<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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BEI TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3274498
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE POST STREET, SUITE 2500 SAN 94104
FRANCISCO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code:
(415) 956-4477
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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
NO. CAPTION LOCATION IN INFORMATION STATEMENT
---- ------- ---------------------------------
<C> <S> <C>
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 Transactions........ "Directors and Executive 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."
14. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure.................. Not Applicable.
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 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: July 2, 1997
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2* Distribution Agreement
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)
11.1 Statement regarding Computation of Per Share Earnings
21.1 List of Subsidiaries of BEI Technologies, Inc.
27 Financial Data Schedule
99.1 BEI Technologies, Inc. Information Statement dated , 1997
99.2* Rights Agreement dated as of , 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
<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>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2* Distribution Agreement
3.1 Certificate of Incorporation of BEI Technologies, Inc.
3.2 Bylaws of BEI Technologies, Inc.
4.1* Specimen Common Share certificate
Certificate of Incorporation of BEI Technologies, Inc. (filed as
4.2 Exhibit 3.1 hereto)
4.3 Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2 hereto)
11.1 Statement regarding Computation of Per Share Earnings
21.1 List of Subsidiaries of BEI Technologies, Inc.
27 Financial Data Schedule
99.1 BEI Technologies, Inc. Information Statement dated , 1997
99.2* Rights Agreement dated as of , 1997 among BEI Technologies, Inc.
and ChaseMellon Shareholder Services, L.L.C.
Registrant's Certificate of Designation of Series A Junior
99.3* Participating Preferred Stock
99.4* Form of Rights Certificate
</TABLE>
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* to be filed by amendment
<PAGE>
CERTIFICATE OF INCORPORATION
OF
BEI TECHNOLOGIES, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is BEI Technologies, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Twenty-two
Million (22,000,000) shares. Twenty Million (20,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Two Million
(2,000,000) shares shall be Preferred Stock, each having a par value of one-
tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the
1.
<PAGE>
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall initially be
fixed by act of the sole Incorporator and thereafter exclusively by one or more
resolutions adopted by the Board of Directors.
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the adoption and filing of this
Certificate of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the adoption and filing
of this Certificate of Incorporation, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
adoption and filing of this Certificate of Incorporation, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Subject to the rights of the holders of any series of Preferred Stock, no
director shall be removed without cause. Subject to any limitations imposed by
law, the Board of Directors or
2.
<PAGE>
any individual director may be removed from office at any time with cause by the
affirmative vote of the holders of eighty percent (80%) of the voting power of
all the then-outstanding shares of voting stock of the corporation, entitled to
vote at an election of directors (the "Voting Stock").
(2) Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
(1) Subject to paragraph (h) of Section 43 of the Bylaws, (i) the
affirmative vote of at least eighty percent (80%) of the voting power of all of
the then outstanding shares of the Voting Stock, shall be required to alter,
amend or repeal Sections 5, 6, 13, 15, 16, 17, 18, 20, 43 and 45 of the Bylaws
or to adopt any provision inconsistent with the Bylaws, and (ii) the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then outstanding shares of the Voting Stock shall be required to
alter, amend or repeal any other Section of the Bylaws. The Board of Directors
shall also have the power to adopt, amend or repeal Bylaws. (Del. Code Ann.,
tit. 8, (S)(S) 109(a), 122(6)).
(2) The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws.
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation 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 General Corporation
Law, or (iv) for
3.
<PAGE>
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director shall be eliminated or limited to the fullest extent permitted by the
Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A.
(1) In addition to any affirmative vote required by law, by this
Certificate of Incorporation or by any Preferred Stock Designation, and except
as otherwise expressly provided in Section B of this Article VII:
(i) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the corporation or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined) equal to or greater
than Five Million Dollars ($5,000,000); or
(iii) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof) having an
aggregate Fair Market Value equal to or greater than Five Million Dollars
($5,000,000); or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or
4.
<PAGE>
otherwise involving any Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
corporation or any Subsidiary which is Beneficially Owned (as hereinafter
defined) by any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of all of the then-outstanding shares of the Voting
Stock, voting together as a single class. Such affirmative vote shall be
required notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law or of any agreement with any national
securities exchange or otherwise which might otherwise permit a lesser vote or
no vote.
(2) The term "Business Combination" as used in this Article VII shall
mean any transaction which is referred to in any one or more of subparagraphs
(i) through (v) of paragraph (1) of this Section A.
B. The provisions of Section A of this Article VII shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law, any other
provision of this Certificate of Incorporation and any Preferred Stock
Designation, if, in the case of a Business Combination that does not involve any
cash or other consideration being received by the stockholders of the
corporation, solely in their respective capacities as stockholders of the
corporation, the condition specified in the following paragraph (1) is met, or,
in the case of any other Business Combination, the conditions specified in
either of the following paragraph (1) or paragraph (2) are met:
(1) The Business Combination shall have been approved by a majority of
the Continuing Directors (as hereinafter defined); provided however, that this
condition shall not be capable of satisfaction unless there are at least two
Continuing Directors.
(2) All of the following conditions shall have been met:
(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding Voting Stock (including Common
Stock and other than Excluded Preferred Stock (as hereinafter defined))
shall be in cash or in the same form as the Interested Stockholder or any
of its Affiliates has previously paid for shares of such class (or series)
of Voting Stock. If the Interested Stockholder or any of its Affiliates
have paid for shares of any class (or series) of Voting Stock with varying
forms of consideration, the form of consideration to be received per share
by holders of shares of such class (or series) of Voting Stock shall be
either cash or the form used to acquire the largest number of shares of
such class (or series) of Voting Stock previously acquired by the
Interested Stockholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the date (the "Consummation Date") of the consummation of the
Business Combination, of the consideration other than cash to be received
per share by holders of
5.
<PAGE>
Common Stock in such Business Combination shall be at least equal to the
higher of the following (in each case appropriately adjusted in the event
of any stock dividend, stock split, combination of shares or similar
event):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder or any of its Affiliates for
any shares of Common Stock acquired by them within the two-year period
immediately prior to the date of the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or in
any transaction in which the Interested Stockholder became an
Interested Stockholder, whichever is higher, plus interest compounded
annually from the first date on which the Interested Stockholder
became an Interested Stockholder (the "Determination Date") through
the Consummation Date at the publicly announced reference rate of
interest of Bank of America, N.T.& S.A. (or such other major bank
headquartered in the State of California as may be selected by the
Continuing Directors) from time to time in effect in the City of San
Francisco less the aggregate amount of any cash dividends paid, and
the Fair Market Value of any dividends paid in other than cash, on
each share of Common Stock from the Determination Date through the
Consummation Date in an amount up to but not exceeding the amount of
interest so payable per share of Common Stock; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or the Determination Date, whichever is higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the Consummation Date, of the consideration other than
cash to be received per share by holders of shares of any class (or
series), other than Common Stock or Excluded Preferred Stock, of
outstanding Voting Stock shall be at least equal to the highest of the
following (in each case appropriately adjusted in the event of any stock
dividend, stock split, combination of shares or similar event), it being
intended that the requirements of this paragraph (2)(c) shall be required
to be met with respect to every such class (or series) of outstanding
Voting Stock whether or not the Interested Stockholder or any of its
Affiliates has previously acquired any shares of a particular class (or
series) of Voting Stock):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder or any of its Affiliates for
any shares of such class (or series) of Voting Stock acquired by them
within the two-year period immediately prior to the Announcement Date
or in any transaction in which it became an Interested Stockholder,
whichever is higher, plus interest compounded annually from the
Determination Date through the Consummation Date at the publicly
announced reference rate of interest of Bank of America, N.T. & S.A.
(or such other major bank headquartered in the State of California as
may be selected by
6.
<PAGE>
the Continuing Directors) from time to time in effect in the City of
San Francisco less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than cash, on
each share of such class (or series) of Voting Stock from the
Determination Date through the Consummation Date in an amount up to
but not exceeding the amount of interest so payable per share of such
class (or series) of Voting Stock;
(b) the Fair Market Value per share of such class (or
series) of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(c) the highest preferential amount per share, if any, to
which the holders of shares of such class (or series) of Voting Stock
would be entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing Directors, there
shall have been no failure to declare and pay at the regular date therefor
any full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock; (b) there shall have been (I) no reduction in the annual
rate of dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a majority of
the Continuing Directors, and (II) an increase in such annual rate of
dividends as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure to so increase such annual
rate is approved by a majority of the Continuing Directors; and (c) neither
such Interested Stockholder nor any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock except as part of
the transaction which results in such Interested Stockholder becoming an
Interested Stockholder; provided, however, that no approval by Continuing
Directors shall satisfy the requirements of this subparagraph (iv) unless
at the time of such approval there are at least two Continuing Directors.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder and any of its Affiliates shall
not have received the benefit, directly or indirectly (except
proportionately, solely in such Interested Stockholder's or Affiliate's
capacity as a stockholder of the corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the corporation, whether in anticipation
of or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of
7.
<PAGE>
1934, as amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
(vii) Such Interested Stockholder shall have supplied the
corporation with such information as shall have been requested pursuant to
Section E of this Article VII within the time period set forth therein.
C. For the purposes of this Article VII:
(1) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(2) "Interested Stockholder" means any person (other than this
corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner (as hereinafter defined), directly or
indirectly, of ten percent (10%) or more of the voting power of all of the
then-outstanding shares of the Voting Stock; or
(ii) if an Affiliate of the corporation and at any time within
the two-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of ten percent (10%) or more of
the voting power of all of the then-outstanding shares of the Voting Stock;
or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the 1933 Act; provided,
however, that the term "interested stockholder" shall not include (x) any
person who (A) owned shares in excess of the 10% limitation set forth
herein as of, or acquired such shares pursuant to a tender offer commenced
prior to, December 23, 1987, or pursuant to an exchange offer announced
prior to the aforesaid date and commenced within 90 days hereafter and
either (I) continued to own shares in excess of such 10% limitation or
would have but for action by the corporation or (II) is an affiliate or
associate of the corporation and so continued (or so would have continued
but for action by the corporation) to be the owner of 10% or more of the
outstanding Voting Stock of the corporation at any time within the 3-year
period immediately prior to the date on which it is sought to be determined
whether such a person is an interested stockholder or (B) acquired said
shares from a person described in (A) above by gift, inheritance or in a
transaction in which no consideration was exchanged; or (y) any person
whose ownership of shares in excess of the 10% limitation set forth herein
in the result of action taken solely by the corporation
8.
<PAGE>
provided that such person shall be an interested stockholder if thereafter
such person acquires additional shares of voting stock of the corporation,
except as a result of further corporation action not caused, directly or
indirectly, by such person.
(3) A person shall be a "Beneficial Owner" of, or shall "Beneficially
Own," any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on the adoption date of this Certificate of Incorporation; or
(ii) which such person or any of its 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 or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
Beneficial Owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant
to a public solicitation of proxies for such meeting, and with respect to
which shares neither such person nor any such Affiliate or Associate is
otherwise deemed the Beneficial Owner); or
(iii) which is beneficially owned, directly or indirectly,
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on the adoption date of this Certificate of Incorporation, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (other than solely by reason of a revocable
proxy as described in subparagraph (ii) of this paragraph (3) or disposing
of any shares of Voting Stock;
provided, however, that in case of any employee stock ownership or similar plan
of the corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate of such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to beneficially own any shares of Voting Stock held under any
such plan.
(4) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (2) of this Section C, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph (3) of this Section C but shall not include any other
unissued shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
9.
<PAGE>
(5) "Affiliate" or "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 in effect on the adoption date of this
Certificate of Incorporation.
(6) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph (2) of this Section C, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned directly or indirectly, by the corporation.
(7) "Continuing Director" means any member of the Board of Directors
of the corporation who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder and any director who is thereafter
chosen to fill any vacancy on the Board of Directors or who is elected and who,
in either event, is unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office is recommended for an
appointment or election by a majority of Continuing Directors then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing sale price
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by the Board in accordance with Section D of
this Article VII; and (ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by the
Board in accordance with Section D of this Article VII.
(9) In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used in
paragraphs (2)(ii) and (2)(iii) of Section B of this Article VII shall include
the shares of Common Stock and/or the shares of any other class (or series) of
outstanding Voting Stock retained by the holders of such shares.
(10) "Whole Board" means the total number of directors which this
corporation would have if there were no vacancies.
(11) "Excluded Preferred Stock" means any series of Preferred Stock
with respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article VII shall not apply.
10.
<PAGE>
D. A majority of the Whole Board but only if a majority of the Whole
Board shall then consist of Continuing Directors or, if a majority of the Whole
Board shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article VII, including, without limitation, (i)
whether a person is an Interested Stockholder, (ii) the number of shares of
Voting Stock beneficially owned by any person (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in paragraph (2) of Section B have been met with respect to any Business
Combination,(v) the Fair Market Value of stock or other property in accordance
with paragraph (8) of Section C of this Article VII, and (vi) whether the assets
which are the subject of any Business Combination referred to in paragraph
(1)(ii) of Section A have or the consideration to be received for the issuance
or transfer of securities by the corporation or any Subsidiary in any Business
Combination referred to in paragraph (1)(iii) of Section A has, an aggregate
Fair Market Value equal to or greater than Five Million Dollars ($5,000,000).
E. A majority of the Whole Board shall have the right to demand, but only
if a majority of the Whole Board shall then consist of Continuing Directors, or,
if a majority of the Whole Board shall not then consist of Continuing Directors,
a majority of the then Continuing Directors shall have the right to demand, that
any person who it is reasonably believed is an Interested Stockholder (or holds
of record shares of Voting Stock Beneficially Owned by any Interested
Stockholder) supply this corporation with complete information as to (i) the
record owner(s) of all shares Beneficially Owned by such person who it is
reasonably believed is an Interested Stockholder, (ii) the number of, and class
or series of, shares Beneficially Owned by such person who it is reasonably
believed is an Interested Stockholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability of effect of this
Article VII, as may be reasonably requested of such person, and such person
shall furnish such information within 10 days after receipt of such demand.
F. Nothing contained in this Article VII shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
VIII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VIII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all of the then-
outstanding
11.
<PAGE>
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal Articles V, VI, VII and VIII of this Certificate of
Incorporation.
IX.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
James R. Vidano c/o Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
12.
<PAGE>
IN WITNESS WHEREOF, this Certificate has been subscribed this 30th day of
June, 1997 by the undersigned who affirms that the statements made herein are
true and correct.
/s/ James R. Vidano
--------------------
James R. Vidano
Sole Incorporator
<PAGE>
BYLAWS
OF
BEI TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
AS ADOPTED JUNE 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article I Offices................................................................ 1
Section 1. Registered Office................................................ 1
Section 2. Other Offices.................................................... 1
Article II Corporate Seal......................................................... 1
Section 3. Corporate Seal................................................... 1
Article III Stockholders' Meetings................................................. 1
Section 4. Place Of Meetings................................................ 1
Section 5. Annual Meeting................................................... 2
Section 6. Special Meetings................................................. 3
Section 7. Notice Of Meetings............................................... 3
Section 8. Quorum........................................................... 4
Section 9. Adjournment And Notice Of Adjourned Meetings..................... 4
Section 10. Voting Rights.................................................... 5
Section 11. Joint Owners Of Stock............................................ 5
Section 12. List Of Stockholders............................................. 5
Section 13. Action Without Meeting........................................... 5
Section 14. Organization..................................................... 6
Article IV Directors.............................................................. 7
Section 15. Number And Term Of Office........................................ 7
Section 16. Powers........................................................... 7
Section 17. Classes Of Directors............................................. 7
Section 18. Vacancies........................................................ 7
Section 19. Resignation...................................................... 8
Section 20. Removal.......................................................... 8
Section 21. Meetings......................................................... 8
(a) Annual Meetings.................................................. 8
(b) Regular Meetings................................................. 8
(c) Special Meetings................................................. 9
(d) Telephone Meetings............................................... 9
(e) Notice Of Meetings............................................... 9
(f) Waiver Of Notice................................................. 9
Section 22. Quorum And Voting................................................ 9
Section 23. Action Without Meeting........................................... 10
Section 24. Fees And Compensation............................................ 10
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 25. Committees....................................................... 10
(a) Executive Committee.............................................. 10
(b) Other Committees................................................. 10
(c) Term............................................................. 11
(d) Meetings......................................................... 11
Section 26. Organization..................................................... 11
Article V Officers............................................................... 12
Section 27. Officers Designated.............................................. 12
Section 28. Tenure And Duties Of Officers.................................... 12
(a) General.......................................................... 12
(b) Duties Of Chairman Of The Board Of Directors..................... 12
(c) Duties Of President.............................................. 12
(d) Duties Of Vice Presidents........................................ 13
(e) Duties Of Secretary.............................................. 13
(f) Duties Of Chief Financial Officer................................ 13
Section 29. Delegation Of Authority.......................................... 13
Section 30. Resignations..................................................... 13
Section 31. Removal.......................................................... 14
Article VI Execution Of Corporate Instruments And Voting Of Securities
Owned By The Corporation............................................... 14
Section 32. Execution Of Corporate Instruments............................... 14
Section 33. Voting Of Securities Owned By The Corporation.................... 14
Article VII Shares Of Stock........................................................ 15
Section 34. Form And Execution Of Certificates............................... 15
Section 35. Lost Certificates................................................ 15
Section 36. Transfers........................................................ 16
Section 37. Fixing Record Dates.............................................. 16
Section 38. Registered Stockholders.......................................... 16
Article VIII Other Securities Of The Corporation................................... 17
Section 39. Execution Of Other Securities.................................... 17
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article IX Dividends.............................................................. 17
Section 40. Declaration Of Dividends......................................... 17
Section 41. Dividend Reserve................................................. 17
Article X Fiscal Year............................................................ 18
Section 42. Fiscal Year...................................................... 18
Article XI Indemnification........................................................ 18
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents....................................... 18
(a) Directors and Executive Officers................................. 18
(b) Other Officers, Employees and Other Agents....................... 18
(c) Expenses......................................................... 18
(d) Enforcement...................................................... 19
(e) Non-Exclusivity Of Rights........................................ 20
(f) Survival Of Rights............................................... 20
(g) Insurance........................................................ 20
(h) Amendments....................................................... 20
(i) Saving Clause.................................................... 20
(j) Certain Definitions.............................................. 20
Article XII Notices................................................................ 21
Section 44. Notices.......................................................... 21
(a) Notice To Stockholders........................................... 21
(b) Notice To Directors.............................................. 21
(c) Affidavit Of Mailing............................................. 22
(d) Time Notices Deemed Given........................................ 22
(e) Methods Of Notice................................................ 22
(f) Failure To Receive Notice........................................ 22
(g) Notice To Person With Whom Communication Is Unlawful............. 22
(h) Notice To Person With Undeliverable Address...................... 22
Article XIII Amendments............................................................ 23
Section 45. Amendments....................................................... 23
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article XIV Loans To Officers..................................................... 23
Section 46. Loans To Officers................................................ 23
</TABLE>
iv.
<PAGE>
BYLAWS
OF
BEI TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
(Del. Code Ann., tit. 8, (S) 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require. (Del. Code Ann., tit.
8, (S) 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, (S)
122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, (S) 211(a))
1.
<PAGE>
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. (Del. Code Ann., tit. 8, (S)
211(b))
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted. (Del. Code Ann., tit. 8: (S) 211(b))
2.
<PAGE>
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) 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, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded. (Del. Code Ann., tit. 8, (S)(S)
212, 214).
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), and shall be held at such place, on such date,
and at such time as the Board of Directors shall fix. No business may be
transacted at such special meeting otherwise than as specified in such notice.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not
3.
<PAGE>
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting, such notice to specify the
place, date and hour and purpose or purposes of the meeting. Notice of the
time, place and purpose of any meeting of stockholders may be waived in writing,
signed by the person entitled to notice thereof, either before or after such
meeting, and will be waived by any stockholder by his attendance thereat in
person or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given. (Del. Code Ann., tit. 8, (S)(S) 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series. (Del. Code Ann., tit. 8, (S) 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
(S) 222(c))
4.
<PAGE>
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period. (Del. Code Ann., tit. 8, (S)(S) 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, (S)
217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present. (Del. Code Ann., tit. 8, (S) 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Subject to subsection (d) below, any action required by statute to
be taken at any annual or special meeting of the stockholders, or any action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
5.
<PAGE>
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding any other provision of this Section 13, effective
upon the distribution of the common stock of the corporation as a dividend to
the shareholders of BEI Electronics, Inc., no action shall thereafter be taken
by the stockholders except at an annual or special meeting of stockholders
called in accordance with these Bylaws, and no action shall thereafter be taken
by the stockholders by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls
6.
<PAGE>
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, (S)(S) 141(b),
211(b), (c))
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
(Del. Code Ann., tit. 8, (S) 141(a))
SECTION 17. CLASSES OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the adoption and filing of the
Certificate of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the adoption and filing
of the Certificate of Incorporation, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
adoption and filing of the Certificate of Incorporation, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the
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number of directors, shall unless the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by stockholders, be filled only by the affirmative vote of a majority of
the directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this Bylaw in the case of the
death, removal or resignation of any director. (Del. Code Ann., tit. 8, (S)
223(a), (b))
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified. (Del. Code Ann., tit. 8, (S)(S) 141(b), 223(d))
SECTION 20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of eighty percent (80%) of the voting power of all the then-outstanding
shares of voting stock of the corporation entitled to vote at an election of
directors (the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors. (Del. Code Ann., tit. 8, (S) 141(g))
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors (Del. Code
Ann., tit. 8, (S) 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, (S) 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. (Del. Code
Ann., tit. 8, (S) 229)
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting. (Del. Code Ann., tit. 8, (S) 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting. (Del. Code Ann., tit. 8, (S) 141(b))
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
(S) 141(b))
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, (S) 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, (S) 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation. (Del.
Code Ann., tit. 8, (S) 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c))
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(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code
Ann., tit. 8, (S)141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee. (Del. Code Ann., tit.
8, (S)(S) 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors. (Del. Code Ann., tit. 8, (S)(S) 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, (S) 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, (S) 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, (S)
142(a))
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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8,
(S) 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. (Del. Code Ann., tit. 8, (S) 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any,
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of the corporation under any contract with the resigning officer. (Del. Code
Ann., tit. 8, (S) 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, (S)(S) 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8,
(S)(S) 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, (S)(S) 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the
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person authorized so to do by resolution of the Board of Directors, or, in the
absence of such authorization, by the Chairman of the Board of Directors, the
Chief Executive Officer, the President, or any Vice President. (Del. Code Ann.,
tit. 8, (S) 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, (S) 158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
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respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, (S) 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, (S) 201,
tit. 6, (S) 8- 401(1))
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8,
(S) 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, (S) 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall
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have express or other notice thereof, except as otherwise provided by the laws
of Delaware. (Del. Code Ann., tit. 8, (S)(S) 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation. (Del. Code Ann., tit. 8, (S)(S) 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves
17.
<PAGE>
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
Board of Directors shall think conducive to the interests of the corporation,
and the Board of Directors may modify or abolish any such reserve in the manner
in which it was created. (Del. Code Ann., tit. 8, (S) 171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly
18.
<PAGE>
following request therefor, all expenses incurred by any director or executive
officer in connection with such proceeding upon receipt of an undertaking by or
on behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under this Bylaw
or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to a director or
executive officer of the corporation in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to the proceeding, or (ii)
if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or executive officer
19.
<PAGE>
is not entitled to be indemnified, or to such advancement of expenses, under
this Article XI or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
20.
<PAGE>
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent. (Del. Code Ann., tit. 8, (S) 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
21.
<PAGE>
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, (S)
222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without
22.
<PAGE>
notice to such person shall have the same force and effect as if such notice had
been duly given. If any such person shall deliver to the corporation a written
notice setting forth his then current address, the requirement that notice be
given to such person shall be reinstated. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, (S) 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, (i) the affirmative vote of at least eighty percent (80%) of the voting
power of all of the then outstanding shares of the Voting Stock, shall be
required to alter, amend or repeal Sections 5, 6, 13, 15, 16, 17, 18, 20, 43 and
45 of the Bylaws or to adopt any Bylaw provision inconsistent with such Sections
of the Bylaws, and (ii) the affirmative vote of at least sixty-six and two-
thirds percent (66-2/3%) of the voting power of all of the then outstanding
shares of the Voting Stock shall be required to alter, amend or repeal any other
Section of the Bylaws or to adopt any Bylaw provision inconsistent with any
other such Section of the Bylaws. The Board of Directors shall also have the
power to adopt, amend or repeal Bylaws. (Del. Code Ann., tit. 8, (S)(S) 109(a),
122(6)).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, (S)143)
23.
<PAGE>
EXHIBIT 11.1
BEI TECHNOLOGIES, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 29, SEPTEMBER 28,
1997 1996
------------ --------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Computation of shares used in computing pro
forma earnings per common and common
equivalent share:
Weighted average shares outstanding............ 7,025 6,926
Net effect of dilutive stock options based on
the treasury stock method..................... 170 182
------------ ------------
Computation of shares used in computing pro
forma earnings per common and common
equivalent share:............................. 7,195 7,108
============ ============
Income from continuing operations.............. $ 324 $ 2,873
Income from discontinued operations............ 960 1,698
------------ ------------
Net income..................................... $ 1,284 $ 4,571
============ ============
Pro forma earnings from continuing operations
per common share and common equivalent share.. $ 0.05 $ 0.40
Pro forma earnings from discontinued operations
per common share and common equivalent share.. 0.13 0.24
------------ ------------
Pro forma earnings per common share and common
equivalent share.............................. $ 0.18 $ 0.64
============ ============
</TABLE>
<PAGE>
EXHIBIT 21.1
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES
1. Defense Systems Company, Inc., a Delaware company, doing business in Texas
as BEI Defense Systems Company.
2. BEI Sensors & Systems Company, Inc., a Delaware company, doing business in
California and Arkansas as BEI Sensors & Systems Company.
3. BEI International, Inc., a Delaware company.
4. BEI Properties, Inc., an Arkansas company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 1, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-01-1994
<PERIOD-START> OCT-03-1993
<PERIOD-END> OCT-01-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 82,361
<TOTAL-REVENUES> 82,361
<CGS> 49,081
<TOTAL-COSTS> 49,081
<OTHER-EXPENSES> 30,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,190
<INCOME-PRETAX> 645
<INCOME-TAX> 324
<INCOME-CONTINUING> 321
<DISCONTINUED> 392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 713
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE RELATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> SEP-30-1995
<CASH> 2,667
<SECURITIES> 0
<RECEIVABLES> 16,554
<ALLOWANCES> 395
<INVENTORY> 16,972
<CURRENT-ASSETS> 51,752
<PP&E> 45,406
<DEPRECIATION> 22,627
<TOTAL-ASSETS> 92,418
<CURRENT-LIABILITIES> 21,978
<BONDS> 29,765
0
0
<COMMON> 0
<OTHER-SE> 28,863
<TOTAL-LIABILITY-AND-EQUITY> 92,418
<SALES> 90,475
<TOTAL-REVENUES> 90,475
<CGS> 56,841
<TOTAL-COSTS> 56,841
<OTHER-EXPENSES> 33,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,303
<INCOME-PRETAX> (1,564)
<INCOME-TAX> (600)
<INCOME-CONTINUING> (964)
<DISCONTINUED> (1,077)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,041)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 47,062
<TOTAL-REVENUES> 47,062
<CGS> 29,474
<TOTAL-COSTS> 29,474
<OTHER-EXPENSES> 14,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,251
<INCOME-PRETAX> 2,112
<INCOME-TAX> 700
<INCOME-CONTINUING> 1,412
<DISCONTINUED> 579
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,991
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEET AS OF SEPTEMBER 28, 1996 AND THE RELATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-28-1996
<CASH> 8,201
<SECURITIES> 0
<RECEIVABLES> 17,319
<ALLOWANCES> 607
<INVENTORY> 19,201
<CURRENT-ASSETS> 55,499
<PP&E> 48,733
<DEPRECIATION> 26,542
<TOTAL-ASSETS> 92,171
<CURRENT-LIABILITIES> 27,724
<BONDS> 24,137
0
0
<COMMON> 0
<OTHER-SE> 33,246
<TOTAL-LIABILITY-AND-EQUITY> 92,171
<SALES> 96,746
<TOTAL-REVENUES> 96,746
<CGS> 60,494
<TOTAL-COSTS> 60,494
<OTHER-EXPENSES> 29,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,444
<INCOME-PRETAX> 4,285
<INCOME-TAX> 1,412
<INCOME-CONTINUING> 2,873
<DISCONTINUED> 1,698
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,571
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEET AS OF MARCH 29, 1997 AND THE RELATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 5,051
<SECURITIES> 0
<RECEIVABLES> 17,786
<ALLOWANCES> 608
<INVENTORY> 21,737
<CURRENT-ASSETS> 50,686
<PP&E> 51,362
<DEPRECIATION> 28,450
<TOTAL-ASSETS> 87,226
<CURRENT-LIABILITIES> 21,197
<BONDS> 18,523
0
0
<COMMON> 0
<OTHER-SE> 39,672
<TOTAL-LIABILITY-AND-EQUITY> 87,226
<SALES> 47,613
<TOTAL-REVENUES> 47,613
<CGS> 31,036
<TOTAL-COSTS> 31,036
<OTHER-EXPENSES> 15,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 951
<INCOME-PRETAX> 480
<INCOME-TAX> 156
<INCOME-CONTINUING> 324
<DISCONTINUED> 960
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,284
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE>
EXHIBIT 99.1
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION OR AMENDMENT, DATED JULY 2, 1997
PRELIMINARY INFORMATION STATEMENT
BEI TECHNOLOGIES, INC.
DISTRIBUTION OF APPROXIMATELY 7,003,000 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 , 1997 (the "Record
Date"), of one share of common stock, par value of $.001 per share
("Technologies Common Stock"), of BEI Technologies, Inc., ("Technologies" or
the "Company") for every one share of Electronics Common Stock owned of record
on that date. 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 27,
1997 (the "Effective Date"), with the distribution of Company stock
certificates commencing October , 1997 (the "Distribution 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 , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION.................................................... iv
SUMMARY OF CERTAIN INFORMATION........................................... v
SUMMARY HISTORICAL FINANCIAL DATA........................................ ix
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA............................... x
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 Distribu-
tion.................................................................. 5
Distribution Agreement................................................. 5
Corporate Services Agreement........................................... 6
Tax Agreement.......................................................... 6
Related Transactions................................................... 7
Listing and Trading of Technologies Common Stock....................... 7
Other Consequences of the Distribution................................. 8
FINANCING................................................................ 10
Bank Credit Facilities................................................. 10
CAPITALIZATION........................................................... 11
THE BUSINESS--INTRODUCTION & 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 & 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........................................................... 24
Six Months Ended March 29, 1997 and March 30, 1996..................... 24
Net Sales............................................................ 24
Cost of Sales........................................................ 24
Selling, General and Administrative Expenses......................... 25
</TABLE>
i
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<TABLE>
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PAGE
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<S> <C>
Research, Development and Related Expenses............................ 25
Interest Expense and Other Income..................................... 25
Income from Continuing Operations..................................... 25
Income from Discontinued Operations................................... 25
Liquidity and Capital Resources....................................... 25
Fiscal Years 1996, 1995 and 1994........................................ 26
Net Sales............................................................. 26
Cost of Sales......................................................... 26
Selling, General and Administrative Expenses.......................... 26
Research, Development and Related Expenses............................ 27
Interest Expense and Other Income..................................... 27
Income Tax Provision.................................................. 27
Deferred Income Taxes................................................. 27
Income(loss) from Discontinued Operations............................. 27
Liquidity and Capital Resources....................................... 27
Effects of Inflation.................................................. 28
RISK FACTORS.............................................................. 29
Competition............................................................. 29
Limited Manufacturing Experience; Scale Up Risk; Product Recall Risk.... 29
Contracting with the U.S. Government.................................... 29
Research and Development................................................ 30
Manufacturing Processes and Equipment................................... 30
Dependence Upon Key Personnel........................................... 30
Dependence upon Key Suppliers........................................... 30
Availability of Cost of Additional Funds................................ 30
Uncertainty of Tax Consequences......................................... 31
No Prior Public Market for Common Stock; Potential Volatility of Stock
Price.................................................................. 31
Anti-Takeover Effects of Delaware Law and Certain Charter Provisions;
Stockholder Rights Plan................................................ 31
Uncertainty of Future Profitability..................................... 32
Uncertainty of Dividends................................................ 32
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................... 33
Directors............................................................... 33
Classified Board of Directors........................................... 34
Board Compensation and Benefits......................................... 35
Committees of the Board of Directors.................................... 35
Audit Committee....................................................... 35
Compensation Committee................................................ 35
Compensation Committee and Insider Participation........................ 35
Certain Relationships................................................... 35
Executive Officers...................................................... 36
EXECUTIVE COMPENSATION.................................................... 37
Executive Compensation Prior to the Distribution........................ 37
Summary Compensation Table.............................................. 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............................................................. 39
Management Incentive Bonus Plan......................................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................. 41
Elimination of Liability of Directors.................................. 41
Indemnification of Directors and Officers.............................. 41
OWNERSHIP OF TECHNOLOGIES COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................. 42
DESCRIPTION OF CAPITAL STOCK............................................. 44
Authorized Capital Stock............................................... 44
Company Common Stock................................................... 44
Company Preferred Stock................................................ 44
Common Stock Dividend Policy........................................... 44
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, THE BYLAWS AND STATE LAW................................. 45
Classified Board of Directors.......................................... 45
Number of Directors; Removal; Filling Vacancies........................ 45
No Stockholder Action by Written Consent; Special Meetings............. 46
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals............................................................. 46
Preferred Stock........................................................ 47
Amendment of Certain Provisions of the Certificate and Bylaws.......... 48
Anti-Takeover Legislation.............................................. 48
Fair Price Provision................................................... 49
Comparison with Rights of Holders of Electronics Common Stock.......... 49
STOCKHOLDER RIGHTS PLAN.................................................. 50
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE...................... F-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
BEI Technologies, Inc. ("Technologies" or the "Company") 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 , 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 the "Technologies Stock."
Shares to be Distributed.... shares of Technologies Common Stock (par
value, $.001 per share) will be distributed,
based on shares of Electronics Common Stock
outstanding on , 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 , 1997.
Effective Date.............. The end of the day, September 27, 1997.
Distribution Agent.......... ChaseMellon Shareholder Services, L.L.C.
Distribution Date........... Distribution of certificates representing shares
of Technologies Common Stock distributed in the
transaction is expected to take place on or about
October , 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 The Board of Directors of Electronics believes
Distribution................ 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 Immediately following the Distribution, all
Technologies After the outstanding shares of Technologies Common Stock
Distribution................ 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 Services Agreement and
a Tax Agreement governing the relationship
between the parties subsequent to the
Distribution. See "The Distribution--Relationship
between Electronics and Technologies after the
Distribution."
Related Transactions........ Prior to the Distribution, and contingent on
noteholders' consent, 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
funded through a combination of existing cash
balances and borrowings under a proposed line of
credit. A substantial portion of the cash
transfer will be made to repay amounts due from
Sensors & Systems to Electronics resulting from
recurring intercompany transactions. 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 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 Electronics has paid a cash dividend of $.02 per
Policy...................... 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."
vi
<PAGE>
Mailing Date................ The Distribution Agent will mail share
certificates approximately two weeks after the
Record Date, on or about October , 1997.
Certain Federal Income Tax
Consequences................ Prior to the Distribution, the Company will
receive an opinion of counsel that the
Distribution should 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 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 March 29,
1997 and for the six-month periods ended March 30, 1996 and March 29, 1997
have been derived from unaudited 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 March 30, 1996 and March 29, 1997 and the results
of its operations for the six-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 per
share calculations.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
------------------------------------------------------- -----------------
OCTOBER 3 OCTOBER 2 OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $47,062 $47,613
Income from continuing
operations
before interest and in-
come taxes............. 5,819 2,310 2,835 739 6,729 3,363 1,431
Depreciation and amorti-
zation................. 4,502 5,354 5,602 5,913 5,915 2,892 2,818
Income (loss) from
continuing operations.. 2,840 599 321 (964) 2,873 1,412 324
Income (loss) from
discontinued
operations............. 4,633 4,329 392 (1,077) 1,698 579 960
Net income (loss)....... 7,473 4,928 713 (2,041) 4,571 1,991 1,284
Pro forma earnings from
continuing operations
per common and common
equivalent share....... $ 0.40 $ 0.05
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... $ 0.24 $ 0.13
Pro forma earnings per
common and common
equivalent share....... $ 0.64 $ 0.18
Shares used in computing
pro forma earning per
common and common
equivalent share....... 7,108 7,195
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 3 OCTOBER 2 OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $25,536 $29,489
Total assets............ 91,106 92,361 97,852 92,418 92,171 92,704 87,226
Payable to BEI Electron-
ics, Inc............... 13,707 10,314 17,727 10,404 6,062 9,440 7,068
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,840 29,765 24,137 24,419 18,523
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 30,526 39,672
</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 the
issuance of indebtedness by the Company in the amount of $9.0 million and
transfer of the proceeds of such indebtedness to Electronics (of which $5.0
million will be transferred as repayment of amounts payable to Electronics).
There can be no assurance that such financing will be available on terms
acceptable to the Company.
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>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 28, 1996 MARCH 29, 1997
------------------ ----------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.............................. $96,746 $47,613
Operating income....................... 6,487 1,243
Depreciation and amortization.......... 5,915 2,818
Income from continuing operations...... 2,503 115
Pro forma earnings from continuing
operations per common and common
equivalent share...................... $ .35 $ 0.02
Shares used in computing pro forma
earnings from continuing operations
per common and common equivalent
share................................. 7,108 7,195
<CAPTION>
MARCH 29, 1997
----------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital........................ $29,489
Total Assets........................... 87,226
Payable to BEI Electronics, Inc........ 2,068
Long-Term Debt (excluding current por-
tion)................................. 27,523
Stockholders' Equity................... 35,672
</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" and "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 the Distribution should qualify as
tax-free to Electronics and its stockholders under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code").
Assuming that the Distribution qualifies as tax-free for federal income tax
purposes:
(i) Except as described below with respect to fractional shares, an
Electronics stockholder will not recognize gain or loss as a result of the
Distribution. Cash received in lieu of a fractional share, if any, will be
treated as received in exchange for the fractional share. Gain or loss will
be recognized by the recipient shareholder to the extent of the difference
between the stockholder's basis in the fractional share and the amount
received for the fractional share. Provided the fractional share interest
is held as a capital asset by the recipient stockholder, the gain or loss
will constitute capital gain or loss.
(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.
Opinions of counsel are not binding on the Service or the courts. The
Service may challenge positions taken based upon this opinion. Davis Polk &
Wardwell, however, is of the opinion that if the Service were to assert that
the Distribution did not qualify as tax-free, the Service should not prevail
in a judicial proceeding in which the issues and facts were properly
presented.
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 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.
Electronics (or the Company on its behalf) will make available requisite
information to each Electronics stockholder of record as of the Record Date.
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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 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 7,002,543 shares of Technologies Common Stock
outstanding, assuming there are 7,002,543 shares of Electronics Common Stock
outstanding on the Record Date. No portion of the shares that will be issued
and outstanding upon completion of the Distribution are being, or have 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 the Distribution
Date, 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.
The Distribution Date is expected to be on or about October , 1997.
OPINION OF FINANCIAL ADVISOR
Electronics retained 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 JUNE 30, 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.
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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 we
believed to be generally comparable to certain of the businesses conducted by
Electronics and Technologies; (vi) reviewed a draft of 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 that Dillon Read deemed 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 capital, simplified management
structure and focused management incentives, (ii) the ability to reposition
Electronics with a greater emphasis on its medical devices business, (iii) the
creation of 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 have been reasonably prepared on bases
reflecting the best currently available estimates and judgements 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
the Distribution should 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 assumes that the
Distribution will be completed substantially on the basis set out in the
Information Statement.
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<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. This
summary is qualified in its entirety by reference to the full text of such
agreement, which has been filed as an exhibit to the Registration Statement of
which this Information Statement is a part.
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 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. See "--Related
Transactions--Assumption of Note Obligations," below.
Under the Distribution 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 secondarily liable for certain existing obligations of Technologies.
Technologies has agreed to indemnify Electronics to the extent of any payments
made on those obligations. In connection with the
5
<PAGE>
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 secondarily liable after the
Distribution on such guarantees, subject to Technologies' indemnification of
Electronics.
The Distribution Agreement also provides that each party agrees to indemnify
and hold the other harmless from certain liabilities, including claims
resulting from any breach of representations and warranties made by the
indemnifying party in connection with the Distribution.
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 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 each party will
pay its reasonable share of the costs of the Distribution, including legal,
financial advisory, accounting and auditing fees.
CORPORATE SERVICES AGREEMENT. Electronics and Technologies will make
available to each other for a transition period generally not expected to
exceed one year 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, an agreement will also be entered
into which reflects 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 filing 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
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,
6
<PAGE>
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.
RELATED TRANSACTIONS
ASSUMPTION OF NOTE OBLIGATIONS. Electronics currently has $22.4 million of
outstanding Senior Notes. In connection with the Distribution, Technologies
will assume the Senior Note obligations, which will require approval of the
note holders and renegotiation of the terms of the notes. 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. Management anticipates
that this transfer will be funded by a combination of existing cash balances
of Sensors & Systems and borrowings under the proposed line of credit
described under "Financing--Bank Credit Facilities" below. A substantial
portion of the cash transfer will be made to repay amounts due from Sensors &
Systems to Electronics resulting from recurring intercompany transactions. The
balance of the intercompany obligations to Electronics as of March 29, 1997
was $7.1 million. Management estimates that the intercompany obligations to
Electronics will be approximately $5 million at the time of the Distribution.
See Note 15 of Notes to Combined Financial Statements.
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 , 1997, and shares of
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<PAGE>
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.
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. Based on options to purchase Electronics
Common Stock outstanding as of the Record Date, it is anticipated that options
to purchase shares of Technologies Common Stock will be issued pursuant to
the conversion. 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 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
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(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 , 1997, shares of Electronics' Common Stock
had been issued pursuant to awards of restricted stock granted under the
Electronics' 1992 Restricted Stock Plan ("Electronics' Restricted Stock"),
including 74,636 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, 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 ,
1997, it is anticipated that a total of 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
restricted stock awards. See "New Incentive Plans of BEI Technologies, Inc.--
1997 Equity Incentive Plan."
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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
interest-bearing 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 million to Electronics prior to the
distribution, a portion of which represents amounts payable to Electronics,
the Company plans to obtain a line of credit with Canadian Imperial Bank of
Commerce ("CIBC"). [See "The Distribution--Related Transactions--Financing
Transactions".] Interest on borrowings 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
borrowing. Management believes that as a result of the Distribution, Sensors &
Systems 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 the Company 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.
Under the line of credit, CIBC will also issue standby letters of credit. At
the Distribution date, approximately $ 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 March 29, 1997, the capitalization of
Technologies on a historical basis, and on a pro forma basis giving effect to
the Distribution including the issuance of up to $9.0 million of indebtedness
by the Company and the transfer of the proceeds of the indebtedness to
Electronics, of which it is assumed that $5.0 million will represent repayment
of amounts payable to Electronics as of the Effective Date of the
Distribution. 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>
MARCH 29, 1997
------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Long-term debt(1):
Current portion........................................... $ 5,627 $ 5,627
Non-current portion....................................... 18,523 27,523
Payable to BEI Electronics, Inc.(1)......................... 7,068 2,068
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, 7,003,000 shares issued and outstanding(2)... -- --
Retained earnings........................................... 41,048 37,048
Unearned Restricted Stock................................... (1,376) (1,376)
------- -------
Total stockholders' equity.............................. 39,672 35,672
------- -------
Total capitalization.................................. $70,890 $70,890
======= =======
</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 394,162 shares of its Common Stock.
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THE BUSINESS
INTRODUCTION AND HISTORICAL OVERVIEW
Prior to the Distribution 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 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 Distribution
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 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).
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 , 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 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 differentiates itself by offering (a) availability of appropriate
technology to solve a customer problem (including innovative proprietary
technology); (b) excellent quality and service; and (c) highly competent
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 level? 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(R)" 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, 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--are 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 less than 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 numerous 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.
MICRO ELECTRO MECHANICAL 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
15
<PAGE>
devices discussed above are examples of MEMS currently being sold by
Electronics. Sensors & Systems has research and development programs in
progress that management expects to lead to new MEMS 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 enable
new breakthroughs in size, reliability and cost for the proprietary IMU
subsystems it builds.
SCANNER ASSEMBLIES. Scanner assemblies are an integral subsystem of the
optics in military night vision systems that guides 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 March 29, 1997 and
comparable period, March 30, 1996, was as follows:
BACKLOG
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
<S> <C>
$48,178 $40,237
</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 75% of the backlog as of
March 29, 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,
yield and producibility 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.
17
<PAGE>
The Company has also produced prototypes of future products incorporating
silicon microelectromechanical sensors (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
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 March 29, 1997, the units that will comprise Technologies had 946
employees, including 114 in research, development and engineering, 76 in
administration, 73 in marketing and sales, and 683 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 represented
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>
DESCRIPTION OF FACILITY
LOCATION -----------------------
<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 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 selected
historical financial data which relate to the balance sheets 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 are derived from unaudited
combined financial statements not included in this Information Statement. The
selected historical financial data at March 29, 1997 and for the six-month
periods ended March 30, 1996 and March 29, 1997 have been derived from
unaudited financial statements included elsewhere herein. In the opinion of
management, the unaudited combined financial statements includes all
adjustments consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position of the Company at March 30, 1996
and March 29, 1997 and the results of operations for the six-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 SIX MONTHS ENDED
------------------------------------------------------- -----------------
OCTOBER 3 OCTOBER 2 OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $47,062 $47,613
Income from continuing
operations............. 5,819 2,310 2,835 739 6,729 3,363 1,431
Depreciation and
Amortization........... 4,502 5,354 5,602 5,913 5,915 2,892 2,818
Income(loss) from
continuing operations.. 2,840 599 321 (964) 2,873 1,412 324
Income(loss) from
discontinued
operations............. 4,633 4,329 392 (1,077) 1,698 579 960
Net income(loss)........ 7,473 4,928 713 (2,041) 4,571 1,991 1,284
Pro forma earnings from
continuing operations
per common and common
equivalent share....... 0.40 0.05
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... 0.24 0.13
Pro forma earnings per
common and common
equivalent share....... 0.64 0.18
Shares used in computing
pro forma earnings per
common and common
equivalent share....... 7,108 7,195
<CAPTION>
OCTOBER 3 OCTOBER 2 OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $25,536 $29,489
Total assets............ 91,106 92,361 97,852 92,418 92,171 92,704 87,226
Payable to BEI
Electronics, Inc....... 13,707 10,314 17,727 10,404 6,062 9,440 7,068
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,860 29,765 24,137 24,149 18,523
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 30,526 39,672
</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 the issuance of
indebtedness by the Sensors & Systems in the amount of $9.0 million and
transfer of the proceeds of such indebtedness to Electronics, (of which $5.0
million will represent repayment of amounts payable to Electronics). There can
be no assurance that such financing will be available on terms acceptable to
the Company.
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)(2) (3,061)
------- ----- -------
Income before income taxes................. 4,285 (617) 3,668
------- ----- -------
Income taxes............................... 1,412 (247)(2) 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(3).......... $ 0.35
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share(4)................ 7,108
=======
</TABLE>
See accompanying notes.
21
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA,
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $47,613 $ -- $47,613
Cost of Sales.............................. 31,036 -- 31,036
------- ----- -------
16,577 -- 16,577
Selling, general and administrative
expense................................... 13,369 -- 13,369
Research, development and related
expenses.................................. 1,965 -- 1,965
------- ----- -------
15,334 -- 15,334
------- ----- -------
Operating income........................... 1,243 -- 1,243
Other income............................... 188 -- 188
Interest expense........................... (951) (309)(2) (1,260)
------- ----- -------
Income before income taxes................. 480 (309) 171
------- ----- -------
Income taxes............................... 156 (100)(2) 56
------- ----- -------
Income from continuing operations.......... $ 324 $(209) 115
======= ===== =======
Pro forma earnings from continuing
operations per common and common
equivalent share, as adjusted (3)......... $ 0.02
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share (4)............... 7,195
=======
</TABLE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA,
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets............................ $50,686 $ -- $50,686
Equipment, furniture and fixtures, net.... 22,912 -- 22,912
Other assets.............................. 13,628 -- 13,628
------- ------- -------
Total assets............................ $87,226 $ -- $87,226
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities....................... $21,197 $ -- $21,197
Long-term debt, less current portion...... 18,523 9,000 (1) 27,523
Payable to BEI Electronics, Inc........... 7,068 (5,000)(1) 2,068
Other liabilities......................... 766 -- 766
STOCKHOLDERS' EQUITY
Preferred stock........................... -- -- --
Common stock.............................. -- -- --
Retained earnings......................... 41,048 (4,000)(1) 37,048
Unearned restricted stock................. (1,376) -- (1,376)
------- ------- -------
Total stockholders' equity.............. 39,672 (4,000) 35,672
------- ------- -------
Total liabilities and stockholders'
equity................................. $87,226 $ -- $87,226
======= ======= =======
</TABLE>
See accompanying notes.
22
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO SELECTED UNAUDITED
PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed combined balance sheet as of March 29,
1997 and combined statements of operations for the six months ended March 29,
1997 and for the year ended September 28, 1996, give effect to the following
adjustments:
(1) Reflects the issuance of $9.0 million indebtedness by Sensors &
Systems, repayment of $5.0 million of the payable to BEI Electronics, Inc.
and subsequent transfer of remaining $4.0 million in proceeds from the debt
issuance to BEI Electronics, Inc.
(2) Reflects interest expense incurred on the $9.0 million of the debt as
if the debt was issued by the Company at the beginning of each period
presented using the Company's incremental borrowing rate. The pro forma
income tax benefit of such interest charges have been computed using the
Company's historical tax rate.
(3) Pro forma earnings from continuing operations per share is computed
using common and common equivalent shares. Such pro forma earnings from
continuing operations reflect the impact of the adjustments noted above.
(4) Pro forma earnings from continuing operations per common and common
equivalent share is 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 treasuring 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.
23
<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 SIX MONTHS ENDED
------------------- -----------------
MARCH 30 MARCH 29
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 62.6 65.2
----- ----- ----- ----- -----
Gross profit........................... 40.4 37.2 37.5 37.4 34.8
Operating expenses:
Selling, general and administrative
expenses............................ 29.7 28.3 27.0 26.6 28.1
Provision for royalty and related
expenses............................ -- 3.9 -- -- --
Research, development and related
expenses............................ 7.4 4.4 3.7 3.8 4.1
----- ----- ----- ----- -----
Operating income....................... 3.3 0.6 6.8 7.0 2.6
Other income........................... 0.1 0.2 0.2 0.2 0.4
Interest expense....................... (2.6) (2.5) (2.5) (2.7) (2.0)
----- ----- ----- ----- -----
Income (loss) before income taxes from
continuing operations................. 0.8 (1.7) 4.5 4.5 1.0
Provision for income taxes (credit).... 0.4 (0.7) 1.5 1.5 0.3
----- ----- ----- ----- -----
Income (loss) from continuing
operations............................ 0.4 (1.0) 3.0 3.0 0.7
Income (loss) from discontinued
operations, net of income taxes....... 0.5 (1.3) 1.7 1.2 2.0
Net Income (loss)...................... 0.9% (2.3)% 4.7% 4.2% 2.7%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Results of Operation
NET SALES
Net sales from continuing operations for the first six months of fiscal 1997
increased $0.6 million or 1.2% from the prior year.
Sales of automotive and other commercial products increased $0.7 million and
$1.0 million, respectively, but were partially offset by decreases in sales to
government contractors or subcontractors of $1.1 million.
COST OF SALES
Continuing operations cost of sales as a percentage of net sales increased
from 62.6% to 65.2%. 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.
24
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Continuing operations selling, general and administrative expenses as a
percentage of net sales increased from 26.6% in the first six months of fiscal
1996 to 28.1% in the first six months of fiscal 1997. This was mainly the
result of the settlement and other related charges associated with the GPI
arbitration. See Note 11 to the Combined Financial Statements.
RESEARCH, DEVELOPMENT AND RELATED EXPENSES
Research, development and related expenses as a percentage of net sales for
the first six months of fiscal 1997 have increased slightly from the same
period in fiscal 1996 due to increased spending to support MEMS and product
development for automotive and other commercial products.
INTEREST EXPENSE AND OTHER INCOME
Interest costs in the first six months of fiscal 1997 decreased by $0.3
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 October and November of
1996.
INCOME FROM CONTINUING OPERATIONS
The decline in income from continuing operations, from $1.4 million in the
first six months of fiscal 1996 to $0.3 million in the first six months of
fiscal 1997 primarily reflects the after tax charge of $1.1 million incurred
in connection with the GPI arbitration and a 2.6% 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.
Accordingly, the results of operations of the Defense Systems segment have
been reported as discontinued operations for all periods presented. This
segment was primarily a manufacturer of Hydra 70 ("H 70") military rockets
whose production was shut down at the end of fiscal 1996. As a result, H 70
sales declined from $20.7 million in the first six months of fiscal 1996 to
$0.4 million in the first six months of fiscal 1997. The remaining sales of
Defense Systems' non-H 70 products increased slightly to $2.4 million in the
first six months of fiscal 1997 from $2.3 million in the comparable period in
fiscal 1996. 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 $1.0 million in the first six
months of fiscal 1997 from $0.6 million in the first six months of fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997, operations utilized $1.4 million
in cash. Operating cash inflows consisted primarily of income adjusted for the
positive impact of non-cash charges from depreciation and amortization of $2.8
million and changes in assets and liabilities of discontinued operations of
$3.2 million. Offsetting these inflows were inventory increases of $2.5
million and a net decrease in trade payables and accrued expenses and other
liabilities of $4.8 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 the GPI arbitration. See Note 11 of
Notes to the Combined Financial Statements.
Cash used in investing activities in the first half of fiscal 1997 consisted
primarily of $2.8 million for capital expenditures, which is consistent with
spending in the first six 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 March 29, 1997.
25
<PAGE>
The Internal Revenue Service (IRS) audited the Company's income tax returns
for fiscal years 1993 through 1995. In the third quarter of fiscal year 1997,
the Company reached a settlement with the IRS for all issues raised for these
years, resulting in the payment of $1.4 million in additional tax liabilities.
The settlement related primarily to the timing of deductions resulting from an
acquisition by the Company.
As of March 29, 1997, the Company was in compliance with all financial
covenants on outstanding debt.
In connection with the Distribution and subject to the approval of the
noteholders, the Company will assume existing indebtedness of Electronics in
the amount of approximately $22.4 million. Management also intends to
negotiate a $ line of credit from a bank. Cash from the line of credit in
the amount of $ will be transferred from Sensors & Systems to Electronics
prior to the Distribution, $ of which will be used to repay $ of
intercompany obligations arising prior to the Distribution which are due to
Electronics. Management believes that new financing will be available to
Technologies on terms which will be more favorable than those available to
Electronics prior to the Distribution. However, there can be no assurances
that the Company will be able to negotiate the assumption of such Electronics
debt, obtain the line of credit from CIBC or other sources as discussed above,
or that funds will be available on terms as favorable as those applicable to
the Company's currently outstanding debt, if at all.
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.
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
26
<PAGE>
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 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
27
<PAGE>
$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.
28
<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 under "Risk Factors" 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
The Company has relatively limited experience in manufacturing products in
the quantities required by the automotive market. 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
29
<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
The Company purchases materials used in most of its products from various
suppliers, but relies on single sources for several components. There can be
no assurance that there will not be a significant disruption in the supply of
such components from current sources or, in the event of such disruption, that
the Company would be able to locate alternative suppliers of components of the
same quality at an acceptable price. Delays associated with any future
material shortages, 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.
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.
30
<PAGE>
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
the Distribution should qualify as a tax-free spin-off under Section 355 of
the Code. This tax opinion is delivered in reliance on representations made by
Electronics and the Company. The information contained in these
representations is critical to the Distribution qualifying as a tax-free spin-
off under Section 355 of the code. If the facts set forth in the
representations were untrue, 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 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 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."
31
<PAGE>
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.
32
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company and their ages as of June
1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles Crocker.................... 58 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary D. Wrench..................... 63 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
The following sets forth 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.
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, Superconductor Technologies, Inc., 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
33
<PAGE>
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. 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. He currently
serves as a director of Credence Systems, Inc., RAMTRON International Corp.,
VLSI Technologies, Inc., and Xilinx, Inc..
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 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.
34
<PAGE>
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, is a founder of
Electronics and served as President and Chief Executive Office 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 $4800 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.
35
<PAGE>
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
AWARDS
ANNUAL COMPENSATION(1) RESTRICTED
-------------------------- STOCK ALL OTHER
NAME AND SALARY(2) BONUS AWARDS(3)(4) COMPENSATION(5)
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 Chief 1994 195,150 0 0 3,830
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, Chief 1995 182,100 45,000 15,000 6,920
Technical Officer 1994 187,100 0 10,247 6,631
Mr. Robert R. Corr........ 1996 149,600 16,000 13,000 3,681
Secretary, Treasurer 1995 139,600 12,000 7,875 3,635
and 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 the past fiscal year, 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, $2,790
and $2,471 paid in fiscal 1994 to Messrs. Crocker, Wrench, Wan and Corr,
respectively, as a normal contribution pursuant to Electronics' Retirement
Savings Plan. The remaining sum for each Named Executive Officer is
attributable to premiums paid by Electronics for group term life
insurance.
37
<PAGE>
ELECTRONICS STOCK OPTION GRANTS AND EXERCISES
Electronics granted options to its executive officers and key employees under
its Amended 1987 Incentive Stock Option Plan (the "Plan"). As of March 29,
1997, options to purchase a total of 394,162 shares had been granted and were
outstanding under the Plan and options to purchase 473,819 shares remained
available for grant thereunder. During the fiscal year ended September 28,
1996, there were no stock options granted to the Named Executive Officers.
Electronics has not issued any stock appreciation rights. The following table
shows, for fiscal 1996, certain information regarding options exercised, and
held at year end, by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1996, AND FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)
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 and dependents' health coverage for up to
eighteen months following a termination of employment for which the executive
received a severance payment under the agreement.
38
<PAGE>
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 , 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"). To date no
options, bonuses or awards 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 25% on the first
anniversary of the vesting start date, with monthly vesting (at a cumulative
rate of 25% per year) thereafter during the optionee's employment or service as
a consultant, although shares may be subject to different vesting terms. No
Stock Award 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 , 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 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.
401(K) PLAN. In , 1997 the Company adopted 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 permits, but does not require, additional matching
contributions to the 401(k)
39
<PAGE>
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, invests 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
years. Incentive awards totalling approximately $ 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."
40
<PAGE>
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 by the Delaware Law.
Under the Company's 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.
41
<PAGE>
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 Named
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 June 1, 1997. The ownership information presented below assumes no
change in beneficial ownership of Electronics Common Stock or of the stock
underlying options between June 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 8.8%
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 6.1%
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.(7)...................... *
Dr. Asad M. Madni (7).............................. 60,267 *
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)....................... 1,923,292 27.5%
</TABLE>
- --------
*Less than one percent.
42
<PAGE>
(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 7,002,543 shares outstanding on June
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 June 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., Socgen
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, 249,258 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, 9,488 shares; Dr. Madni, 28,887 shares; Dr.
Wan, 13,902 shares; Mr. Wrench, 16,743 shares; and all executive officers
and directors as a group, 85,789 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.
43
<PAGE>
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 , 1997, up to
approximately shares of Company Common Stock will be issued to
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.
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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 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
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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 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 power of the Voting Stock from
unilaterally using the written consent procedure to take stockholder action
and from taking action by 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.
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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 Securities Act of 1933, as amended 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 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
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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.
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 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.
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Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. It is anticipated that the provisions of
Section 203 of the Delaware Law may encourage companies interested in
acquiring the Company to negotiate in advance with the Board, since the
stockholder approval requirement would be avoided if a majority of the
directors then in office approve, prior to the time the stockholder becomes an
interested stockholder, either the business combination or the transaction
which results in the stockholder becoming an interested stockholder.
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 power,
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
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 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, 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 stockholder on terms similar to those contained in the
Company's Certificate of Incorporation. Both the Company's Certificate of
Incorporation
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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 holder 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.
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
Prior to the Effective Date, the Board of Directors of the Company is
expected to approve 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 the Record Date to the stockholders of record on that 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 per one one-
hundredth of a Preferred Share to be determined by the Board of Directors (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 , 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 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 thereof (the "Summary of Rights").
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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 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 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 , 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 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.
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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 beneficially owns 23% or less of the outstanding Common Shares;
provided, however, that Mr. Crocker shall not be an Excluded Person if he
beneficially owns more than 23% 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 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"). In addition, the Rights may not be redeemed during the 180 days
following certain changes in a majority of the members of the Board of
Directors. Following the expiration of the above periods, 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.
52
<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
first paragraph of Note
2, as to which the date
is July 2, 1997
F-2
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 28 MARCH 29
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents--Note 14...... $ 2,667 $ 8,201 $ 5,051
Trade receivables:
United States Government............... 5,072 5,175 6,757
Commercial customers, less allowance
for doubtful accounts (1997--$608;
1996--$607; 1995--$395)............... 11,087 11,537 10,421
------- ------- -------
16,159 16,712 17,178
Inventories--Note 3..................... 16,972 19,201 21,737
Refundable income taxes................. 518 388 574
Deferred income taxes--Note 6........... 3,667 2,564 2,565
Current assets of discontinued
operations--Note 2..................... 9,764 6,508 1,885
Other current assets.................... 2,005 1,925 1,696
------- ------- -------
Total current assets................... 51,752 55,499 50,686
PROPERTY, PLANT AND EQUIPMENT--NOTE 5
Land.................................... 4,093 4,093 4,093
Structures.............................. 7,216 7,409 7,554
Equipment............................... 32,796 35,947 38,397
Leasehold improvements.................. 1,301 1,284 1,318
------- ------- -------
45,406 48,733 51,362
Less allowances for depreciation and
amortization 22,627 26,542 28,450
------- ------- -------
22,779 22,191 22,912
OTHER ASSETS
Tradenames, patents and related assets,
less amortization (1997--$2,426; 1996--
$2,335; 1995--$2,149).................. 2,125 1,939 1,848
Technology acquired under license
agreements, less amortization (1997--
$3,750; 1996--$3,269; 1995--$2,342).... 8,125 6,939 6,458
Goodwill, less amortization (1997--$367;
1996--$340; 1995--$288)................ 759 707 680
Non-current assets of discontinued
operations--Note 2..................... 3,836 1,962 1,741
Other................................... 3,042 2,934 2,901
------- ------- -------
17,887 14,481 13,628
------- ------- -------
$92,418 $92,171 $87,226
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................. $ 3,963 $ 5,025 $ 5,573
Accrued expenses and other liabilities--
Note 4................................. 14,295 12,602 7,287
Current portion of long-term debt--Note
5...................................... 72 5,625 5,627
Current liabilities of discontinued
operations--Note 2..................... 3,648 4,472 2,710
------- ------- -------
Total current liabilities.............. 21,978 27,724 21,197
Long-term debt, less current portion--
Notes 5 and 14......................... 29,765 24,137 18,523
Payable to BEI Electronics, Inc.--(Note
15).................................... 10,404 6,062 7,068
Deferred income taxes--Note 6........... 1,140 712 479
Other liabilities....................... 268 290 287
Commitments and contingencies--Notes 2,
10 and 11.............................. -- -- --
STOCKHOLDERS' EQUITY--NOTES 7 AND 8
Preferred stock......................... -- -- --
Common stock............................ -- -- --
Retained earnings....................... 29,593 34,164 41,048
------- ------- -------
29,593 34,164 41,048
Less: Unearned restricted stock--Note
8...................................... (730) (918) (1,376)
------- ------- -------
Total stockholders' equity............. 28,863 33,246 39,672
------- ------- -------
$92,418 $92,171 $87,226
======= ======= =======
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
----------------------------------- ------------------
OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $47,062 $47,613
Cost of sales--Note 13... 49,081 56,841 60,494 29,474 31,036
------- ------- ------- ------- -------
33,280 33,634 36,252 17,588 16,577
------- ------- ------- ------- -------
Selling, general and ad-
ministrative expenses... 24,426 25,641 26,157 12,541 13,369
Provision for royalty and
related expenses........ -- 3,500 -- -- --
Research, development and
related expenses........ 6,117 3,964 3,608 1,788 1,965
------- ------- ------- ------- -------
30,543 33,105 29,765 14,329 15,334
------- ------- ------- ------- -------
Operating Income......... 2,737 529 6,487 3,259 1,243
Other income............. 98 210 242 104 188
Interest expense......... (2,190) (2,303) (2,444) (1,251) (951)
------- ------- ------- ------- -------
Income (loss) before in-
come taxes.............. 645 (1,564) 4,285 2,112 480
Income taxes--Note 6..... 324 (600) 1,412 700 156
------- ------- ------- ------- -------
Income (loss) from con-
tinuing operations...... 321 (964) 2,873 1,412 324
Income (loss) from dis-
continued operations,
net of income taxes--
Note 2.................. 392 (1,077) 1,698 579 960
------- ------- ------- ------- -------
Net Income (loss)........ $ 713 $(2,041) $ 4,571 $ 1,991 $ 1,284
======= ======= ======= ======= =======
Pro forma earnings from
continuing operations
per common and common
equivalent share........ $ 0.40 $ 0.05
Pro forma earnings from
discontinued operations
per common and common
equivalent share........ 0.24 0.13
------- -------
Pro forma earnings per
common and common equiv-
alent share--Notes 7 and
8....................... $ 0.64 $ 0.18
======= =======
Shares used in computing
pro forma earnings per
common and common equiv-
alent shares--Notes 1, 7
and 8................... 7,108 7,195
======= =======
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
-------------------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, MARCH 29, MARCH 30,
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 $1,991 $ 1,284
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED (USED) BY
OPERATING ACTIVITIES:
Depreciation............ 4,384 4,456 4,204 2,095 2,028
Amortization............ 1,218 1,457 1,711 797 790
Provision for losses on
trade receivables...... 50 119 282 79 32
(Gain) Loss on sale of
assets................. 41 79 174 2 27
Deferred income taxes... (558) (2,630) 675 (39) (266)
Other................... 258 (681) (577) (453) (668)
CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Trade receivables....... (1,945) (2,541) (835) (823) (498)
Inventories............. (2,204) (882) (2,229) (956) (2,536)
Other current assets.... (501) 175 80 (868) 229
Trade accounts payable,
accrued expenses and
other liabilities...... 1,637 3,401 (609) (190) (4,769)
Refundable income
taxes.................. (2,399) 1,043 130 518 (163)
Assets and liabilities
of discontinued
operations............. 4,210 7,617 5,954 1,110 3,152
------- ------- ------ ------ -------
Net cash provided (used)
by operating
activities............. 4,904 9,572 13,531 3,263 (1,358)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property,
plant and equipment.... (8,469) (2,573) (3,624) (2,377) (2,777)
Other................... (900) 35 44 37 (9)
------- ------- ------ ------ -------
Net cash used by
investing activities... (9,369) (2,538) (3,580) (2,340) (2,786)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on
long-term debt......... (121) (138) (75) (63) (12)
Increase (decrease) in
payable to BEI
Electronics, Inc. ..... 7,413 (7,323) (4,342) (964) 1,006
------- ------- ------ ------ -------
Net cash provided (used)
by financing
activities............. 7,292 (7,461) (4,417) (1,027) 994
------- ------- ------ ------ -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 2,827 (427) 5,534 (104) (3,150)
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 $2,563 $ 5,051
======= ======= ====== ====== =======
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 9............ -- -- 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 9............ -- -- (24) (24)
--- -------- ------- --------
BALANCES AT SEPTEMBER 30, 1995........... -- 29,593 (730) 28,863
Net income for 1996...................... -- 4,571 -- 4,571
Restricted Stock Plan--Note 9............ -- -- (188) (188)
--- -------- ------- --------
BALANCES AT SEPTEMBER 28, 1996........... -- 34,164 (918) 33,246
Net income (unaudited)................... -- 1,284 -- 1,284
Restricted Stock Plan--Note 9 (unau-
dited).................................. -- -- (458) (458)
Decrease in long-term debt of BEI
Electronics, Inc. to be assumed by BEI
Technologies, Inc. (unaudited).......... -- 5,600 -- 5,600
--- -------- ------- --------
BALANCES AT MARCH 29, 1997 (UNAUDITED)... -- $ 41,048 $(1,376) $ 39,672
=== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for the six months ended March 29, 1997 and March 30, 1996, is
unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: On June , 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 , 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 six
months ended March 29, 1997 and March 30, 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 six months ended March 29,
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 when accepted by
the customer. Revenue for products not sold under fixed price contracts is
recognized
F-7
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 forma common equivalent shares from
outstanding stock options of Electronics held by employees of the Sensors
F-8
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 six months ended
March 29, 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 , 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
six months of fiscal 1997, the Company accrued an additional $32,000 for
employee severance costs. Costs incurred during the period for severance and
facilities closure of $297,000 and $235,000, respectively, were charged
against the reserve. The balance in the reserve at the end of the second
quarter of fiscal 1997 consisted of $109,000 for employee severance and
$265,000 for facilities closure costs. Management has indicated 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.
Net sales of the Defense Systems segment were as follows for the fiscal
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
----------------------------------- -----------------------
OCTOBER 1 SEPTEMBER 30 SEPTEMBER 28 MARCH 30 MARCH 29
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 $20,652 $ 434
Other.............. 9,327 7,064 4,708 2,348 2,424
------- ------- ------- ------- ------
$47,619 $45,581 $42,635 $23,000 $2,858
======= ======= ======= ======= ======
</TABLE>
F-9
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 28 MARCH 29
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Finished products..................... $ 554 $ 289 $ 1,253
Work in process....................... 5,906 6,621 7,201
Materials............................. 9,468 10,873 12,482
Costs incurred under long-term
contracts, including U.S. Government
contracts............................ 26,269 3,840 3,547
Unliquidated progress payments........ (17,621) (451) (1,727)
-------- ------- -------
24,576 21,172 22,756
Less inventories included in current
assets of discontinued operations,
net of progress payments of (1997--
$1,727; 1996--$451; 1995--$17,621)... 7,604 1,971 1,019
-------- ------- -------
Net inventories....................... $ 16,972 $19,201 $21,737
======== ======= =======
</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
Payroll and other taxes.......................... 425 511
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 (bene-
fit)............................... $ 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 statu-
tory 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 re-
lated 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 tax-
es................................ $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).
NOTE 7--STOCKHOLDERS' EQUITY
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>
PAR SHARES 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. 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.
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 March 29, 1997
will expire if not exercised by 1998.
F-13
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 PRICE
COMMON SHARES PER SHARE
------------- -----------
<S> <C> <C>
Options outstanding at October 2, 1993........... 36,000 $3.13-$3.75
Exercised........................................ (8,000) $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)............................ -- --
------ -----------
OPTIONS OUTSTANDING AT MARCH 29, 1997 (UNAU-
DITED).......................................... 24,000 $3.75
====== ===========
</TABLE>
The 1987 Stock Plan of Electronics and a supplemental (nonqualified) Stock
Option Plan 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
supplemental stock option plan 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 generally exercisable in
approximately three equal installments commencing one year from the date of
grant with accumulation privileges.
Option activity of 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 SHARES PRICE PER 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)........................ (62,800) $3.75-$8.50
-------- -----------
OPTIONS OUTSTANDING AT MARCH 29, 1997 (UNAU-
DITED)...................................... 394,162 $2.88-$9.13
======== ===========
</TABLE>
As of March 29, 1997, options for 390,484 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
F-14
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 March 29,
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.
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 early 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
F-15
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
------------------------------------------------
DEC 30, MAR 30, JUN 29, SEP 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
<CAPTION>
DEC 31, APR 1, JUL 1, SEP 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 con-
tinuing 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).
F-16
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
DEC 30, MAR 30, JUN 29, SEP 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
<CAPTION>
DEC 31, APR 1, JUL 1, SEP 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 dis-
continued 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).
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
F-17
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 liabili-
ties............................... 2,976 (2,086) 1,648
Allocations of Electronics' current
federal and state tax liabilities.. (264) 2,161 1,891
Administrative, interest 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>
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
- ----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands)
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 paragraph of
Note 2, as to which this date is July 2, 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 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>
[LETTERHEAD HERE]
ANNEX A
June 30, 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 June 27, 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.
Dillon, Read & Co. Inc. ("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, 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 June 27, 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.
<PAGE>
[LETTERHEAD]
We have noted that Electronics, as a condition to the Distribution, expects
to receive an opinion from Davis, Polk & Wardwell to the effect that the Spin-
Off should 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.
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,
DILLON, READ & CO. INC.
By: _____________________________
Mr. Robert Moulton-Ely
