 $ 0.05 $ 0.08 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1, JULY 1, SEPTEMBER 30,
1994 1995 1995 1995
------------ -------- ------- -------------
<S> <C> <C> <C> <C>
Net sales.......................... $13,523 $12,646 $10,602 $8,810
Gross profit....................... 1,022 391 926 (2,177)
Income(loss) from discontinued
operations........................ 177 219 240 (1,713)(2)
</TABLE>
- --------
(2) Loss from discontinued operations for the fourth quarter of fiscal 1995
includes $750,000 related to the Company's decision to exit the rocket
manufacturing line of business and $910,000 related to an adjustment for
the estimated cost to complete the H 70 contract (see Note 2).
F-17
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("Statement 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Whenever possible, quoted market prices were used to develop fair
values. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets, and, in many cases, could not be realized in immediate settlement of
the instrument. Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company. The following methods and assumptions were used by the Company
in estimate its fair value disclosures for financial instruments as of
September 28, 1996, and as of September 30, 1995.
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Long-Term Debt: The fair value of these liabilities has been estimated based
upon the discounted future cash flows. The discount rate used included a risk
free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position. The fair value of
Electronics' long-term debt which has been allocated to the Company is
approximately $23,409,000 and $28,806,000 compared with the carrying amounts
of $24,137,000 and $29,765,000 at September 28, 1996 and September 30, 1995,
respectively.
NOTE 15--INTERCOMPANY TRANSACTIONS
Amounts payable to Electronics included in the combined balance sheets
represents net balances as the result of various transactions between
Electronics and Technologies. There are no terms of settlement associated with
the account balance. The balance results primarily from of the Company's
participation in Electronics' central cash management program, wherein the
Company's cash receipts are remitted to Electronics and cash disbursements are
funded by Electronics. Other transactions include the Company's share of the
current portion of Electronics consolidated federal and state income tax
liabilities, administrative and other expenses incurred by Electronics on
behalf of Technologies, and interest charges on a portion of the outstanding
balances.
Intercompany transactions are summarized follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance payable to Electronics at
beginning of year...................... $ 10,314 $ 17,727 $ 10,404
Net cash remitted to Electronics........ (13,404) (26,277) (22,537)
Net transfers of assets and liabilities. 2,976 (2,086) 1,648
Allocations of Electronics' current
federal and state tax liabilities...... (264) 2,161 1,891
Administrative and other expenses....... 18,105 18,879 14,656
-------- -------- --------
Balance payable to Electronics at end of
year................................... $ 17,727 $ 10,404 $ 6,062
======== ======== ========
Average balance during year............. $ 16,449 $ 14,418 $ 9,897
======== ======== ========
</TABLE>
F-18
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--SUBSEQUENT EVENT
On September 11, 1997, Technologies adopted the 1997 Equity Incentive Plan
which provides for the grant of stock options, restricted stock awards and
stock bonus awards. Technologies reserved 1,600,000 shares of its common stock
for issuance under the Plan, including 800,000 shares specifically reserved
for substitute options to be granted to option holders of Electronics.
F-19
<PAGE>
SCHEDULE II
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ------------------------- ---------- ----------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ----------- ---------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 28,
1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $395 $282 $ -- $70(A) $607
Valuation allowance
for deferred tax
assets............... 143 (49) -- 94
---- ---- ----- --- ----
Total............... $538 $282 $ (49) $70 $701
==== ==== ===== === ====
YEAR ENDED SEPTEMBER 30,
1995:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $315 $119 $ -- $39(A) $395
Valuation allowance
for deferred tax
assets............... -- 143 -- -- 143
---- ---- ----- --- ----
Total............... $315 $262 -- $39 $538
==== ==== ===== === ====
YEAR ENDED OCTOBER 1,
1994:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $314 $ 50 $ -- $49(A) $315
Valuation allowance
for deferred tax
assets............... -- -- -- -- --
---- ---- ----- --- ----
Total............... $314 $ 50 $ -- $49 $315
==== ==== ===== === ====
</TABLE>
- --------
(A) Miscellaneous adjustments to the allowance
(B) Adjustment based on evaluation of uncertainties in the realization of state
net operating loss carryovers
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Stockholders
BEI Electronics, Inc.
We have audited the combined financial statements of BEI Technologies, Inc.
as of September 28, 1996 and September 30, 1995, and for each of the three
years in the period ended September 28, 1996, and have issued our report
thereon dated November 20, 1996 except for Note 1 and first paragraphs of
Notes 2 and 7, as to which this date is June 30, 1997, and Note 16, as to
which the date is September 11, 1997. Our audits also included the financial
statement schedule listed in the Index to combined Financial Statements and
Schedule of this Form 10 Information Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic combined financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
Ernst & Young LLP
San Francisco, California
November 20, 1996
S-2
<PAGE>
ANNEX A
[LETTERHEAD HERE]
September 11, 1997
Board of Directors
BEI Electronics, Inc.
One Post Street--Suite 2500
San Francisco, CA 94104
Dear Gentlemen:
We are acting as financial advisors to BEI Electronics, Inc. ("Electronics"
or the "Company") in connection with the proposed distribution of all of the
shares of BEI Technologies, Inc. ("Technologies") common stock to the holders
of Electronics common stock, on a pro rata basis, as more fully described in
the draft of the BEI Technologies, Inc. Form 10 dated September 10, 1997 (the
"Spin-Off"). You have requested our opinion, as of the date hereof, whether
the proposed Spin-Off is fair, from a financial point of view, to the holders
of Electronics common stock.
SBC Warburg Dillon Read, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
For its services, SBC Warburg Dillon Read will receive a fee, part of which is
contingent upon the consummation of the Spin-Off.
In arriving at our opinion, we have: (i) conducted discussions with members
of the senior management of Electronics and with the senior management of
Technologies with regard to the business and prospects of each company; (ii)
analyzed certain historical business and financial information related to
Electronics and Technologies provided to us by Electronics management; (iii)
reviewed certain financial projections for Electronics and Technologies
provided to us by Electronics management; (iv) reviewed public information
relating to Electronics, including Electronics' Annual Report and Form 10-K
for the five fiscal years ended September 28, 1996; (v) reviewed public
information with respect to certain other companies engaged in businesses
which we believed to be generally comparable to certain of the businesses
conducted by Electronics and Technologies; (vi) reviewed the draft of the
Technologies Form 10 dated September 10, 1997 describing the Spin-Off; and
(vii) conducted such other studies, analyses and investigations and reviewed
such other economic and market data as we deemed necessary or appropriate.
We have, with your consent, assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by us
for the purposes of this opinion. With respect to the financial budgets and
forecasts, we have, at your direction, assumed that they have been reasonably
prepared on the bases reflecting the best currently available estimates and
judgments of the future financial performance of Electronics and Technologies.
We have not made any independent valuation or appraisal of the assets or
liabilities, contingent or otherwise, of Electronics or Technologies, nor have
we been furnished with any such evaluation or appraisal. Further, our opinion
is based on economic, monetary and market conditions existing on the date
hereof.
We have noted that Electronics, as a condition to the Distribution, expects
to receive an opinion from Davis, Polk & Wardwell to the effect that, although
the matter is not free from doubt, the Spin-Off will not be a taxable
transaction to the shareholders of Electronics under federal income tax laws.
In that regard, we have, with your consent, assumed that such opinion will be
delivered to Electronics.
<PAGE>
In rendering our opinion we are not opining as to the price at which the
common stock of Electronics or Technologies will trade after the Spin-Off is
effected or as to the valuation or long-term viability of Electronics or
Technologies as independent public companies following the Spin-Off. This
opinion does not constitute a recommendation to any current or prospective
shareholder of either Electronics or Technologies as to any action or
investment decision such party or person may take.
Based upon and subject to the foregoing and recognizing that the proposed
Distribution is pro-rata to holders of Electronics shares, we are of the
opinion as of the date hereof that the proposed Spin-Off is fair, from a
financial point of view, to the holders of Electronics common stock.
Very truly yours,
SBC Warburg Dillon Read
By: _________________________________
Mr. Robert Moulton-Ely
<PAGE>
EXHIBIT 99.2
___________________________________________________________
BEI TECHNOLOGIES, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 11, 1997
___________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1. Certain Definitions.......................................................... 1
Section 2. Appointment of Rights Agent.................................................. 4
Section 3. Issue of Right Certificates.................................................. 4
Section 4. Form of Right Certificates................................................... 6
Section 5. Countersignature and Registration............................................ 6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates...................... 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights................ 8
Section 8. Cancellation and Destruction of Right Certificates........................... 9
Section 9. Availability of Preferred Shares............................................. 9
Section 10. Preferred Shares Record Date................................................ 10
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.......... 11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.................. 17
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power........ 18
Section 14. Fractional Rights and Fractional Shares..................................... 20
Section 15. Rights of Action............................................................ 22
Section 16. Agreement of Right Holders.................................................. 22
Section 17. Right Certificate Holder Not Deemed a Stockholder........................... 22
Section 18. Concerning the Rights Agent................................................. 23
Section 19. Merger or Consolidation or Change of Name of Rights Agent................... 23
Section 20. Duties of Rights Agent...................................................... 24
Section 21. Change of Rights Agent...................................................... 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 22. Issuance of New Right Certificates.......................................... 26
Section 23. Redemption.................................................................. 27
Section 24. Exchange.................................................................... 28
Section 25. Notice of Certain Events.................................................... 30
Section 26. Notices..................................................................... 31
Section 27. Supplements and Amendments.................................................. 31
Section 28. Determination and Actions by the Board of Directors, etc.................... 32
Section 29. Successors.................................................................. 32
Section 30. Benefits of this Agreement.................................................. 32
Section 31. Severability................................................................ 32
Section 32. Governing Law............................................................... 32
Section 33. Counterparts................................................................ 32
Section 34. Descriptive Headings........................................................ 32
</TABLE>
Exhibit A - Certificate of Designation
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
ii
<PAGE>
RIGHTS AGREEMENT
This RIGHTS AGREEMENT ("AGREEMENT"), dated as of September 11, 1997,
between BEI TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C. ("Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as such term is hereinafter defined) outstanding at the close of business on
September 29, 1997 (the "Record Date"), each Right representing the right to
purchase one one-hundredth of a Preferred Share (as such term is hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest to occur of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are hereinafter defined); provided, however, that
Rights may be issued with respect to Common Shares that shall become outstanding
after the Distribution Date and prior to the earlier of the Redemption Date and
the Final Expiration Date in accordance with the provisions of Section 22
hereof.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of fifteen percent (15%) or more of the Common
Shares then outstanding. Notwithstanding the foregoing, (A) the term Acquiring
Person shall not include (i) the Company, (ii) any Subsidiary (as such term is
hereinafter defined) of the Company, (iii) any employee benefit or compensation
plan of the Company or any Subsidiary of the Company, (iv) any entity holding
Common Shares for or pursuant to the terms of any such employee benefit or
compensation plan, or (v) an Excluded Person (as such term is hereinafter
defined) and (B) no Person shall become an "Acquiring Person" either (x) as the
result of an acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to fifteen percent (15%) or more of the Common
Shares then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of fifteen percent (15%) or more of the Common Shares then
outstanding by reason of share purchases by the Company and shall, following
written notice from, or public disclosure by the Company of such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares
without the prior consent of the Company and shall then Beneficially Own more
than fifteen percent (15%) of the Common Shares then outstanding, then such
Person shall be deemed to be an "Acquiring Person," or (y) if the Board of
Directors determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the
1
<PAGE>
foregoing provisions of this paragraph (a), has become such inadvertently, and
such Person divests, as promptly as practicable (as determined in good faith by
the Board of Directors), but in any event within five Business Days, following
receipt of written notice from the Company of such event, of a sufficient number
of Common Shares so that such Person would no longer be an Acquiring Person, as
defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on the date of this Agreement; provided, however, that the limited partners of a
limited partnership shall not be deemed to be Associates of such limited
partnership solely by virtue of their limited partnership interests.
(c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, within the meaning of Rule 13d-3 of
the General Rules and Regulations under the Exchange Act as in effect on the
date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities, or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B) hereof) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase, "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities
2
<PAGE>
of the Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then actually issued
and outstanding which such Person would be deemed to own beneficially hereunder.
(d) "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in the State of California are authorized or
obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., Pacific
Time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 p.m., Pacific Time, on the next succeeding Business Day.
(f) "COMMON SHARES" shall mean the shares of common stock, par value $.001
per share, of the Company; provided, however, that, "Common Shares," when used
in this Agreement in connection with a specific reference to any Person other
than the Company, shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is a
Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.
(g) "DISTRIBUTION DATE" shall have the meaning set forth in Section 3
hereof.
(h) "EXCLUDED PERSON" shall mean Charles Crocker and any trust or other
fiduciary account for the benefit of Mr. Crocker or his ancestors, descendants,
siblings or spouse (a "Trust") so long as such persons collectively beneficially
own thirty percent (30%) or less of the outstanding Common Shares; provided,
however, that Charles Crocker and any Trust shall not be an Excluded Person if
such persons beneficially own more than thirty percent (30%) of the outstanding
Common Shares without the prior approval of the Board of Directors of the
Company.
(i) "FINAL EXPIRATION DATE" shall have the meaning set forth in Section 7
hereof.
(j) "INTERESTED STOCKHOLDER" shall mean any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.
(k) "PERSON" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(l) "PREFERRED SHARES" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.001 per share, of the Company having the
designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions set forth in the Form of Certificate of Designation
attached to this Agreement as Exhibit A.
(m) "PURCHASE PRICE" shall have the meaning set forth in Section 7(b)
hereof.
(n) "REDEMPTION DATE" shall have the meaning set forth in Section 7 hereof.
3
<PAGE>
(o) "SHARES ACQUISITION DATE" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such; provided, however, that, if such Person is determined not to have
become an Acquiring Person pursuant to clause (z) of Subsection 1(a)(B) hereof,
then no Shares Acquisition Date shall be deemed to have occurred.
(p) "SUBSIDIARY" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(q) "TRANSACTION" shall mean any merger, consolidation or sale of assets
described in Section 13(a) hereof or any acquisition of Common Shares which
would result in a Person becoming an Acquiring Person or a Principal Party (as
such term is hereinafter defined).
(r) "TRANSACTION PERSON" with respect to a Transaction shall mean (i) any
Person who (x) is or will become an Acquiring Person or a Principal Party (as
such term is hereinafter defined) if the Transaction were to be consummated and
(y) directly or indirectly proposed or nominated a director of the Company which
director is in office at the time of consideration of the Transaction, or (ii)
an Affiliate or Associate of such a Person.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the Shares Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement (determined in accordance with Rule 14d-2 under the
Exchange Act) by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer (which intention to commence remains in
effect for five Business Days after such announcement), the consummation of
which would result in any Person becoming an Acquiring Person (including any
such date which is after the date of this Agreement and prior to the issuance of
the Rights, the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the Rights (and the right to receive Right Certificates
therefor) will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-
4
<PAGE>
class, insured, postage-prepaid mail, to each record holder of Common Shares as
of the Close of Business on the Distribution Date, at the address of such holder
shown on the records of the Company, a Right Certificate, in substantially the
form of Exhibit B hereto (a "Right Certificate"), evidencing one Right for each
Common Share so held, subject to the adjustment provisions of Section 11 of this
Rights Agreement. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send (directly or through the Rights Agent or its transfer agent) a copy of
a Summary of Rights to Purchase Preferred Shares, in substantially the form of
Exhibit C hereto (the "Summary of Rights"), by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company.
With respect to certificates for Common Shares outstanding as of the Record
Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof. Until the
Distribution Date (or the earlier of the Redemption Date and the Final
Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between BEI
Technologies, Inc. (the "Company") and ChaseMellon Shareholder
Services, L.L.C. as Rights Agent (the "Rights Agent"), dated as of
September 11, 1997, as amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of the Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. As described in the Rights Agreement, Rights issued to any
Person who becomes an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and certain related
persons, whether currently held by or on behalf of such Person or by
any subsequent holder, shall become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also
5
<PAGE>
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding. Notwithstanding this Section
3(c), the omission of a legend shall not affect the enforceability of any part
of this Rights Agreement or the rights of any holder of the Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES.
(a) The Right Certificates (and the form of election to purchase Preferred
Shares, the form of assignment and the form of certification to be printed on
the reverse thereof) shall be substantially the same as Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7,11 and 22 hereof, the Right Certificates shall entitle
the holders thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the price per one one-hundredth of a
Preferred Share set forth therein (the "Purchase Price"), but the number of such
one one-hundredths of a Preferred Share and the Purchase Price shall be subject
to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section
11(a)(ii) hereof and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Right Certificate
and the Rights represented hereby are null and void.
The provisions of Section 11(a)(ii) hereof shall be operative whether or not the
foregoing legend is contained on any such Right Certificate.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, its Vice Chairman of the Board, its
Chief Financial Officer, or any of its Vice Presidents, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless
6
<PAGE>
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject
to the provisions of Section 11(a)(ii), Section 14 and Section 24 hereof, at any
time after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Right Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 11(a)(ii), Section 14 and
Section 24 hereof, countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of
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like tenor to the Rights Agent for countersignature and delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Notwithstanding any other provisions hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Rights Certificates.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the office of the Rights Agent designated for such
purpose, together with payment of the Purchase Price for each one one-hundredth
of a Preferred Share (or such other number of shares or other securities) as to
which the Rights are exercised, at or prior to the earliest of (i) the Close of
Business on September 10, 2007 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The purchase price (the "Purchase Price") for each one one-hundredth of
a Preferred Share pursuant to the exercise of a Right shall initially be Seventy
Dollars ($70.00), shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check, bank draft or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent for
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depository, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue
securities of the Company other than Preferred Shares (including Common Shares)
of the Company pursuant to Section
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11(a) hereof, the Company will make all arrangements necessary so that such
other securities are available for distribution by the Rights Agent, if and when
appropriate.
In addition, in the case of an exercise of the Rights by a holder pursuant
to Section 11(a)(ii) hereof, the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) hereof,
and, if fewer than all the Rights represented by such Right Certificate were so
exercised, the Rights Agent shall indicate on the Right Certificate the number
of Rights represented thereby which continue to include the rights provided by
Section 11(a)(ii) hereof.
(d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Preferred Shares or any
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights in
accordance with this Section 7.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certification following the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if delivered or surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF PREFERRED SHARES. The Company covenants and
agrees that so long as the Preferred Shares (and, after the time a person
becomes an Acquiring Person, Common Shares or any other securities) issuable
upon the exercise of the Rights may be listed on any national securities
exchange or quotation system, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares reserved
for such
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issuance to be listed on such exchange or quotation system upon official notice
of issuance upon such exercise.
The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all Preferred Shares (or Common Shares and other
securities, as the case may be) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares or other securities.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
As soon as practicable after the Shares Acquisition Date, the Company shall
use its best efforts to:
(a) prepare and file a registration statement under the Securities Act of
1933, as amended (the "Act"), with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, will use its
best efforts to cause such registration statement to become effective as soon as
practicable after such filing and will use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Final Expiration Date; and
(b) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate.
SECTION 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares or other securities is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares or other securities represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered with the forms of election and certification
duly executed and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares or other securities transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares or other securities
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate, as such, shall not be
entitled to any rights of a holder
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of Preferred Shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to any adjustment required pursuant to Section 11(a)(ii)
hereof.
(ii) Subject to Section 24 hereof and the provisions of the next
paragraph of this Section 11(a)(ii), in the event any Person shall become an
Acquiring Person, each holder of a Right shall, for a period of 60 days after
the later of such time any Person becomes an Acquiring Person or the effective
date of an appropriate registration statement under the Act pursuant to Section
9 hereof (provided, however, that, if at any time prior to the expiration or
termination of the Rights there shall be a temporary restraining order, a
preliminary injunction, an injunction, or temporary suspension by the Board of
Directors, or similar obstacle to exercise of the Rights (the "Injunction")
which prevents exercise of the Rights, a new 60-day period shall commence on the
date the Injunction is removed), have a right to receive, upon exercise thereof
at a price equal to the then current Purchase Price multiplied by the number of
one one-hundredths of a Preferred Share for which a Right is then exercisable,
in accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable and dividing that
product by (B) fifty percent (50%) of the then current per share market price of
the Common Shares (determined pursuant to Section 11(d) hereof) on the date such
Person became an Acquiring Person; provided, however, that if the transaction
that would otherwise give rise
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to the foregoing adjustment is also subject to the provisions of Section 13
hereof, then only the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii). In the event that
any Person shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
Notwithstanding anything in this Agreement to the contrary, from and after
the time any Person becomes an Acquiring Person, any Rights beneficially owned
by (i) such Acquiring Person or an Associate or Affiliate of such Acquiring
Person, (ii) a transferee of such Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person became such, or
(iii) a transferee of such Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person's becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section
11(a)(ii), shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to insure that the provisions of this Section
11(a)(ii) and Section 4(b) hereof are complied with, but shall have no liability
to any holder of Right Certificates or other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder. No Right Certificate shall be
issued at any time upon the transfer of any Rights to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be void pursuant to the preceding
sentence shall be canceled.
(iii) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if a majority of the Board of Directors then
in office determines that such action is necessary or appropriate and not
contrary to the interests of holders of Rights, elect to (and, in the event that
the Board of Directors has not exercised the exchange right contained in Section
24(c) hereof and there are not sufficient treasury shares and authorized but
unissued Common Shares to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company shall) take all
such action as may be necessary to authorize, issue or pay, upon the exercise of
the Rights, cash (including by way of a reduction of the Purchase Price),
property, Common Shares, other securities or any combination thereof having an
aggregate value equal to the value of the Common Shares which otherwise would
have been issuable pursuant to Section 11(a)(ii) hereof, which aggregate value
shall be determined by a nationally recognized investment banking firm selected
by a majority of the Board of Directors then in office. For purposes of the
preceding sentence, the value of the Common Shares shall be determined pursuant
to Section 11(d) hereof. Any such election by the Board of Directors must be
made within 60 days following the date on which the event described in Section
11(a)(ii) hereof shall have occurred. Following the occurrence of the event
described in Section 11(a)(ii) hereof, a majority of the Board of Directors then
in office may suspend the exercisability of the
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Rights for a period of up to 60 days following the date on which the event
described in Section 11(a)(ii) hereof shall have occurred to the extent that
such directors have not determined whether to exercise their rights of election
under this Section 11(a)(iii). In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Shares (or shares having the same designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions as the Preferred Shares ("equivalent preferred shares")) or
securities convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then current per share market price of the
Preferred Shares (as such term is hereinafter defined) on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares (as
such term is hereinafter defined) on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the
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assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of
which shall be such current per share market price of the Preferred Shares;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security or securities
convertible into such shares, or (C) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or as reported on the Nasdaq National Market or,
if the Security is not listed or admitted to trading on any national securities
exchange or reported on the Nasdaq National Market, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System ("Nasdaq") or such other system then in use,
or, if on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
of the Company or, if on any such date no professional market maker is making a
market in the Security, the price as determined in good faith by the Board of
Directors. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i) hereof. If the Preferred Shares
are not publicly traded, the "current per share market price" of the Preferred
Shares shall be conclusively deemed to be the current per
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<PAGE>
share market price of the Common Shares as determined pursuant to Section
11(d)(i) hereof (appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof) multiplied by
one hundred. If neither the Common Shares nor the Preferred Shares are publicly
held or so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-hundredth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Sections 11(a) through 11(c) hereof, inclusive,
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of
the calculations made in Section 11(b) and Section 11(c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one one-
millionth of a Preferred Share) obtained by (i) multiplying (x) the number of
one one-hundredths of a Preferred Share covered by a Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the
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<PAGE>
number of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares upon the occurrence of the event requiring
such adjustment.
(m) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 27 hereof, take (or
permit any Subsidiary to take) any action the purpose of which is to, or if at
the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or eliminate the benefits
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intended to be afforded by the Rights. Any such action taken by the Company
during any period after any Person becomes an Acquiring Person but prior to the
Distribution Date shall be null and void unless such action could be taken under
this Section 11(m) from and after the Distribution Date.
(n) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(o) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(o) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
(p) The exercise of Rights under Section 11(a)(ii) hereof shall only result
in the loss of rights under Section 11(a)(ii) hereof to the extent so exercised
and shall not otherwise affect the rights represented by the Rights under this
Agreement, including the rights represented by Section 13 hereof.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (i) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (ii) file
with the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (iii) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any adjustment unless and until it shall have received such
certificate.
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SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, following the Shares Acquisition Date or, if a
Transaction is proposed, the Distribution Date, directly or indirectly (x) the
Company shall consolidate with, or merge with and into, any Interested
Stockholder, or if in such merger or consolidation all holders of Common Stock
are not treated alike, any other Person, (y) any Interested Person, or if in
such merger or consolidation all holders of Common Stock are not treated alike,
any other Person shall consolidate with the Company, or merge with and into the
Company, and the Company shall be the continuing or surviving corporation of
such merger (other than, in the case of either transaction described in (x) or
(y), a merger or consolidation which would result in all of the voting power
represented by the securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) all of the voting power
represented by the securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and the holders of
such securities not having changed as a result of such merger or consolidation),
or (z) the Company shall sell, mortgage or otherwise transfer (or one or more of
its subsidiaries shall sell, mortgage or otherwise transfer), in one or more
transactions, assets or earning power aggregating more than fifty percent (50%)
of the assets or earning power of the Company and its subsidiaries (taken as a
whole) to any Interested Stockholder or Stockholders, or if in such transaction
all holders of Common Stock are not treated alike, any other Person, (other than
the Company or any Subsidiary of the Company in one or more transactions each of
which individually and the aggregate does not violate Section 13(d) hereof)
then, and in each such case, proper provision shall be made so that (i) each
holder of a Right, subject to Section 11(a)(ii) hereof, shall have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable in accordance with the terms of this Agreement
and in lieu of Preferred Shares, such number of freely tradeable Common Shares
of the Principal Party (as such term is hereinafter defined), free and clear of
liens, rights of call or first refusal, encumbrances or other adverse claims, as
shall be equal to the result obtained by (A) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable (without taking into account any adjustment
previously made pursuant to Section 11(a)(ii) hereof) and dividing that product
by (B) fifty percent (50%) of the then current per share market price of the
Common Shares of such Principal Party (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall apply to
such Principal Party; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its Common Shares in accordance with Section 9 hereof) in connection with
such consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the Rights.
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(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a) hereof, the Person that is the issuer of any
securities into which Common Shares are converted in such merger or
consolidation, and if no securities are so issued, the Person that is the other
party to the merger or consolidation (or, if applicable, the Company, if it is
the surviving corporation); and
(ii) in the case of any transaction described in (z) of the first
sentence of Section 13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that in any case, (1) if the Common Shares of such Person are
not at such time and have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect subsidiary or Affiliate of another Person the Common Shares
of which are and have been so registered, "Principal Party" shall refer to such
other Person; (2) if such Person is a subsidiary, directly or indirectly, or
Affiliate of more than one Person, the Common Shares of two or more of which are
and have been so registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Shares having the greatest aggregate market
value; and (3) if such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in (1) and (2) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a "subsidiary" of both or all of such joint
venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized Common Shares that have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and each Principal Party and each other Person
who may become a Principal Party as a result of such consolidation, merger, sale
or transfer shall have (i) executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and (ii) prepared, filed and had declared and remain
effective a registration statement under the Act on the appropriate form with
respect to the Rights and the securities exercisable upon exercise of the Rights
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party at its own expense will:
(i) cause the registration statement under the Act with respect to
the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;
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(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate;
(iii) list the Rights and the securities purchasable upon exercise of
the Rights on each national securities exchange on which the Common Shares were
listed prior to the consummation of the Business Combination or on the Nasdaq
National Market if the Common Shares were listed on the Nasdaq National Market
or, if the Common Shares were not listed on a national securities exchange or
the Nasdaq National Market prior to the consummation of the Business
Combination, on a national securities exchange or the Nasdaq National Market;
and
(iv) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all material
respects with the requirements for registration on Form 10 under the Exchange
Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
(d) After the Distribution Date, the Company covenants and agrees that it
shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or
transfer to, in one or more transactions, assets or earning power aggregating
more than fifty percent (50%) of the assets or earning power of the Company and
its subsidiaries taken as a whole, any other Person (other than a Subsidiary of
the Company in a transaction which does not violate Section 11(m) hereof), if
(x) at the time of or after such consolidation, merger or sale there are any
charter or bylaw provisions or any rights, warrants or other instruments or
securities outstanding, agreements in effect or any other action taken which
would diminish or otherwise eliminate the benefits intended to be afforded by
the Rights or (y) prior to, simultaneously with or immediately after such
consolidation, merger or sale, the stockholders of the Person who constitutes,
or would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such other Person shall have executed and delivered to the Rights Agent a
supplemental agreement evidencing compliance with this Section 13(d).
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or
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admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or as reported on the Nasdaq National Market or, if the
Rights are not listed or admitted to trading on any national securities exchange
or reported on the Nasdaq National Market, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by Nasdaq or such other system then in use or, if on any
such date the Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts;
provided, however, that holders of such depositary receipts shall have all of
the designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the current per share market price of the Preferred
Shares (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of such exercise (or,
if not publicly traded, in accordance with Section 11(d)(ii) hereof).
(c) Following the occurrence of one of the transactions or events specified
in Section 11 hereof giving rise to the right to receive Common Shares, capital
stock equivalents (other than Preferred Shares) or other securities upon the
exercise of a Right, the Company shall not be required to issue fractions of
Common Shares or units of such Common Shares, capital stock equivalents or other
securities upon exercise of the Rights or to distribute certificates which
evidence fractional Common Shares, capital stock equivalents or other
securities. In lieu of fractional Common Shares, capital stock equivalents or
other securities, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Common
Share or unit of such Common Shares, capital stock equivalents or other
securities. For purposes of this Section 14(c), the current market value shall
be the current per share market price (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise and, if such capital stock equivalent is not traded, each such capital
stock equivalent shall have the value of one one-hundredth of a Preferred Share.
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(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares) and any registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Shares), without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of the Common Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement. Holders
of Rights shall be entitled to recover the reasonable costs and expenses,
including attorneys fees, incurred by them in any action to enforce the
provisions of this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
(subject to the provisions of this Rights Agreement) only on the registry books
of the Rights Agent if surrendered at the principal office of the Rights Agent,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Common Shares certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as
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such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. The indemnity
provided herein shall survive the expiration of the Rights and the termination
of this Agreement. In no case will the Rights Agent be liable for special,
indirect, incidental or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Rights Agent has been
advised of the possibility of such loss or damage.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the shareholder
services or corporate trust business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
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In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its choice (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Sections 3, 11, 13, 23 or 24 hereof, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after receipt
of a certificate pursuant to Section 12 hereof describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or
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reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Financial Officer, any Vice President, the Secretary or the Treasurer
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent with respect to its duties or
obligations under this Agreement and the date on and/or after which such action
shall be taken or omitted and the Rights Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in any such
application on or after the date specified therein (which date shall not be less
than three business days after the date indicated in such application unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking or omitting any such action, the Rights Agent has received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
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(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
executed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
for the Common Shares or Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent for the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be
either (a) a corporation organized and doing business under the laws of the
United States or of any other state of the United States which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least Fifty Million Dollars ($50,000,000) or (b) an affiliate of
such a corporation. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent for
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the earlier of the Redemption Date and the Final Expiration Date, the
Company (a) shall with respect to Common
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Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement in existence prior to the Distribution Date, or
upon the exercise, conversion or exchange of securities, notes or debentures
issued by the Company and in existence prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
that (i) the Company shall not be obligated to issue any such Right Certificates
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Right Certificate would be issued, and
(ii) no Right Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
SECTION 23. REDEMPTION.
(a) The Rights may be redeemed by action of the Board of Directors pursuant
to Section 23(b) hereof and shall not be redeemed in any other manner.
(b) (i) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of such time as any Person becoming an Acquiring
Person or the Final Expiration Date, redeem all but not less than all of the
then outstanding Rights at a redemption price of $0.001 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), and the Company may, at its option, pay
the Redemption Price in Common Shares (based on the "current per share market
price," as such term is defined in Section 11(d) hereof, of the Common Shares at
the time of redemption), cash or any other form of consideration deemed
appropriate by the Board of Directors. The redemption of the Rights by the
Board of Directors may be made effective at such time, on such basis and subject
to such conditions as the Board of Directors in its sole discretion may
establish. Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable pursuant to Section 11(a)(ii)
hereof prior to the expiration or termination of the Company's right of
redemption under this Section 23(b)(i).
(ii) In addition, the Board of Directors of the Company may, at its
option, at any time after the time a Person becomes an Acquiring Person and the
expiration of any period during which the holder of Rights may exercise the
rights under Section 11(a)(ii) hereof but prior to any event described in clause
(x), (y) or (z) of the first sentence of Section 13 hereof, redeem all but not
less than all of the then outstanding Rights at the Redemption Price (x) in
connection with any merger, consolidation or sale or other transfer (in one
transaction or in a series of related transactions) of assets or earning power
aggregating fifty percent (50%) or more of the assets or earning power of the
Company and its subsidiaries (taken as a whole) in which all holders of Common
Shares are treated alike and not involving (other than as a holder of Common
Shares being treated like all other such holders) an Interested Stockholder or a
Transaction Person or (y)(A) if and for so long as the Acquiring Person is not
thereafter the Beneficial Owner of fifteen percent (15%) or more of the then
outstanding Common Shares, and (B) at the time of redemption no other Persons
are Acquiring Persons.
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(c) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to Section 23(b) hereof, and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give
public notice of any such redemption; provided, however, that the failure to
give, or any defect in, any such notice shall not affect the validity of such
redemption. Within ten (10) days after such action of the Board of Directors
ordering the redemption of the Rights pursuant to Section 23(b) hereof, the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares, provided, however, that
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
(d) The Company may, at its option, discharge all of its obligations with
respect to any redemption of the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights and (ii) mailing payment of
the Redemption Price to the registered holders of the Rights at their last
addresses as they appear on the registry books of the Rights Agent or, prior to
the Distribution Date, on the registry books of the transfer agent for the
Common Shares, and upon such action, all outstanding Right Certificates shall be
null and void without any further action by the Company.
SECTION 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of fifty
percent (50%) or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to Section 24(a) hereof and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Common Shares equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company
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shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent; provided, however, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In lieu of issuing Common Shares in accordance with Section 24(a)
hereof, the Company may, if a majority of the Board of Directors then in office
determines that such action is necessary or appropriate and not contrary to the
interests of the holders of Rights, elect to (and, in the event that there are
not sufficient treasury shares and authorized but unissued Common Shares to
permit any exchange of the Rights in accordance with Section 24(a) hereof, the
Company shall) take all such action as may be necessary to authorize, issue or
pay, upon the exchange of the Rights, cash (including by way of a reduction of
the Purchase Price), property, Common Shares, other securities or any
combination thereof having an aggregate value equal to the value of the Common
Shares which otherwise would have been issuable pursuant to Section 24(a)
hereof, which aggregate value shall be determined by a nationally recognized
investment banking firm selected by a majority of the Board of Directors then in
office. For purposes of the preceding sentence, the value of the Common Shares
shall be determined pursuant to Section 11(d) hereof. Any election pursuant to
this Section 24(c) by the Board of Directors must be made within 60 days
following the date on which the event described in Section 11(a)(ii) hereof
shall have occurred. Following the occurrence on the event described in Section
11(a)(ii) hereof, a majority of the Board of Directors then in office may
suspend the exercisability of the Rights for a period of up to 60 days following
the date on which the event described in Section 11(a)(ii) hereof shall have
occurred to the extent that such directors have not determined whether to
exercise their rights of election under this Section 24(c). In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
Section 24(d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately after the date of
the first public announcement by the Company that an exchange is to be effected
pursuant to this Section 24.
(e) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon
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exchange of the Rights or to distribute certificates which evidence fractional
Preferred Shares (other than fractions which are integral multiples of one one-
hundredth of a Preferred Share). Fractions of Preferred Shares in integral
multiples of one one-hundredth of a Preferred Share may, at the election of the
Company, be evidenced by depositary receipts; provided, however, that holders of
such depositary receipts shall have all of the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions to
which they are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. In lieu of fractional Preferred Shares that are
not integral multiples of one one-hundredth of a Preferred Share, the Company
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes
of this Section 24(e), the current market value of a Preferred Share shall be
one hundred (100) times the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately after the date of the first public announcement by the Company that
an exchange is to be effected pursuant to this Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of fifty
percent (50%) or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole), to any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purpose of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or the Preferred Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least ten (10) days prior to the
record date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least ten (10) days prior
to the date of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or the Preferred Shares,
whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall
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<PAGE>
describe the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
BEI Technologies, Inc.
One Post Street, Suite 2500
San Francisco, CA 94104
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
50 California Street, 10th Floor
San Francisco, CA 94111-4624
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of the
Rights. From and after the Distribution Date, the Company and the Rights Agent
shall, if the Company so directs, from time to time supplement or amend any
provision of this Agreement without the approval of any holders of Right
Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or (iii) change any other provisions with respect to the
Rights which the Company may deem necessary or desirable; provided, however,
that no such supplement or amendment shall be made which would adversely affect
the interests of the holders of Rights (other than the interests of an Acquiring
Person or its Affiliates or Associates). Any supplement or amendment adopted
during any period after any Person has become an Acquiring Person but prior to
the Distribution Date shall become null and void unless such supplement or
amendment could have been adopted by the Company from and after the Distribution
Date. Any such supplement or amendment shall be evidenced by a writing signed
by the Company and the Rights Agent. Upon delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment unless the Rights Agent shall have
determined in good faith that such supplement or amendment would adversely
affect its interest under this Agreement. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Shares.
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SECTION 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. For
all purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares or any other securities
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company, or as may be necessary or advisable in the
administration of this Agreement, including without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Rights Agent and the holders
of the Rights, and (y) not subject the Board to any liability to the holders of
the Rights.
SECTION 29. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 31. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
SECTION 32. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, parties whereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
ATTEST: BEI TECHNOLOGIES, INC.
/s/ Robert R. Corr /s/ Charles Crocker
- --------------------------- ------------------------------
Robert R. Corr Charles Crocker
Secretary, Treasurer and Controller President, Chief Executive Officer and
Chairman of the Board of Directors
ATTEST: CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ Paul Collins By: /s/ Daniel W. Spengel
--------------------------- ---------------------------
Title: Assistant Vice President Title: Assistant Vice President
------------------------ ------------------------
<PAGE>
EXHIBIT 99.3
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
BEI TECHNOLOGIES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
BEI TECHNOLOGIES, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was adopted by the
Board of Directors of the Corporation as required by Section 151 of the General
Corporation Law at a meeting duly called and held on September 11, 1997:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Company in accordance with the provisions of its
Certificate of Incorporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $.001 per share, of the Company and
hereby states the designation and number of shares, and fixes the relative
designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof (in addition to the
provisions set forth in the Certificate of Incorporation of the Company,
which are applicable to the Preferred Stock of all classes and series), as
follows:
Series A Junior Participating Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. Two Hundred Thousand (200,000)
shares of Preferred Stock, $.001 par value, are designated "Series A Junior
Participating Preferred Stock" with the designations and the powers,
preferences and rights, and the qualifications, limitations and
restrictions specified herein (the "Junior Preferred Stock"). Such number
of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Junior Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion
of
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any outstanding securities issued by the Company convertible into Junior
Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Junior Preferred Stock with respect to dividends, the holders of shares of
Junior Preferred Stock, in preference to the holders of Common Stock, par
value $.001 per share (the "Common Stock"), of the Company, and of any
other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of April, July,
October and January in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Junior Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $l.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Junior Preferred Stock. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
to which holders of shares of Junior Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the Junior
Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Junior Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
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(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Junior
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Junior Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not
more than 60 days prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Junior Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Company. In the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Junior Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Junior Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Company having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Junior Preferred Stock shall have no special voting rights and
their
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consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock,
except dividends paid ratably on the Junior Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock,
provided that the Company may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Company ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Junior Preferred Stock, or any shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever
shall
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be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth
herein, in the Restated Certificate of Incorporation, or in any other
Certificate of Designation creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Company, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock unless, prior thereto, the holders of shares of
Junior Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, provided that the holders of
shares of Junior Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Company shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the aggregate amount to which holders of shares of
Junior Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Company shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
each share of Junior Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Company shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or
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<PAGE>
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock shall
not be redeemable.
SECTION 9. RANK. The Junior Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all
series of any other class of the Company's Preferred Stock.
SECTION 10. AMENDMENT. The Restated Certificate of Incorporation of
the Company shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Junior Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Junior
Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, the undersigned have executed this certificate as of
September 11, 1997.
/s/ Charles Crocker
--------------------------------------
CHARLES CROCKER
President, Chief Executive Officer
and Chairman of the Board of Directors
/s/ Robert R. Corr
--------------------------------------
ROBERT R. CORR
Secretary, Treasurer and Controller
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<PAGE>
EXHIBIT 99.4
FORM OF RIGHT CERTIFICATE
CERTIFICATE NO. R- _____ RIGHTS
NOT EXERCISABLE AFTER SEPTEMBER 10, 2007 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER RIGHT
AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
BEI TECHNOLOGIES, INC.
This certifies that _________________________________ or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of September 11, 1997 (the "Rights
Agreement"), between BEI TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (the "Rights Agent"),
to purchase from the Company at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 P.M., Pacific Time,
on September 10, 2007 at the office of the Rights Agent designated for such
purpose, or at the office of its successor as Rights Agent, one one-hundredth of
a fully paid non-assessable share of Series A Junior Participating Preferred
Stock, par value $.001 per share (the "Preferred Shares"), of the Company, at a
purchase price of $70.00 per one one-hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of one one-hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
_______________, 1997, based on the Preferred Shares as constituted at such
date.
From and after the time any Person becomes an Acquiring Person, (as such
terms are defined in the Rights Agreement), if the Rights evidenced by this
Right Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate who becomes a transferee after the Acquiring Person
becomes such, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such, such Rights shall become null and void without any further action and no
holder hereof shall have any right with respect to such Rights from and after
the time any Person becomes an Acquiring Person.
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<PAGE>
As provided in the Rights Agreement, the Purchase Price and the number of
one one-hundredths of a Preferred Share which may be purchased upon the exercise
of the Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as amended from time to time, which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common Stock, par value $.001 per share, or Preferred Stock.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts) but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
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<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of September ___, 1997.
ATTEST: BEI TECHNOLOGIES, INC.
- ------------------------ ----------------------------
Robert D. Corr Charles Crocker
Secretary, Treasurer President, Chief Executive Officer
and Controller and Chairman of the Board
COUNTERSIGNED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as Rights Agent
By:
----------------------------
Authorized Signature
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<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________________________ hereby sells,
assigns and transfers unto
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Dated: ____________________ ________________________________
Signature
Form of Reverse Side of Right Certificate -- continued
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<PAGE>
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person, an Interested Stockholder or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement); and (2) after due inquiry and to the best of the knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person, an Interested
Stockholder, or an Affiliate or Associate thereof.
__________________________________
Signature
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To ChaseMellon Shareholder Services
The undersigned hereby irrevocably elects to exercise __________________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number: ______________
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number: ______________
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: _________________
_______________________________
Signature
Form of Reverse Side of Right Certificate -- continued
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<PAGE>
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not beneficially owned by nor are they being exercised on
behalf of an Acquiring Person, an Interested Stockholder or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement); and (2)
after due inquiry and to the best of the knowledge of the undersigned, the
undersigned did not acquire the Rights evidenced by this Right Certificate from
any Person who is or was an Acquiring Person, an Interested Stockholder, or an
Affiliate or Associate thereof.
-----------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
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