<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1997
FILE NO. 0-22799
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM
FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
BEI TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3274498
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
ONE POST STREET, SUITE 2500
SAN FRANCISCO, CA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(415) 956-4477
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
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<PAGE>
BEI TECHNOLOGIES, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM LOCATION IN INFORMATION
NO. CAPTION STATEMENT
---- ------- -----------------------
<C> <C> <S>
1. Business....................................... "Summary"; "The
Distribution"; "Risk
Factors"; "The
Business"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
2. Financial Information.......................... "Summary"; "The
Distribution"; "Proforma
Combined Balance Sheets
and Statements of
Operations"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
3. Properties..................................... "The Business--
Properties."
4. Security Ownership of Certain Beneficial Owners
and Management................................ "The Distribution" and
"Ownership of
Technologies Common
Stock by Certain
Beneficial Owners and
Management."
5. Directors and Executive Officers............... "Directors and Executive
Officers of the Company"
and "Liability and
Indemnification of
Officers and Directors."
6. Executive Compensation......................... "Compensation of
Executive Officers."
7. Certain Relationships and Related "Directors and Executive
Transactions.................................. Officers of the
Company--Certain
Relationships."
8. Legal Proceedings.............................. "The Business--Legal
Proceedings."
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................... "Summary"; "The
Distribution"; "Risk
Factors"; "Directors and
Executive Officers of
the Company";
"Description of Capital
Stock" and "Stockholder
Rights Plan."
10. Recent Sales of Unregistered Securities........ Not Applicable.
11. Description of Registrant's Securities
to be Registered.............................. "The Distribution";
"Description of Capital
Stock"; and "Share
Purchase Rights Plan."
12. Indemnification of Directors and Officers...... "Liability and
Indemnification of
Directors and Officers."
13. Financial Statements and Supplementary Data.... "Summary"; "Pro forma
Combined Balance Sheets
and Statements of
Operations"; and
"Management's Discussion
and Analysis of
Financial Condition and
Results of Operations."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION IN INFORMATION
NO. CAPTION STATEMENT
---- ------- -----------------------
<C> <C> <S>
14. Changes in and Disagreements with Accountants Not Applicable.
on Accounting and Financial Disclosure......
15. Financial Statements and Exhibits............ "Selected Proforma Data";
"Proforma Combined Balance
Sheets and Statements of
Operations"; "Index to
Financial Statements"; and
"Index to Exhibits."
</TABLE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTIONS 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
BEI TECHNOLOGIES, INC.
(Registrant)
/s/ Charles Crocker
By___________________________________
Name: Charles Crocker
Title: President and Chief Executive
Officer
Date: September 11, 1997
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS TO
FORM 10
GENERAL FORM
FOR REGISTRATION OF SECURITIES
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
----------------
BEI TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
2.1 Form of Distribution Agreement between BEI Electronics,
Inc. and BEI Technologies, Inc.
2.2 Form of Corporate Services Agreement between BEI
Technologies, Inc. and BEI Electronics, Inc.
2.3 Form of Tax Allocation and Indemnity Agreement between
BEI Electronics, Inc. and BEI Technologies, Inc.
2.4 Form of Assumption of Liabilities and Indemnity
Agreement between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.5 Form of Technology Transfer and License Agreement by
and between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.6 Form of Trademark Assignment and Consent Agreement by
and between BEI Electronics, Inc. and BEI
Technologies, Inc.
2.7 Form of Agreement Regarding Certain Representations and
Covenants by and between BEI Electronics, Inc. and BEI
Technologies, Inc.
3.1** Certificate of Incorporation of BEI Technologies, Inc.
3.2** Bylaws of BEI Technologies, Inc.
4.1 Specimen Common Share certificate
4.2** Certificate of Incorporation of BEI Technologies, Inc.
(filed as Exhibit 3.1 hereto)
4.3** Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
hereto)
10.1 Form of Registrant's 1997 Equity Incentive Plan and
forms of related agreements.
10.2 Form of Executive Change in Control Benefits Agreement
between BEI Technologies, Inc. and Certain Named
Executive Officers
10.3* Assumption Agreement--Series A and Series B Senior
Notes
10.4* CIBC Agreement
11.1 Statement regarding Computation of Per Share Earnings
21.1** List of Subsidiaries of BEI Technologies, Inc.
27.1 Combined Balance Sheet and Statement of Operations for
the nine months ended
June 28, 1997
27.2 Combined Statement of Operations for the nine months
ended June 29, 1996
99.1 BEI Technologies, Inc. Information Statement dated ,
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
** Previously filed
<PAGE>
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 1 Definitions................................................................. 1
1.1 General..................................................................... 1
1.2 References; Interpretation.................................................. 5
Article 2 Distribution And Other Transactions; Certain Covenants...................... 5
2.1 The Distribution And Other Transactions..................................... 5
(a) Certain Transactions................................................. 5
(b) Stock Dividend To BEI................................................ 5
(c) Charter; By-Laws..................................................... 5
(d) Directors............................................................ 5
(e) Certain Licenses And Permits......................................... 5
(f) Lease Amendments..................................................... 6
(g) Transfer Of Agreements............................................... 6
(h) Consents............................................................. 7
(i) Delivery Of Shares To Agent.......................................... 7
(j) Other Transactions................................................... 7
2.2 Financing................................................................... 7
2.3 Operations In Ordinary Course............................................... 7
2.4 Capital Structure........................................................... 8
2.5 Assumption And Satisfaction Of Liabilities.................................. 8
2.6 Resignations................................................................ 8
2.7 Further Assurances.......................................................... 8
2.8 No Representations Or Warranties............................................ 8
2.9 Elimination Of Guarantees................................................... 8
2.10 Witness Services............................................................ 9
2.11 Certain Postdistribution Transactions....................................... 9
2.12 Transfers Not Effected Prior To Effective Time; Transfers Deemed
Effective As Of Effective Time.............................................. 9
2.13 Ancillary Agreements........................................................ 10
Article 3 Access To Information....................................................... 10
3.1 Provision Of Corporate Records.............................................. 10
3.2 Access To Information....................................................... 10
3.3 Reimbursement; Other Matters................................................ 10
3.4 Confidentiality............................................................. 11
Article 4 Dispute Resolution.......................................................... 11
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 5 Insurance.............................................................. 13
5.1 Coverage............................................................... 13
5.2 Claims Following The Effective Time; Waiver............................ 13
5.3 Administration......................................................... 14
5.4 Insurance Proceeds..................................................... 14
5.5 Retrospectively Rated Policies......................................... 14
5.6 Agreement For Waiver Of Conflict And Shared Defense.................... 14
5.7 Cooperation............................................................ 14
5.8 Indemnity Agreement.................................................... 14
Article 6 Employee Obligations And Benefit Plans................................. 15
6.1 BEI Retirement Plan.................................................... 15
6.2 Supplemental Plan...................................................... 15
6.3 Stock Options And Restricted Stock..................................... 15
(a) Stock Options..................................................... 15
(b) Restricted Stock.................................................. 16
6.4 Other Benefits......................................................... 16
6.5 Severance Claims....................................................... 17
Article 7 Miscellaneous.......................................................... 17
7.1 Complete Agreement; Construction....................................... 17
7.2 Ancillary Agreements................................................... 17
7.3 Counterparts........................................................... 17
7.4 Survival Of Agreements................................................. 17
7.5 Expenses............................................................... 17
7.6 Notices................................................................ 18
7.7 Waivers................................................................ 18
7.8 Amendments............................................................. 18
7.9 Assignment............................................................. 18
7.10 Successors And Assigns................................................. 19
7.11 Termination............................................................ 19
7.12 Subsidiaries........................................................... 19
7.13 Third Party Beneficiaries.............................................. 19
7.14 Attorney Fees.......................................................... 19
7.15 Title And Headings..................................................... 19
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.16 Exhibits And Schedules.................................................... 19
7.17 Specific Performance...................................................... 19
7.18 Governing Law............................................................. 20
7.19 Consent To Jurisdiction................................................... 20
7.20 Severability.............................................................. 20
7.21 Force Majeure............................................................. 20
</TABLE>
iii
<PAGE>
DISTRIBUTION AGREEMENT
The following DISTRIBUTION AGREEMENT dated as of September [ ], 1997, is
entered into by BEI ELECTRONICS, INC., a Delaware corporation ("BEI"), and BEI
TECHNOLOGIES, INC., a Delaware corporation ("Technologies").
The Board of Directors of BEI has determined to distribute to the holders
of shares of Common Stock, par value $0.001 per share, of BEI (the "BEI Common
Stock") shares of Common Stock, par value $0.001 per share, of Technologies (the
"Technologies Common Shares"). It is desirable to allocate and assign
responsibility for various matters affecting the activities of Technologies and
to set forth the principal corporate transactions required to effect such
distribution and other agreements that will govern certain other matters
following the distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 GENERAL. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Action" shall mean any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative official, agency, body or commission or any
arbitration tribunal, including any claims or contract disputes concerning any
governmental contract.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the person
specified.
"Agent" shall mean ChaseMellon Shareholder Services, LLC, as transfer
agent for BEI and Technologies.
"Ancillary Agreements" shall mean all of the written agreements,
instruments, understandings, assignments or other arrangements (other than this
Agreement) entered into in connection with the transactions contemplated hereby,
including, without limitation, (i) the Tax Allocation and Indemnity Agreement,
(ii) the Technology Transfer and License Agreement, (iii) the Trademark
Assignment and Consent Agreement, (iv) the Assumption of Liabilities and
Indemnity Agreement, (v) the Tax Allocation and Indemnity Agreement, and (vi)
the Corporate Services Agreement.
1
<PAGE>
"BEI Business" shall mean the businesses of any division, Subsidiary
or investment of BEI (other than the Technologies Business) managed or operated
prior to the Effective Time by any such business entity.
"BEI Liabilities" shall mean collectively, (i) all the Liabilities of
BEI and its Subsidiaries under this Agreement and any of the Ancillary
Agreements and (ii) all the Liabilities of the parties hereto or their
respective Subsidiaries (whenever arising whether prior to, at or following the
Effective Time) arising out of or in connection with or otherwise relating to
the management or conduct before or after the Effective Time of the BEI
Business.
"BEI Restricted Stock Plan" shall mean the 1992 BEI Restricted Stock
Plan, as in effect at the Effective Time.
"BEI Retirement Plan" shall mean the BEI Retirement Savings Plan, as
in effect at the Effective Time.
"BEI Supplemental Plan" shall mean the BEI Deferred Compensation Plan,
as in effect on the Distribution Date.
"Claims Administration" shall mean (i) the processing of claims made
under Company Policies, including the reporting of claims and occurrences to the
appropriate insurance carriers and the collection of the proceeds of Company
Policies and (ii) in the case of the Technologies Business, the reporting to BEI
of any losses or claims which may cause the per-occurrence deductible or self-
insured retention or limits of any Company Policy to be exceeded.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder, including any successor
legislation.
"Commission" shall have the meaning set forth in Section 3.2(b).
"Company Policies" shall mean all Policies, current or past, under
which BEI or any subsidiary, affiliate or predecessor of BEI is a named insured.
"Conveyancing and Assumption Instruments" shall mean, collectively,
the various agreements, instruments and other documents to be entered into to
effect the transfer of assets and the assumption of Liabilities in the manner
contemplated by this Agreement.
"Corporate Services Agreement" shall mean the Corporate Services
Agreement dated as of the date hereof between BEI and Technologies.
["Credit Agreement" shall mean the line of credit agreement dated
_______________, 1997 with Canadian Imperial Bank of Commerce, the Senior Note
Agreements dated _______________, 199_ related to the Series A and Series B
Senior Notes, the loan agreements related to the mortgage note dated
_______________, 199_, and any other related agreements or other financing
agreements which will be assumed by Technologies prior
2
<PAGE>
to the Distribution Date pursuant to Section 2.2 hereof and which are intended
to provide financing and working capital for Technologies after the
Distribution.]
"Distribution" shall mean the distribution to holders of record of
shares of BEI Common Stock as of the Distribution Record Date of the
Technologies Common Shares owned by BEI on the basis of one Technologies Common
Share for every one share of BEI Common Stock. The Distribution shall be deemed
effective as of the Effective Time.
"Distribution Date" shall mean October ___, 1997, or such other date
as may hereafter be determined by BEI's Board of Directors as the date on or
after which certificates representing the Common Shares shall be distributed by
the Agent to holders of record of shares of BEI Common Stock on the Distribution
Record Date.
"Distribution Record Date" shall mean September ___, 1997, or such
other date as may hereafter be determined by BEI's Board of Directors as the
record date for the Distribution.
"Effective Time" shall mean midnight on September ___, 1997, or such
other date as may hereafter be determined by BEI's Board of Directors as the
date on which the Distribution shall be deemed effective.
"Indemnity Agreement" shall mean the Assumption of Liabilities and
Indemnity Agreement dated as of the date hereof between BEI and Technologies.
"Information Statement" shall mean the Information Statement sent to
the holders of shares of BEI Common Stock in connection with the Distribution,
including any amendment or supplement thereto.
"Insurance Proceeds" shall mean those monies (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of an insured, in either case net of any applicable premium adjustment,
retrospectively-rated premium, deductible, retention, or cost of reserve paid or
held by or for the benefit of such insured.
"Insured Claims" shall mean those Liabilities that, individually or in
the aggregate, are covered within the terms and conditions of any Company
Policy, whether or not subject to deductibles, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Company Policy limits, including aggregates.
"Liabilities" shall mean any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including, without limitation, those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any court, any governmental or other regulatory or administrative
agency or commission or any award of any arbitration tribunal, and those arising
under any contract, guarantee, commitment or undertaking.
3
<PAGE>
"Person" shall mean any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
"Policies" shall mean insurance policies and insurance contracts of
any kind (other than life and benefits policies or contracts), including,
without limitation, primary, excess and umbrella policies, commercial general
liability policies, fiduciary liability, environmental impairment, director and
officer, health, automobile, aircraft, property and, casualty, workers'
compensation and employee dishonesty insurance policies, bonds and self-
insurance and captive insurance company arrangements, together with the rights,
benefits and privileges thereunder.
"Subsidiary" shall mean any corporation, partnership or other entity
of which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Tax" shall mean all Federal, state, local and foreign taxes and
assessments, including all interest, penalties and additions imposed with
respect to such amounts.
"Tax Agreement" shall mean the Tax Allocation and Indemnity Agreement
dated as of the date hereof between BEI and Technologies.
"Technologies Assets" shall mean, collectively, all the rights and
assets of BEI and its Subsidiaries relating to the Technologies Business,
including, without limitation, all the outstanding capital stock or other
interests of Subsidiaries of BEI conducting Technologies Business and the
technology, patents, trademarks and other intellectual property described in the
Technology Transfer and License Agreement.
"Technologies Business" shall mean the businesses heretofore conducted
by BEI, including but not limited to the sensors and defense businesses, other
than those medical device businesses conducted by BEI Medical Systems Company,
Inc. ("BEI Medical") prior to the Effective Time, and business activities
acquired, developed or established by or for Technologies or any of its
Subsidiaries after the Effective Time.
"Technologies Equity Plan" shall mean Technologies' 1997 Equity
Incentive Plan, as in effect at the Effective Time.
"Technologies Liabilities" shall mean, collectively, (i) all the
Liabilities of Technologies and its Subsidiaries under this Agreement and any of
the Ancillary Agreements and (ii) all the Liabilities of the parties hereto or
their respective Subsidiaries (whenever arising whether prior to, at or
following the Effective Time) arising out of or in connection with or otherwise
relating to the management or conduct before or after the Effective Time of the
Technologies Business.
4
<PAGE>
"Technology Transfer and License Agreement" shall mean the Technology
Transfer and License Agreement dated as of the date hereof between BEI and
Technologies.
"Trademark Assignment and Consent Agreement" shall mean the Trademark
Assignment and Consent Agreement dated as of the date hereof between BEI and
Technologies.
1.2 REFERENCES; INTERPRETATION. References to an "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
ARTICLE 2
DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS
2.1 THE DISTRIBUTION AND OTHER TRANSACTIONS.
(a) CERTAIN TRANSACTIONS. At or prior to the Effective Time:
(i) BEI shall contribute to Technologies the business entities
that are to comprise the Technologies Business (to the extent they are not owned
by Technologies or any of its Subsidiaries).
(ii) BEI shall transfer to Technologies effective as of the
Effective Time all of BEI's and its Subsidiaries' right, title and interest in
the Technologies Assets.
(iii) BEI shall transfer to Technologies and its Subsidiaries, all
other assets that relate to the BEI executive office and human resources
functions.
(b) STOCK DIVIDEND TO BEI. At or prior to the Effective Time,
Technologies shall issue to BEI as a stock dividend the number of Technologies
Common Shares required to effect the Distribution less the number of
Technologies Common Shares already owned by BEI.
(c) CHARTER; BY-LAWS. Technologies' Certificate of Incorporation was
filed with the Delaware Secretary of State on June 30, 1997, and the Board of
Directors of Technologies adopted the Bylaws of Technologies at a meeting held
on June 30, 1997.
(d) DIRECTORS. At or prior to the Effective Time, BEI, as the sole
shareholder of Technologies, shall have taken all necessary action to elect, or
cause to be elected, to the Board of Directors of Technologies the individuals
identified in the Information Statement as directors of Technologies, such
elections to be effective on or prior to the Effective Time, with the specific
date to be set by BEI in its discretion.
(e) CERTAIN LICENSES AND PERMITS. At or prior to the Effective Time
or as soon as reasonably practicable thereafter, all transferrable licenses,
permits and authorizations issued by governmental or regulatory entities which
relate to the Technologies Business but
5
<PAGE>
which are held in the name of BEI or any of its Subsidiaries (other than any
Subsidiary of Technologies), or any of their respective employees, officers,
directors, stockholders, agents, or otherwise, on behalf of Technologies (or its
Subsidiaries) shall be duly and validly transferred by BEI to Technologies (or
its Subsidiaries).
(f) LEASE AMENDMENTS. At or prior to the Effective Time, or as soon
as reasonably practicable thereafter, amendments shall be executed to each of
the leases to which BEI is a party and which provide for the lease of real or
personal property representing Technologies Assets or relating to the
Technologies Business which amendments will provide for the substitution of
Technologies for BEI as lessee or lessor, as the case may be, and excuse BEI
from any future liabilities or responsibilities with respect thereto.
(g) TRANSFER OF AGREEMENTS.
(i) BEI hereby agrees that at or prior to the Effective Time or as
soon as reasonably practicable thereafter, subject to the limitations set forth
in this Section 2.1(g) and the terms of the Ancillary Agreements, it will, and
it will cause its Subsidiaries (other than Technologies or any of its
Subsidiaries) to, assign, transfer and convey to Technologies all of BEI's or
such Subsidiaries' respective right, title and interest in and to any and all
agreements that, in BEI's sole judgment, relate exclusively to the Technologies
Business.
(ii) Subject to the provisions of this Section 2.1(g) and the terms
of the Ancillary Agreements, any agreement to which either or both of the
parties hereto or any of their Subsidiaries is a party that inures, in BEI's
sole judgment, to the benefit of both the BEI Business and the Technologies
Business shall be assigned in part, on or prior to the Effective Time or as soon
as reasonably practicable thereafter, so that each party shall be entitled to
the rights and benefits inuring to its business under such agreement.
(iii) The assignee of any agreement assigned, in whole or in part,
hereunder (an "Assignee"), shall assume and agree to pay, perform, and fully
discharge all obligations of BEI under such agreement or, in the case of a
partial assignment under paragraph (g) (ii), Technologies's related portion of
such obligations as determined in accordance with the terms of the relevant
agreement, where determinable on the face thereof, and otherwise as determined
in accordance with the practice of the parties prior to the Distribution.
(iv) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign any agreement, in
whole or in part, or any rights thereunder if the agreement to assign or attempt
to assign, without the consent of a third party, would constitute a breach
thereof or in any way adversely affect the rights of the Assignee thereof. Until
such consent is obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of any party hereto so that the
Assignee would not, in fact, receive all such rights, the parties will cooperate
with each other in any arrangement designed to provide for the Assignee the
benefits of, and to permit the Assignee to assume liabilities under, any such
agreement.
6
<PAGE>
(h) CONSENTS. The parties hereto shall use commercially reasonable
efforts to obtain required consents to assignment of agreements hereunder.
(i) DELIVERY OF SHARES TO AGENT. At or prior to the Effective Time,
BEI shall deliver to the Agent the share certificate or certificates
representing the Technologies Common Shares issued to BEI by Technologies,
pursuant to Section 2.1(b) and shall instruct the Agent to distribute, on or as
soon as practicable following the Distribution Date, such Common Shares to
holders of record of shares of BEI Common Stock on the Distribution Record Date
as further contemplated by, and subject to the conditions contained in, the
Information Statement and this Agreement. Technologies shall provide all share
certificates that the Agent shall require in order to effect the Distribution.
(j) OTHER TRANSACTIONS. At or prior to the Effective Time, BEI and
Technologies shall have consummated those other transactions in connection with
the Distribution that are contemplated by the Information Statement and not
specifically referred to in subparagraphs (a)-(i) above.
2.2 FINANCING.
(a) Each of the parties hereto shall take all actions necessary to
cause Technologies immediately prior to the Effective Time: (i) to assume BEI's
rights and obligations under the Credit Agreements, provided that BEI shall have
no obligation to guarantee or otherwise provide credit support or enhancement
for the obligations of Technologies under such Credit Agreements; and (ii) to
assume BEI's intercompany payable to Defense Systems Company, Inc.
(b) Each of the parties hereto shall take all actions necessary such
that immediately prior to the Effective Time, BEI Sensors and Systems Company,
Inc. ("Sensors") shall pay BEI $[________] in partial satisfaction of the
intercompany obligation owed by Sensors to BEI. Immediately following such
payment, BEI shall contribute the balance of its intercompany receivable from
Sensors to Technologies.
(c) Prior to the Effective Time, each of the parties shall take all
actions necessary to cause Electronics to exchange its $[________] intercompany
receivable from BEI Medical Systems Company, Inc. ("Medical") for common stock
of Medical valued at $[__________] per share of common stock.
2.3 OPERATIONS IN ORDINARY COURSE. Each of BEI and Technologies agrees
that, except as otherwise provided in any Ancillary Agreement or this Agreement
or as otherwise mutually agreed between BEI and Technologies, during the period
from the date of this Agreement through the Effective Time, it will, and will
cause their respective Subsidiaries during such period to, conduct its and their
respective businesses in a manner substantially consistent with current and past
operating practices and in the ordinary course, including, without limitation,
with respect to the payment and administration of accounts payable and the
administration of accounts receivable, the purchase of capital assets and
equipment and the management of inventories.
7
<PAGE>
2.4 CAPITAL STRUCTURE. Each of BEI and Technologies agrees to use
commercially reasonable efforts to achieve both an allocation of consolidated
indebtedness of BEI and a capital structure of Technologies which substantially
reflects the capital structure after the Distribution of Technologies set forth
in the Information Statement under the heading "Capitalization."
2.5 ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as otherwise
specifically set forth in any Ancillary Agreement, from and after the Effective
Time, (i) BEI shall, and shall cause its Subsidiaries to, assume, pay, perform
and discharge all BEI Liabilities, and (ii) Technologies shall, and shall cause
its Subsidiaries to, assume, pay, perform and discharge all Technologies
Liabilities.
2.6 RESIGNATIONS. BEI shall cause all its directors, officers and
employees, other than those continuing in their present roles, as described in
the Information Statement, to resign, effective as of the Effective Date, from
all positions as directors, officers and employees of BEI or as officers or
directors of BEI Medical or its subsidiaries.
2.7 FURTHER ASSURANCES. In case at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement and the Ancillary Agreements, the proper officers of each party
to this Agreement shall take all such necessary action. Without limiting the
foregoing, BEI and Technologies shall use commercially reasonable efforts to
obtain all consents and approvals, to enter into all amendatory agreements and
to make all filings and applications that may be required for the consummation
of the transactions contemplated by this Agreement and the Ancillary Agreements,
including, without limitation, all applicable governmental and regulatory
filings and novations.
2.8 NO REPRESENTATIONS OR WARRANTIES. Each of the parties hereto
understands and agrees that, except as otherwise expressly provided, no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, making any representation or warranty
whatsoever, including, without limitation, as to title, value or legal
sufficiency. It is also agreed and understood that all assets either
transferred to or retained by the parties, as the case may be, shall be "as is,
where is" and that (subject to Section 2.7) the party to which such assets are
to be transferred hereunder shall bear the economic and legal risk that any
conveyances of such assets shall prove to be insufficient or that such party's
or any of the Subsidiaries' title to any such assets shall be other than good
and marketable and free from encumbrances. Similarly, each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any amendatory agreements and the
making of any filings or applications contemplated by this Agreement will
satisfy the provisions of any or all applicable agreements or the requirements
of any or all applicable laws or judgments, it being agreed and understood that
the party to which any assets are transferred shall bear the economic and legal
risk that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with.
2.9 ELIMINATION OF GUARANTEES. Except as otherwise specified in any
Ancillary Agreement, BEI and Technologies shall use commercially reasonable
efforts to have, on or prior
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to the Effective Time, or as soon as reasonably practicable thereafter, BEI and
any of its Subsidiaries removed as guarantor of or obligor for any Technologies
Liability or Liabilities. To the extent that BEI or any of its Subsidiaries
cannot be removed as guarantor of or obligor for any such Technologies Liability
or Liabilities, Technologies agrees that until such Technologies Liability or
Liabilities shall have been discharged in full, Technologies will take no
action, and will not permit any of its Subsidiaries to take any action, which
will have the effect of increasing the contingent liability or exposure of BEI
or any of its Subsidiaries with respect to such Technologies Liability or
Liabilities.
2.10 WITNESS SERVICES. At all times from and after the Effective Time,
each of BEI and Technologies shall use commercially reasonable efforts to make
available to each other, upon reasonable written request, its and its
Subsidiaries' officers, directors, employees and agents as witnesses to the
extent that (i) such persons may reasonably be required in connection with the
prosecution or defense of any Action in which the requesting party may from time
to time be involved and (ii) there is no conflict in the Action between the
requesting party and itself. A party providing witness services to the other
party under this Section shall be entitled to receive from the recipient of such
services, upon the presentation of invoices therefor, payments for such amounts
relating to supplies, disbursements and other out-of-pocket expenses and direct
and indirect costs of employees who are witnesses as may be reasonably incurred
in providing such witness services.
2.11 CERTAIN POSTDISTRIBUTION TRANSACTIONS. Each of BEI and Technologies
agrees that (i) it shall comply with and otherwise not take action inconsistent
with each representation and statement made, or to be made, to Davis, Polk &
Wardwell in connection with such firm's rendering an opinion to BEI and
Technologies as to certain tax aspects of the Distribution and (ii) until two
years after the Distribution Date, it will maintain its status as a company
engaged in the active conduct of a trade or business, as defined in Section
355(b) of the Code.
2.12 TRANSFERS NOT EFFECTED PRIOR TO EFFECTIVE TIME; TRANSFERS DEEMED
EFFECTIVE AS OF EFFECTIVE TIME. To the extent that any transfers contemplated
by this Article II shall not have been consummated at or prior to the Effective
Time, the parties shall cooperate to effect such transfers as promptly following
the Effective Time as shall be practicable. Nothing herein shall be deemed to
require the transfer of any assets or the assumption of any Liabilities which by
their terms or operation of law cannot be transferred; provided, however, that
the parties hereto and their respective Subsidiaries shall cooperate to seek to
obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this Article II. In the
event that any such transfer of assets or Liabilities has not been consummated,
from and after the Effective Time, the party retaining such asset or Liability
shall hold such asset in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto) or retain such Liability
for the account of the party by whom such Liability is to be assumed pursuant
hereto, as the case may be, and take such other action as may be reasonably
requested by the party to whom such asset is to be transferred, or by whom such
Liability is to be assumed, as the case may be, in order to place such party,
insofar as is reasonably possible, in the same position as would have existed
had such asset or Liability been transferred as contemplated hereby. As and
when any such asset or Liability becomes transferable, such transfer shall be
effected forthwith. The parties agree that, as of the Effective
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Time, each party hereto shall be deemed to have acquired complete and sole
beneficial ownership over all of the assets, together with all rights, powers
and privileges incident thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incident thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
2.13 ANCILLARY AGREEMENTS. At or prior to the Effective Time, each of BEI
and Technologies shall enter into, and/or (where applicable) shall cause their
respective Subsidiaries to enter into, the Ancillary Agreements and any other
agreements in respect of the Distribution reasonably necessary or appropriate in
connection with the transactions contemplated hereby and thereby.
ARTICLE 3
ACCESS TO INFORMATION
3.1 PROVISION OF CORPORATE RECORDS. After the Effective Time, upon the
prior written request by one party for specific and identified agreements,
documents, books, records or files including, without limitation, computer
files, microfiche, tape recordings and photographs (collectively, "Records"),
relating to or affecting the requesting party, the other party shall arrange, as
soon as reasonably practicable following the receipt of such request, for the
provision of appropriate copies of such Records (or the originals thereof if the
party making the request has a reasonable need for such originals) in the
possession of such other party or any of its Subsidiaries, but only to the
extent such items are not already in the possession of the requesting party.
3.2 ACCESS TO INFORMATION.
(a) From and after the Effective Time, BEI and Technologies shall
afford to the other and its authorized accountants, counsel and other designated
representatives (including governmental representatives and auditors in
connection with governmental claims or audits) reasonable access during normal
business hours, subject to appropriate restrictions for classified, privileged
or confidential information, to the personnel, properties, books and records of
such party and its Subsidiaries insofar as such access is reasonably required by
the other party.
(b) For a period of five years following the Effective Time, each of
BEI and Technologies shall provide to the other, promptly following such time at
which such documents shall be filed with the Securities and Exchange Commission
(the "Commission"), all documents that shall be filed by it and by any of its
respective Subsidiaries with the Commission pursuant to the periodic and interim
reporting requirements of the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
3.3 REIMBURSEMENT; OTHER MATTERS.
(a) Except to the extent otherwise contemplated by any Ancillary
Agreement, a party providing Records or access to information to the other party
under this Article III shall
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be entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts relating to supplies, disbursements and
other out-of-pocket expenses as are reasonably incurred in providing such
Records or access to information.
(b) The parties hereto shall comply with those document retention
policies set forth in Schedule 3.3(b) hereto or established and agreed to in
writing by their respective authorized officers on or prior to the Effective
Time in respect of Records and related matters.
3.4 CONFIDENTIALITY. Each of BEI and its Subsidiaries and Technologies
and its Subsidiaries shall not use or permit the use of (without the prior
written consent of the other) and shall hold, and shall cause its consultants
and advisors to hold, in strict confidence, all information concerning the other
parties in its possession, its custody or under its control (except to the
extent that (A) such information has been in the public domain or becomes part
of the public domain through no fault of such party, (B) such information has
been later lawfully acquired by such party, without an obligation of confidence,
from a third party who is legally free to disclose such information, (C) this
Agreement or any other Ancillary Agreement or any other agreement entered into
pursuant hereto permits such use or disclosure of such information or (D) such
information is independently developed by such party without reference to such
information) to the extent such information (x) relates to the period up to the
Effective Time, (y) relates to any Ancillary Agreement or (z) is obtained in the
course of performing services for the other party pursuant to any Ancillary
Agreement, and each party shall not (without the prior written consent of the
other) otherwise release or disclose such information to any other person,
except such party's auditors and attorneys, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure. To
the extent that a party hereto is compelled by judicial or administrative
process to disclose such information under circumstances in which any
evidentiary privilege would be available, such party agrees to assert such
privilege in good faith prior to making such disclosure. Each of the parties
hereto agrees to consult with each relevant other party in connection with any
such judicial or administrative process, including, without limitation, in
determining whether any privilege is available, and further agrees to allow each
such relevant party and its counsel to participate in any hearing or other
proceeding (including, without limitation, any appeal of an initial order to
disclose) in respect of such disclosure and assertion of privilege.
ARTICLE 4
DISPUTE RESOLUTION
In the event of a controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or any of the Ancillary
Agreements or otherwise arising out of, or in any way related to this Agreement
or any of the Ancillary Agreements, including, without limitation, any claim
based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), the Presidents (or their designees) of the respective parties shall
negotiate in good faith for a reasonable period of time to settle such Agreement
Dispute.
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If after such reasonable period such Presidents (or their designees) are
unable to settle such Agreement Dispute (and in any event after 60 days have
elapsed from the time the parties began such negotiations), such Agreement
Dispute shall be determined, at the request of either party, by arbitration
before a single arbitrator conducted in San Francisco, California, before and in
accordance with the then-existing Rules of Practice and Procedure of the San
Francisco office of JAMS/Endispute, Inc. ("JAMS") (the "Rules"), and any
judgment or award rendered by the arbitrator shall be final, binding and
nonappealable (except upon grounds specified in 9 U.S.C. section 10 or
California Code of Civil Procedure section 1285 et seq. as in effect on the date
hereof), and judgment may be entered by any state or Federal court having
jurisdiction thereof in accordance with Section 7.19 hereof. Each party shall
have the right to conduct the following discovery: one-time service of up to 25
document requests upon the other party, with receipt of all responsive documents
within 30 days; exchange of witness lists identifying any witnesses the party
intends to call at the arbitration hearing and any other persons with material
information about the dispute, including a brief description of each identified
person's knowledge; the taking of depositions of any fact (non-expert)
witnesses, however, the total time for all of each party's depositions of fact
witnesses shall not exceed ten eight-hour days, including breaks; and the
designation of up to three expert witnesses per party, with the right to depose
the opposing party's experts, however the total time for all of each party's
depositions of expert witnesses shall not exceed two eight-hour days, including
breaks. Any controversy concerning whether an Agreement Dispute is an
arbitrable Agreement Dispute, whether arbitration has been waived, whether an
assignee of this Agreement is bound to arbitrate, or as to the interpretation of
enforceability of this Article 4 shall be determined by the arbitrator. The
arbitrator shall be a retired or former judge of any Federal or California trial
or appellate court or such other qualified person as the parties may agree to
designate, provided such individual has had substantial professional experience
with regard to settling commercial disputes. The arbitration hearing shall
commence no later than six months following the service of the Demand for
Arbitration. The arbitrator shall make detailed findings of fact and law in
writing in support of his or her decision and shall serve his or her award and
findings of fact within 15 days following the later of the conclusion of the
arbitration hearing or submission of the final briefs. The arbitrator shall be
entitled, if appropriate, to award any remedy in such proceedings, including,
without limitation, monetary damages, specific performance and all other forms
of legal and equitable relief; provided, however, the arbitrator shall not be
entitled to award punitive damages and shall not reform, modify or materially
change this Agreement or any of the Ancillary Agreements. In his or her award
the arbitrator shall allocate, in his or her discretion, among the parties to
the arbitration all costs of the arbitration, including, without limitation, the
fees and expenses of the arbitrator and reasonable attorneys' fees, costs and
expert witness expenses of the parties. The parties hereto agree to comply with
any award made in any such arbitration proceedings that has become final in
accordance with the Rules and agree to the entry of a judgment in any
jurisdiction upon any award rendered in such proceedings becoming final under
the Rules.
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ARTICLE 5
INSURANCE
5.1 COVERAGE. As of the Effective Time, coverage of Technologies and its
Subsidiaries shall cease under current Company Policies, except as provided in
this Article 5. From and after the Effective Time, Technologies and its
Subsidiaries will be responsible for obtaining and maintaining insurance
coverages for their own account, and, with respect to policies of commercial
general liability insurance, shall name BEI as an additional insured with
respect to liabilities assumed by BEI under the Indemnity Agreement. To the
extent that liabilities arising from the activities of Technologies prior to the
Effective Time are covered by Company Policies, and result in the assertion of
claims against BEI after the Effective Time, it is the intention of the parties
that, without increasing or expanding the risks assumed by the insurer,
Technologies will have the benefit of such insurance coverage after the
Effective Time. No assignment pursuant to Section 5.2 is intended to increase
the liability of any insurer under a Company Policy. If and when such
assignment occurs, it is BEI's intention to assign only such coverage as would
have been available to BEI in respect of the Technologies Business if the
Distribution had not occurred.
5.2 CLAIMS FOLLOWING THE EFFECTIVE TIME; WAIVER.
(a) If, subsequent to the Effective Time, any person shall assert a
claim or institute a suit, action or proceeding against Technologies or any of
its Subsidiaries (including, without limitation, where Technologies or its
Subsidiaries are joint defendants with other persons) with respect to any
injury, loss, liability, damage or expense incurred or claimed to have been
incurred prior to the Effective Time in the course of or in connection with the
conduct of the Technologies Business and which injury, loss, liability, damage
or expense may constitute an insured or insurable occurrence under one or more
Company Policies, BEI shall, at the time such claim is asserted, be deemed,
without need of further documentation, to assign to Technologies or any of its
Subsidiaries an interest in the relevant Company Policies (unless such
assignment would render BEI's coverage for such occurrence thereunder void),
subject to any limitations or obligations of Technologies contemplated by this
Article 5, if necessary, and then only to the extent necessary, to convey to
Technologies or any of its Subsidiaries rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to any such claim,
suit, action, proceeding, injury, loss, liability, damage or expense provided,
however, that, with respect to Company Policies for which Technologies has
payment obligations pursuant to Section 5.5 or otherwise, Technologies and its
Subsidiaries shall only have the rights set forth under this Section 5.2(a) with
respect to such Company Policies if such payment obligations have been satisfied
by Technologies.
(b) Notwithstanding any contrary provision contained herein, BEI shall
at all times retain the Company Policies, together with the rights, benefits and
privileges thereunder, including without limitation the right to invade or
exhaust any Company Policy by submission of claims, settlement or otherwise;
provided, that the retention of the Company Policies by BEI is not intended to
limit, inhibit or preclude any right granted pursuant to Section 5.2(a), and
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provided further that Section 5.2(a) is not intended to limit, inhibit or
preclude any rights, benefits or privileges BEI may have under Company Policies.
5.3 ADMINISTRATION. From the Effective Time until one full policy year
after the end of the policy year in which the Effective Time occurs (the
"Insurance Transition Period"), Technologies shall be responsible for Claims
Administration with respect to BEI Liabilities and Technologies Liabilities.
BEI hereby appoints Technologies as its agent and attorney in fact to assert
claims against insurance carriers and to otherwise perform Claims Administration
with respect to BEI Liabilities during the Insurance Transition Period.
Technologies shall be responsible for Claims Administration with respect to
Technologies Liabilities with respect to which BEI is engaged in coverage
litigation as of the Effective Time.
5.4 INSURANCE PROCEEDS. Proceeds received with respect to claims made
under Company Policies shall be paid to BEI with respect to BEI Liabilities and
to Technologies with respect to Technologies Liabilities.
5.5 RETROSPECTIVELY RATED POLICIES. From and after the Effective Time,
any additional premiums payable or rebates of premiums previously paid in
respect of any retrospectively rated Company Policy shall be paid or collected
by BEI. BEI shall be reimbursed by Technologies, or shall distribute to
Technologies, amounts equal to the portion of any such additional premium or
rebate, as applicable, which relates to the Technologies Business. BEI shall
notify Technologies when it becomes aware of a proposed adjustment.
5.6 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In the event
that Insured Claims of more than one of the parties hereto exist relating to the
same occurrence, the parties shall jointly defend and waive any conflict of
interest necessary to the conduct of the joint defense. Nothing in this Section
5.6 shall be construed to limit or otherwise alter in any way the obligations of
the parties to this Agreement, including those created by this Agreement, by
operation of law or otherwise.
5.7 COOPERATION. The parties hereto agree to use commercially reasonable
efforts to cooperate with respect to the various insurance matters contemplated
by this Agreement.
5.8 INDEMNITY AGREEMENT. The parties hereto agree that the amount which
any indemnifying party is or may be required to pay to an indemnified party
pursuant to the Indemnity Agreement shall be reduced (including, without
limitation, retroactively) by any proceeds of insurance policies or other
amounts actually recovered by or on behalf of such indemnified party in
reduction of the related Liability (as defined in the Indemnity Agreement). If
an indemnified party shall have received the payment (an "Indemnity Payment")
required by the Indemnity Agreement from an indemnifying party in respect of any
Liability (as defined in the Indemnity Agreement) and shall subsequently
actually receive proceeds of insurance policies or other amounts in respect of
such Liability, then such indemnified party shall repay to such indemnifying
party a sum equal to the amount actually received (up to but not in excess of
the amount of any Indemnity Payment made thereunder). An insurer who would
otherwise be obligated to pay any claim shall not, solely by virtue of the
indemnification provisions contained in the Indemnity Agreement, be relieved of
its responsibility with respect thereto, or have any
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subrogation rights with respect thereto, it being expressly understood and
agreed that no insurer or any other third party shall be entitled to a benefit
they would not otherwise be entitled to receive in the absence of the
indemnification provisions contained in the Indemnity Agreement by virtue
thereof.
ARTICLE 6
EMPLOYEE OBLIGATIONS AND BENEFIT PLANS
6.1 BEI RETIREMENT PLAN. From the Effective Time, and through December
31, 1997, Technologies employees will continue to participate in the BEI
Retirement Plan. Effective January 1, 1998, Technologies will establish a
qualified retirement plan with a salary deferral (401(k)) feature ("Technologies
401(k) Plan") for its and its Subsidiaries' employees. Prior service with BEI
or any of its Subsidiaries shall be recognized under the Technologies 401(k)
Plan for the purpose of meeting all vesting, eligibility and other service-
related requirements thereunder. Effective January 1, 1998, Technologies' and
its Subsidiaries' employees will no longer participate in the BEI Retirement
Plan but will become participants in the Technologies 401(k) Plan in accordance
with the terms of the Technologies 401(k) Plan. Effective as of, or as soon as
administratively feasible following, January 1, 1998, the account balances of
the Technologies and its Subsidiaries' employees held in the BEI Retirement Plan
will be transferred to the Technologies 401(k) Plan in a trustee-to-trustee
transfer (the "Transferred Assets"). Technologies hereby agrees to assume, and
shall indemnify and hold harmless BEI from and against, any and all claims
brought against BEI or any of its Subsidiaries under the Technologies 401(k)
Plan or with respect to the Transferred Assets.
6.2 SUPPLEMENTAL PLAN. Effective as of the Effective Time, Technologies
shall adopt a plan substantially similar to the BEI Supplemental Plan (the
"Technologies Supplemental Plan"). Prior service with BEI or any of its
Subsidiaries shall be recognized under the Technologies Supplemental Plan for
the purpose of meeting all vesting, eligibility and other service-related
requirements thereunder. As of, or as soon as administratively feasible
following, the Effective Time, assets, benefits and liabilities accrued under
the BEI Supplemental Plan, with respect to participants in the BEI Supplemental
Plan who become employees of Technologies or who become or remain employees of
any Subsidiary of Technologies, shall be transferred to, and thereafter
administered under, the terms of the Technologies Supplemental Plan.
Technologies hereby agrees to assume, and shall indemnify and hold harmless BEI
from and against, any and all claims brought against BEI or any of its
Subsidiaries under the Technologies Supplemental Plan or with respect to the
assets, benefits or liabilities transferred from the BEI Supplemental Plan to
the Technologies Supplemental Plan.
6.3 STOCK OPTIONS AND RESTRICTED STOCK.
(a) STOCK OPTIONS. BEI and Technologies shall cause vested and
unvested incentive stock options and nonstatutory stock options to purchase BEI
Common Stock outstanding at the Effective Time to be converted to vested and
unvested incentive stock options and nonstatutory stock options, as appropriate,
to purchase Technologies Common Stock issued
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under the Technologies Equity Plan. The conversion will be accomplished
according to the following rules:
(i) the excess of the aggregate fair market value of the shares of
Technologies Common Stock subject to the option after the conversion over the
aggregate option price of such shares shall be essentially equal to, and in any
event no more than, the excess of the aggregate fair market value of the shares
of BEI Common Stock subject to the option before such conversion over the
aggregate option price of such shares;
(ii) on a share by share comparison, the ratio of the option price
to the fair market value of the shares of Technologies Common Stock subject to
the option immediately after the conversion may not be more favorable to the
optionee than the ratio of the option price to the fair market value of the
shares of BEI Common Stock subject to the option immediately before the
conversion; and
(iii) the new option does not give the option holder additional
benefits that such holder did not have under the old option.
For purposes of the calculation identified above, the fair market value of
Technologies Common Stock after the conversion shall be calculated in accordance
with accepted practices for such determinations, as determined by the management
of Technologies in consultation with its professional advisers.
(b) RESTRICTED STOCK. BEI and Technologies shall cause each holder as
of the Distribution Record Date of shares of BEI Common Stock issued pursuant to
the BEI Restricted Stock Plan ("BEI Restricted Stock") to receive as a result of
the Distribution vested and unvested shares of Technologies Common Stock equal
to the number of vested and unvested shares of BEI Restricted Stock held by such
holder on the Distribution Record Date. Vesting of the unvested shares of
Technologies Common Stock so issued shall be in accordance with the vesting
requirements of the BEI Restricted Stock Plan; provided, however, that
employment by Technologies or Electronics or any of either company's respective
Subsidiaries shall be deemed to be employment by BEI or any of its Subsidiaries
for purposes of satisfying the vesting requirements of the BEI Restricted Stock
Plan. For the purpose of vesting unvested shares of BEI Restricted Stock under
the vesting requirements of the BEI Restricted Stock Plan, employment by
Technologies or any of its Subsidiaries shall be deemed to be employment by BEI
or any of its Subsidiaries.
6.4 OTHER BENEFITS. From the Effective Time, and through December 31,
1997, Technologies employees and employees of its Subsidiaries will continue to
participate in the health, disability and other welfare benefit plans (other
than plans described in Section 6.5) sponsored by BEI. Effective January 1,
1998, Technologies will adopt welfare benefit plans and programs (the
"Technologies Benefit Plans") affording benefits similar to those provided under
BEI's welfare benefit plans. Effective January 1, 1998, Technologies employees
and employees of its Subsidiaries will no longer participate in the BEI welfare
benefit plans and programs but will become participants in the Technologies
Benefit Plans in accordance with the terms of the Technologies Benefit Plans.
BEI will not be responsible for and will incur no liability with
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respect to the Technologies Benefit Plans. The BEI group medical plan or plans
shall provide required group health continuation coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1984 ("COBRA") for qualifying events that
occur prior to January 1, 1998. Technologies, with respect to its and its
Subsidiaries' employees, shall provide COBRA coverage for qualifying events that
occur on or after January 1, 1998. Technologies hereby agrees to assume, and
shall indemnify and hold harmless BEI from and against, all claims brought
against BEI or any of its Subsidiaries under the Technologies Benefit Plans,
including, without limitation, any claims under COBRA for qualifying events of
Technologies' and its Subsidiaries' employees and dependents that occur on or
after January 1, 1998.
6.5 SEVERANCE CLAIMS. Technologies shall assume, and shall indemnify and
hold BEI harmless against, all claims and liabilities for severance, change-in-
control or termination benefits arising out of or resulting from the transfer of
employment of any employee of BEI or any of its Subsidiaries to Technologies or
any of its Subsidiaries at the Effective Time.
ARTICLE 7
MISCELLANEOUS
7.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter. In the event of any inconsistency between this
Agreement and any Schedule hereto, the Schedule shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of any Ancillary Agreement, such Ancillary Agreement shall
control.
7.2 ANCILLARY AGREEMENTS. This Agreement is not intended to address, and
should not be interpreted to address, the matters specifically and expressly
covered by the Ancillary Agreements.
7.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
7.4 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Effective Time.
7.5 EXPENSES. Except as otherwise set forth in this Agreement or any
Ancillary Agreement, all costs and expenses incurred on or prior to the
Effective Time (whether or not paid on or prior to the Effective Time) in
connection with the preparation, execution, delivery and implementation of this
Agreement and any Ancillary Agreement, the Information Statement and the
Distribution and the consummation of the transactions contemplated thereby shall
be
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charged to and paid by BEI Electronics, Inc. and allocated to the parties on an
equitable basis. Except as otherwise set forth in this Agreement or any
Ancillary Agreement, each party shall bear its own costs and expenses incurred
after the Effective Time.
7.6 NOTICES. All notices and other communications hereunder shall be in
writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
Prior to the Effective Time:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
After the Effective Time:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
with a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
7.7 WAIVERS. The failure of either party to require strict performance by
the other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
7.8 AMENDMENTS. Subject to the terms of Section 7.11 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the parties.
7.9 ASSIGNMENT. This Agreement shall be assignable in whole in connection
with a merger or consolidation or the sale of all or substantially all the
assets of a party hereto so long as the resulting, surviving or transferee
entity assumes all the obligations of the relevant party
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hereto by operation of law or pursuant to an agreement in form and substance
reasonably satisfactory to the other party to this Agreement. Otherwise this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the prior written consent of the others and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void.
7.10 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
7.11 TERMINATION. This Agreement may be terminated and the Distribution
may be amended, modified or abandoned at any time prior to the Effective Time by
and in the sole discretion of BEI without the approval of Technologies or the
shareholders of BEI. In the event of such termination, no party shall have any
liability of any kind to any other party or any other person. After the
Effective Time, this Agreement may not be terminated except by an agreement in
writing signed by the parties.
7.12 SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party at
the time such performance is anticipated to occur in order to facilitate the
Distribution.
7.13 THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and their respective Subsidiaries and Affiliates and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.14 ATTORNEY FEES. Except as contemplated by the third to the last
sentence of Article 4 hereof, a party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other party hereto for and against all
out-of-pocket expenses, including, without limitation, legal fees, incurred by
such other party by reason of the enforcement and protection of its rights under
this Agreement. The payment of such expenses is in addition to any other relief
to which such other party may be entitled hereunder or otherwise.
7.15 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7.16 EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be construed
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
7.17 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges that
there is no adequate remedy at law for failure by such party to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages, and therefore agree that
its agreements contained herein may be
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specifically enforced without the requirement of posting a bond or other
security, in addition to all other remedies available to the other party hereto
under this Agreement.
7.18 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS SUCH LAWS ARE APPLIED TO
AGREEMENTS BETWEEN CALIFORNIA RESIDENTS ENTERED INTO AND PERFORMED ENTIRELY IN
CALIFORNIA.
7.19 CONSENT TO JURISDICTION. This Section 7.19 shall not limit the
provisions of Article 4 hereof. Each of the parties irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Northern
District of California located in San Francisco, California or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Superior Court for the City and County of San Francisco,
California. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's address set
forth above shall be effective service of process for any action, suit or
proceeding in California with respect to any matters to which it has submitted
to jurisdiction in this Section 7.19. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Superior Court for the City and County of San Francisco,
California, or (ii) the United States District Court for the Northern District
of California located in San Francisco, California, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
7.20 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
7.21 FORCE MAJEURE.
7.21.1 ACTS CONSTITUTING FORCE MAJEURE. Neither party shall be
liable to the other for a delay in its performance of this Agreement arising
from causes beyond its reasonable control. Without limiting the generality of
the foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
party shall be required to resolve labor disputes, but shall use commercially
reasonable efforts to seek alternative sources to the extent practicable.
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7.21.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either party under this Agreement, whether or not such
circumstances are excused pursuant to Section 7.21.1 above, such party shall,
when it first becomes aware of such circumstances, promptly notify the other
party, by facsimile or by telephone confirmed in writing within two (2) business
days in the case of oral notice. Within ten (10) business days of the date when
either party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BEI ELECTRONICS, INC.,
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BEI TECHNOLOGIES, INC.,
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
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SCHEDULE 3.3(b)
DOCUMENT RETENTION POLICY
I. GENERAL GUIDELINES AFFECTING DOCUMENT RETENTION
Generally, the document retention policy is shaped by the following
requirements and issues:
A. LEGAL REQUIREMENTS. The comprehensive document retention policy must
conform to legal requirements that affect the businesses.
B. INDUSTRY PRACTICE. Standards and customs in the industries in which
the companies do business will often determine record retention policies. These
standards and customs, coupled with accrued experience within the companies,
often provide a basis for decisions made concerning the relative utility of
competing policies.
C. INDIVIDUAL REQUIREMENTS. Need for access and retrieval of documents
also determines the parameters of the document retention policy.
II. PARTICULAR CATEGORIES OF DOCUMENTS AND THEIR RETENTION
Several categories of documents that bear special consideration are
identified below. While minimum retention periods are suggested, the retention
of the documents identified below and of documents not included in the
identified categories should be determined primarily by the application of the
general guidelines affecting document retention identified above, as well as any
other pertinent factors known to the respective company.
A. TAX RECORDS. Tax records include, but may not be limited to,
documents concerning payroll, expenses, proof of deductions, business costs,
accounting procedures, and other documents concerning the Companies revenues.
Tax records should be retained for at least six years from the date of filing
the applicable return.
B. EMPLOYMENT RECORDS/PERSONNEL RECORDS. State and federal statutes
require the companies to keep certain recruitment, employment and personnel
information. The companies should also keep personnel files that reflect
performance reviews and any complaints brought against the Company or individual
employees under applicable state and federal statutes. The companies should
also keep all final memoranda and correspondence reflecting performance reviews
and actions taken by or against personnel in the employee's personnel file.
Employment Records/Personnel Records should be retained for six years.
C. BOARD MATERIALS. Meeting minutes should be retained in perpetuity in
the companies' respective minute books. A clean copy of all Board materials
should be kept for no less than three years by each company.
1.
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D. PRESS RELEASES/PUBLIC FILINGS. The companies should retain permanent
copies of all press releases and publicly filed documents under the theory that
each company should have its own copy to test the accuracy of any document a
member of the public can theoretically produce against that company.
With regard to Registration Statement materials or any periodic
reports filed with the SEC or any government agency, a copy of the materials
actually filed or publicly disseminated should be kept in a permanent file by
the company.
E. LEGAL FILES. Counsel should be consulted to determine the retention
period of particular documents.
F. MARKETING AND SALES DOCUMENTS. Each company should keep final copies
of marketing and sales documents for the same period of time it keeps other
corporate files --generally three years.
An exception to the three year policy may be sales invoices,
contracts, leases, licenses and other legal documentation. These documents
should be kept for at least three (3) years beyond the life of the agreement.
G. DEVELOPMENT/INTELLECTUAL PROPERTY AND TRADE SECRETS. Development
documents are often subject to intellectual property protection in their final
form (e.g., patents and copyrights). The documents detailing the development
process are often also of value to a company and are protected as a trade secret
where the company:
(a) derives independent economic value from the secrecy of the
information; and
(b) the company has taken affirmative steps to keep the information
confidential.
Each company should keep all documents designated as containing trade
secret information for at least the life of the trade secret.
H. CONTRACTS. Final, execution copies of all contracts entered into by a
company should be kept by that company. Each company should retain copies of
the final contracts for at least three (3) years beyond the life of the
agreement, and longer in the case of publicly filed contracts.
I. ELECTRONIC MAIL. Email that needs to be saved should be either:
(a) printed in hard copy and kept in the appropriate file; or
(b) downloaded to a computer file and kept electronically or on disk
as a separate file.
2.
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The retention period depends upon the subject matter of the email, as
covered elsewhere in this policy.
3.
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EXHIBIT 2.2
CORPORATE SERVICES AGREEMENT
CORPORATE SERVICES AGREEMENT ("AGREEMENT") dated as of ___________, 19____
between BEI Technologies, Inc., a Delaware corporation ("Technologies") and BEI
Electronics, Inc., a Delaware corporation ("Electronics" or
"Electronics/Medical").
R E C I T A L S:
WHEREAS, Electronics desires to obtain certain services, facilities,
supplies and equipment from Technologies and Technologies desires to provide
same to Electronics/Medical, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties agree as follows:
1. SUBLEASE OF FACILITIES.
The parties do not presently share any facilities and no sublease of
facilities by either party to the other is presently foreseen. However, the
parties may by mutual consent, not to be unreasonably withheld, subsequently
cooperate to accommodate the office or factory space needs of the other on arms
length terms.
2. GENERAL & ADMINISTRATIVE.
Commencing on the date of separation, Technologies will perform
certain specialized administrative services for Electronics/Medical as more
particularly detailed below. These services will be performed by Technologies'
Human Resources and Corporate Accounting and Administrative specialists and will
continue for a transition period the duration of which is noted below.
a. HUMAN RESOURCES. An experienced senior manager will provide
consultation, training and oversight of Electronics' regulatory affairs. These
affairs consist of such areas as: employment, termination, layoffs, discipline,
worker's compensation, etc. This assistance will continue for no more than five
quarters.
b. EMPLOYEE BENEFITS. Technologies' senior staff will oversee, on
behalf of Electronics, the continuation, administration, and orderly handoff of
all employee fringe benefit programs, payroll systems, and IRS qualified and
non-qualified retirement plans. These programs include life, medical, dental
and disability income benefits; the ADP payroll systems, a 401(k) retirement
savings plan and a deferred compensation plan.
These services will continue for one full policy year (in the case of
the fringe benefit plans) or one full plan year (in the case of the 401(k) plan)
beyond the year in which separation occurs.
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c. GENERAL LIABILITY AND DIRECTORS AND OFFICERS (D&O) INSURANCE.
Technologies' cognizant manager will oversee on behalf of Electronics the
continuation and orderly handoff of responsibility for maintaining these
categories of insurance. The service provided will include risk assessment,
assurance of policy coverage and liaison with the company's broker(s) and
carrier(s). Premiums due from each Company shall be invoiced separately by the
insurance provider. This service will continue for one full calendar year
beyond the end of the year in which separation occurs.
d. AUDIT AND TAX PREPARATION. Technologies' corporate accounting
staff will supervise and coordinate necessary financial audits and tax
preparation activities with Ernst & Young LLP and the orderly handoff of these
activities to the audit and federal and state tax service provider(s) ultimately
selected by Electronics/Medical. This liaison and oversight will continue
through the completion of the fiscal year end audits and tax returns for the
fiscal year following the year in which the separation occurs.
e. SEC COMPLIANCE REPORTING. Technologies' corporate staff
responsible for 10-K, 10-Q and proxy reporting will assist Electronics by
preparing applicable SEC and Nasdaq - mandated reports for filing by
Electronics. This service will continue for no more than five fiscal quarters
following the date of separation unless otherwise agreed pursuant to future
negotiations.
3. FEES & PAYMENTS
a. Electronics shall pay fees to Technologies for the above
described managerial services. The amount to be paid shall be negotiated on an
arms length basis within 60 days following the date hereof. In addition,
Electronics will pay such additional costs and expenses as have typically been
separately invoiced in the past for professional services such as audit and tax
preparation support, employee benefit record keeping and financial advisory
services, legal advice, and insurance policy premiums.
b. Fees for Technologies' services shall be payable monthly, pro
rated for fractional periods and invoiced in advance before the 10th of each
month. Electronics agrees to pay Technologies' invoices net within 30 days.
Additional costs and expenses incurred for professional services shall be
invoiced directly to Electronics. Where practical considerations dictate that
Technologies should pay for the professional services directly, or on behalf of
Electronics, Electronics agrees to reimburse Technologies immediately following
receipt of Technologies' invoice which details the charges.
c. It is the intent of the parties that the fees shall bear a
reasonable relationship to actual costs. The need for continued service (if
any) and the fees (if any) therefore shall be reviewed after four quarters and
adjusted subject to arms length negotiation confirmed in writing.
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4. TERMINATION.
Either party may, in its discretion, terminate this Agreement in the
event that the other party breaches any material obligation hereunder, which
breach continues for a period of sixty (60) days after written notice thereof is
delivered by the non-breaching party. Electronics may terminate this Agreement
at will, sixty (60) days after written notice of such intent to terminate has
been given to Technologies. In the event of termination, the fees due
Technologies shall accrue through the date of termination.
5. NOTICES.
All notices, requests and other communications to Technologies or
Electronics/Medical hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and shall
be personally delivered or sent by telecopy or other electronic facsimile
transmission or by registered mail or certified mail, return receipt requested,
postage prepaid, in each case to the respective address specified below (or such
other address as may be specified in writing to the other party hereto):
BEI Technologies, Inc.
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
BEI Electronics, Inc.
83 Hobart Street
Hackensack, NJ 07601
Attn: President
Any notice or communication given in conformity with this Section
shall be deemed to be effective when received by the addressee, if delivered by
hand, and three days after mailing, if mailed.
6. SUCCESSORS.
The terms and provisions of this Agreement shall inure to the benefit
of, and be binding upon Technologies, Electronics, and their respective
successors and assigns; provided, however, that neither Technologies nor
Electronics may assign or otherwise transfer any of its rights and interests,
nor delegate any of its respective obligations, hereunder, including, without
limitation, pursuant to a merger or consolidation, without the prior written
consent of the other party hereto.
7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, as applied to contracts entered into and
performed entirely within California.
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8. SEVERABILITY.
If any provision hereof should be held invalid, illegal or unenforceable in
any respect in any jurisdiction, then, to the fullest extent permitted by law,
(a) all other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible and (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction.
9. FORCE MAJEURE.
a. ACTS CONSTITUTING FORCE MAJEURE. Neither party shall be liable
to the other arising out of a delay in its performance of this Agreement arising
from causes beyond its reasonable control. Without limiting the generality of
the foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
party shall be required to resolve labor disputes, but shall use commercially
reasonable efforts to seek alternative sources to the extent practicable.
b. NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either party under this Agreement, whether or not such
circumstances are excused pursuant to Section 7.1 above, such party shall, when
it first becomes aware of such circumstances, promptly notify the other party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
10. HEADINGS.
Headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting this
Agreement.
11. ENTIRE AGREEMENT; AMENDMENT.
This Agreement constitutes the entire agreement between the parties
hereto regarding the subject matter hereof and may not be changed or cancelled
except in writing signed by all parties hereto.
12. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original, and all of which counterparts, taken together, shall constitute one
and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date first above written. This
Agreement may only be amended or modified by a written agreement executed by
both parties.
BEI Technologies, Inc.
by: ____________________________
____________________________
Title: President
BEI Electronics, Inc.
by: ____________________________
____________________________
Title: President
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EXHIBIT 2.3
TAX ALLOCATION AND INDEMNITY AGREEMENT
This Tax Allocation and Indemnity Agreement is entered into this ____ day
of September, 1997, by and between BEI Electronics, Inc., a Delaware corporation
("ELECTRONICS"), and __________________, a Delaware corporation
("TECHNOLOGIES").
RECITALS
1. ELECTRONICS is the common parent of the ELECTRONICS Affiliated Group,
and ELECTRONICS and various of its direct and indirect subsidiaries are members
of the ELECTRONICS Unitary Group (as those terms are defined below);
2. On ____________, 1997, ELECTRONICS contributed the stock of BEI Sensors
and Systems Company to TECHNOLOGIES in exchange for all of TECHNOLOGIES capital
stock and TECHNOLOGIES thereby became a member of the ELECTRONICS Affiliated
Group and ELECTRONICS Unitary Group;
3. ELECTRONICS intends to distribute its TECHNOLOGIES stock to its
shareholders in a transaction under Section 355 of the Code, at which time
TECHNOLOGIES would no longer be a member of the ELECTRONICS Affiliated Group and
the ELECTRONICS Unitary Group; and
4. ELECTRONICS, on behalf of itself and the members of the ELECTRONICS
Subgroup, and TECHNOLOGIES, on behalf of itself and the members of the
TECHNOLOGIES Subgroup (as those terms are defined below), intend in this
Agreement to provide for the allocation among themselves of Tax liabilities
arising from tax returns filed after, and Final Determinations made after,
September 27, 1997, for the period that TECHNOLOGIES and the other members of
the TECHNOLOGIES Subgroup are members of the ELECTRONICS Affiliated Group and
the ELECTRONICS Unitary Group; reimbursement for payment of Tax liabilities and
use of Tax benefits arising during that period for tax returns filed after
September 27, 1997; indemnification and procedures for audits and contests with
respect to subsequent adjustments of such Tax liabilities for Final
Determinations made after September 27, 1997; and cooperation in filing of
returns and other matters relating to Taxes;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1 "Affiliated Period" means the period during which TECHNOLOGIES or any
other member of the TECHNOLOGIES Subgroup is a member of the ELECTRONICS
Affiliated Group and/or the ELECTRONICS Unitary Group.
<PAGE>
1.2 "Agreement" means this Tax Allocation and Indemnity Agreement, as
amended from time to time.
1.3 "Code" means the Internal Revenue Code of 1986, as amended, or any
similar or successor statute.
1.4 "Combined Return" means any state, local or, if applicable, foreign
income, franchise or similar tax return which has been or will be filed by any
ELECTRONICS Subgroup member or TECHNOLOGIES Subgroup member on a basis which
reports Taxes for two or more members of such subgroup using combined
consolidated or unitary business tax reporting principles.
1.5 "Consolidated Return" means a consolidated U.S. federal income tax
return filed by or on behalf of an affiliated group of corporations within the
meaning of Section 1504 of the Code.
1.6 "Distribution" means a distribution by ELECTRONICS of its capital
stock of TECHNOLOGIES to the shareholders of ELECTRONICS.
1.7 "Final Determination" means, with respect to any liability for Taxes
for any period, (a) a final, unappealable decision by a court of competent
jurisdiction, (b) the expiration of applicable statutes of limitations on
assessment of Taxes or filing of claims for refund, (c) the execution of a
closing agreement under Section 7121 of the Code or the acceptance by the IRS of
an offer in compromise pursuant to Section 7122 of the Code (or similar
agreements with tax authorities entered into under applicable state, local or
foreign tax law), (d) a binding agreement without reservation on IRS Form 870-AD
or a comparable agreement form under the laws of any other taxing jurisdiction
or (e) any other final, irrevocable and unappealable determination of Taxes for
such period.
1.8 "IRS" means the United States Internal Revenue Service or any
successor thereto.
1.9 "ELECTRONICS Affiliated Group" means the affiliated group of
corporations (within the meaning of Section 1504 of the Code) of which
ELECTRONICS is the common parent.
1.10 "ELECTRONICS Subgroup" means ELECTRONICS and all other corporations
included in the ELECTRONICS Affiliated Group and/or the ELECTRONICS Unitary
Group other than TECHNOLOGIES and other corporations included in the
TECHNOLOGIES Subgroup.
1.11 "ELECTRONICS Unitary Group" means any group of corporations including
ELECTRONICS filing or required to file any Combined Return.
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1.12 "Tax" or "Taxes" means any or all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to, federal,
state and foreign income taxes), payroll and employee withholding taxes,
unemployment insurance contributions, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property taxes,
stamp taxes, environmental taxes, transfer taxes, and other governmental charges
or obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected.
1.13 "TECHNOLOGIES Subgroup" means TECHNOLOGIES and all of its direct and
indirect subsidiaries, whether currently or hereafter existing, which would be
included in an affiliated group of corporations (within the meaning of Section
1504(a) of the Code) and/or combined, consolidated or unitary state or other tax
filing groups of corporations of which TECHNOLOGIES would be the ultimate parent
corporation if TECHNOLOGIES were not a member of the ELECTRONICS Affiliated
Group or ELECTRONICS Unitary Group, respectively.
ARTICLE II
FILING OF RETURNS
2.1 Consolidated Returns and Combined Returns.
------------------------------------------
(a) ELECTRONICS shall have exclusive authority and responsibility to
prepare and file Consolidated Returns and Combined Returns on behalf of the
ELECTRONICS Affiliated Group and ELECTRONICS Unitary Group, respectively (as
well as any other documents, statements or elections required to be filed or
included with such Consolidated Returns or Combined Returns), for all taxable
years (or portions thereof) included in the Affiliated Period. ELECTRONICS
shall have sole authority and discretion to determine (i) the manner in which
such Consolidated Returns and Combined Returns (and related documents) shall be
prepared and filed, including without limitation the manner in which any item of
income, gain, loss, deduction or credit included in such returns shall be
reported and the corporations appropriately included in the ELECTRONICS Unitary
Group filing a Combined Return, (ii) whether any extensions of time to file a
Consolidated Return or Combined Return shall be requested, and (iii) the
elections that will be made in such returns on behalf of the ELECTRONICS
Affiliated Group, the ELECTRONICS Unitary Group or any members thereof
(including members of the TECHNOLOGIES Subgroup).
(b) TECHNOLOGIES and each member of the TECHNOLOGIES Subgroup hereby
irrevocably appoint ELECTRONICS as their agent and attorney-in-fact to take such
actions (including the execution of documents on behalf of TECHNOLOGIES or any
other member of the TECHNOLOGIES Subgroup) as may be appropriate to effectuate
the filing of
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such Consolidated Returns and Combined Returns. TECHNOLOGIES and each
TECHNOLOGIES Subgroup member agree to file such consents, elections and other
documents, provide information as requested by ELECTRONICS and otherwise
cooperate with ELECTRONICS as necessary to carry out the purpose of this
section. The TECHNOLOGIES Subgroup shall be allocated and TECHNOLOGIES shall pay
to ELECTRONICS an appropriate share of ELECTRONICS' costs (as reasonably
determined by ELECTRONICS) of preparing and filing returns under this Section
2.1.
(c) ELECTRONICS shall be liable, and shall indemnify TECHNOLOGIES and
each other member of the TECHNOLOGIES Subgroup, for any penalties or other
damages attributable to the failure of ELECTRONICS to make timely filings of
Consolidated Returns or Combined Returns for the Affiliated Period or full and
timely payment of all amounts shown to be due thereon, provided that
TECHNOLOGIES and the TECHNOLOGIES Subgroup members have complied with their
obligations to make Tax payments to, provide information to, and otherwise
cooperate on a timely basis with ELECTRONICS as provided under the provisions of
this Agreement. In the event ELECTRONICS pays penalties or other damages as a
result of TECHNOLOGIES' failure to provide information to, or otherwise
cooperate on a timely basis with ELECTRONICS as provided under the provisions of
this Agreement, TECHNOLOGIES shall indemnify ELECTRONICS and each other member
of the ELECTRONICS Subgroup for such penalties or other damages.
2.2 Other Returns.
-------------
(a) Except as otherwise provided herein or as the parties hereto may
otherwise agree, TECHNOLOGIES shall have exclusive authority and responsibility
to prepare and file all tax returns by or on behalf of it and any member of the
TECHNOLOGIES Subgroup, other than Consolidated Returns and Combined Returns
subject to the provisions of Section 2.1. ELECTRONICS shall provide (and shall
cause each ELECTRONICS Subgroup member and their representatives to provide)
reasonable access to books, records, returns and other information to the extent
necessary to permit TECHNOLOGIES timely to prepare and file such tax returns and
shall otherwise cooperate as reasonably requested by TECHNOLOGIES in connection
with the preparation and filing of such returns.
(b) TECHNOLOGIES shall be liable, and shall indemnify ELECTRONICS and
each other member of the ELECTRONICS Subgroup, for any penalties or other
damages attributable to the failure of TECHNOLOGIES to make timely filings of
tax returns for which it is responsible under this Section 2.2(b) or full and
timely payment of amounts shown to be due thereon, provided that ELECTRONICS and
the ELECTRONICS Subgroup members have complied with their obligations to provide
information and otherwise cooperate as provided hereunder.
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ARTICLE III
ALLOCATION OF LIABILITIES FOR TAXES
3.1 Federal Income Taxes.
--------------------
(a) For each taxable year (or portion thereof) in which TECHNOLOGIES
and any other members of the TECHNOLOGIES Subgroup are included in the
ELECTRONICS Affiliated Group, the TECHNOLOGIES Subgroup shall be allocated and
TECHNOLOGIES shall pay to ELECTRONICS the TECHNOLOGIES Subgroup's federal income
Tax liability, if any (including any alternative minimum tax or environment tax,
as determined under this Section 3.1). Such federal Tax liability shall equal
the hypothetical separate return tax liability of such subgroup for such taxable
year, as determined in accordance with the provisions of Treasury Regulations
Section 1.1552-1(a)(2)(ii) (treating references to a "member" therein as
references to the TECHNOLOGIES Subgroup, and including the adjustments under
clauses (a) - (h) thereof) as if the TECHNOLOGIES Subgroup had filed a separate
consolidated federal income tax return for such taxable year. If the
TECHNOLOGIES Subgroup's federal Tax liability as so determined is zero, then
ELECTRONICS shall pay to TECHNOLOGIES the excess, if any, of the ELECTRONICS
Subgroup's federal income Tax liability, determined as if the ELECTRONICS
Subgroup had filed a separate consolidated federal income tax return for such
taxable year under the same principles as set forth in the preceding sentence,
over the actual federal income Tax liability of the ELECTRONICS Affiliated
Group.
(b) For purposes of determining allocation of Tax liabilities and
payment obligations under this Section 3.1, (i) any Taxes attributable to the
transfer by ELECTRONICS to TECHNOLOGIES of the stock of BEI Sensors and Systems
Company in connection with the formation and initial capitalization of
TECHNOLOGIES shall be allocated to the ELECTRONICS Subgroup, (ii) any Taxes
attributable to the Distribution being treated as a taxable event to ELECTRONICS
shall be allocated to the party breaching the "Agreement Regarding Certain
Representations and Covenants", provided if neither party has breached such
agreement, or both parties have breached such agreement, then the Taxes shall be
allocated based on a ratio equal to the market capitalization of the ELECTRONICS
Subgroup to the TECHNOLOGIES Subgroup on the date of the distribution, (iii) any
Taxes attributable to the restoration of an excess loss account or intercompany
gain in connection with the Distribution or other event causing termination of
membership by TECHNOLOGIES and other members of the TECHNOLOGIES Subgroup in the
ELECTRONICS Affiliated Group shall be allocated to whichever subgroup includes
the corporation required to restore such item under applicable Treasury
Regulations pursuant to Section 1502 of the Code, (iv) the benefit of the
graduated Tax rates provided under Section 11 of the Code and any alternative
minimum tax exemption amount under Section 55 of the Code shall be allocated to
the TECHNOLOGIES Subgroup in proportion to the ratio of the TECHNOLOGIES
Subgroup's federal Tax liability to the total federal Tax liability of the
ELECTRONICS Affiliated Group (computed without regard to such benefit), and (v)
ELECTRONICS shall otherwise have discretion to allocate items between the
TECHNOLOGIES Subgroup and the ELECTRONICS Subgroup not otherwise specifically
addressed hereunder in any reasonable manner that it deems appropriate in light
of the provisions and purposes of this Agreement.
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<PAGE>
(c) The TECHNOLOGIES Subgroup's federal Tax liability for the taxable
year during or with which the Affiliated Period ends shall be determined in
accordance with the provisions of Treasury Regulations Section 1.1502-76(b) by
closing the books of TECHNOLOGIES and the TECHNOLOGIES Subgroup members as of
the end of the last day of the Affiliated Period and taking into account only
items accruing during the portion of the taxable year ending on such date in
computing such liability. Items shall not be pro-rated in accordance with
clauses (ii) or (iii) of Section 1.1502-76(b)(2) of the treasury regulations
except to the extent ELECTRONICS in its discretion determines that it is
impracticable to allocate particular items in accordance with the preceding
sentence.
(d) The parties acknowledge that the allocation of federal Tax
liability provided for by this Section 3.1 is for purposes of determining the
parties' actual payment obligations to each other with respect to Taxes of the
ELECTRONICS Affiliated Group for the Affiliated Period and not for purposes of
computing earnings and profits pursuant to Section 1552 of the Code, and
recognize that such allocation may differ from the allocation provided by
Section 1552 for earnings and profits purposes.
3.2 State Income and Franchise Taxes.
--------------------------------
(a) For each taxable year (or portion thereof) for which TECHNOLOGIES
and/or any other members of the TECHNOLOGIES Subgroup are included in any
combined Return filed by the ELECTRONICS Unitary Group, the TECHNOLOGIES
Subgroup shall be allocated and TECHNOLOGIES shall pay to ELECTRONICS the state
income Tax liability of TECHNOLOGIES and/or such other TECHNOLOGIES Subgroup
members that are so included, as determined under this Section 3.2. Such state
income Tax liability shall equal the hypothetical state income tax liability of
the TECHNOLOGIES Subgroup members so included, computed as if they filed a
Combined Return (or if only one such member is so included, a separate state
income or franchise tax return) including only such included member(s). To the
extent that the same or analogous federal consolidated reporting principles as
are referred to in Section 3.1 apply for purposes of filing such Combined
Returns, then such principles as are referred to in Section 3.1 apply for
purposes of determining the TECHNOLOGIES Subgroup's state Tax liability in
respect of any Combined Return of the ELECTRONICS Unitary Group. If the state
income Tax liability of the TECHNOLOGIES Subgroup as so determined is zero, then
ELECTRONICS shall pay to TECHNOLOGIES the excess, if any, of the ELECTRONICS
Subgroup's state income Tax liability, determined as if the ELECTRONICS Subgroup
had filed a separate Combined Return not including any TECHNOLOGIES Subgroup
members, over the actual state income Tax liability of the ELECTRONICS Unitary
Group. ELECTRONICS shall have the discretion to make determinations of each
subgroup's liability for Taxes under this Section 3.2(a) in any manner that is
reasonable in light of the applicable state and local Tax reporting principles
and the purposes of this Agreement.
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<PAGE>
(b) TECHNOLOGIES shall be responsible for payment of any state Taxes
due from it or any members of the TECHNOLOGIES Subgroup, and ELECTRONICS shall
be responsible for payment of any state Taxes due from ELECTRONICS or any
members of the ELECTRONICS Subgroup, in connection with state income or
franchise tax returns that are not Combined Returns.
3.3 Other Taxes. Any taxes other than Taxes allocated under Sections 3.1
-----------
and 3.2 shall be the responsibility of the party incurring such Tax under
applicable law. Notwithstanding the foregoing, in the event that the applicable
law of any foreign taxing jurisdiction provides for filing of Combined Returns
including one or more members of each of the TECHNOLOGIES Subgroup and the
ELECTRONICS Subgroup, then principles similar to those set forth above in
Section 3.2(a) shall be applied for purposes of determining an appropriate
allocation of Taxes required to be reported with such Combined Returns.
ARTICLE IV
PAYMENT AND INDEMNIFICATION
4.1 Estimated Tax Payments. ELECTRONICS shall have the right to assess
----------------------
TECHNOLOGIES for the TECHNOLOGIES Subgroup's share of any estimated Tax payment
liability incurred by the ELECTRONICS Affiliated Group or the ELECTRONICS
Unitary Group for any taxable year (or portion thereof) included in the
Affiliated Period, as determined by ELECTRONICS in its reasonable discretion
applying the principles of Sections 3.1 and 3.2. For this purpose, TECHNOLOGIES'
share of each such estimated Tax payment liability shall not exceed the
ELECTRONICS Affiliated Group's or ELECTRONICS Unitary Group's actual estimated
Tax payment liability for the relevant period and ELECTRONICS shall have no
obligation to make any payment to TECHNOLOGIES. ELECTRONICS shall provide
TECHNOLOGIES with notice of its estimated Tax payment obligation hereunder at
least five days prior to the due date thereof as specified in such notice,
together with a summary of the basis for the calculation of such obligation, and
TECHNOLOGIES shall pay the amount owed no later than such due date. Any payments
made by TECHNOLOGIES under this Section 4.1 shall be credited against the final
Tax payment obligations due for the entire taxable year (or portion thereof)
under Section 4.2.
4.2 Final Tax Payments. As soon as practicable after the end of each
------------------
taxable year (or portion thereof) included in the Affiliated Period, but in no
event later than 30 days prior to the due date (including extensions) for filing
the applicable Consolidated Return or Combined Return therefor, ELECTRONICS
shall prepare and submit to TECHNOLOGIES a statement setting forth the final
amount determined by ELECTRONICS to be due from TECHNOLOGIES or ELECTRONICS, as
the case may be, in accordance with the provisions of Sections 3.1 and 3.2,
taking into account any amounts credited to TECHNOLOGIES under Section 4.1.
Such statement shall include sufficient supporting information to show the basis
for the amount determined. Unless TECHNOLOGIES objects to the amount
determined, such amount shall be paid no later than five days thereafter. In
the event of a dispute, such dispute shall be resolved by the independent
accounting firm then employed by ELECTRONICS.
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<PAGE>
4.3 Indemnification. Provided that TECHNOLOGIES has made the payments to
---------------
ELECTRONICS required under this Agreement, ELECTRONICS shall be responsible for,
shall protect, indemnify and hold harmless TECHNOLOGIES and each TECHNOLOGIES
Subgroup member from, and shall be entitled to any refunds of (i) any Taxes
imposed on the ELECTRONICS Affiliated Group or the ELECTRONICS Unitary Group (or
any member thereof), including without limitation any obligation to contribute
to the payment of any such Taxes (other than as provided in this Agreement) and
any liability arising from the several liability for Taxes of an affiliated
group under Treasury Regulations Section 1.1502-6 or any analogous provisions of
other applicable law, and (ii) any other Taxes imposed on any member of the
ELECTRONICS Subgroup. Except as provided in the preceding sentence,
TECHNOLOGIES shall be responsible for, shall protect, indemnify and hold
harmless ELECTRONICS and each ELECTRONICS Subgroup member from, and shall be
entitled to any refunds of, Taxes imposed on the TECHNOLOGIES Subgroup or any
member thereof.
ARTICLE V
SUBSEQUENT ADJUSTMENTS
5.1 Subsequent Adjustments. In the event that a Final Determination
----------------------
adjusts any items of income, gain, loss, deduction or credit of the ELECTRONICS
Affiliated Group, the ELECTRONICS Unitary Group or any member thereof for any
taxable year (or portion thereof) included in the Affiliated Period, then the
payment obligations under Article III of this Agreement shall be redetermined in
the following manner: (a) any adjustments related to tax returns filed on or
before September 27, 1997 shall be the responsibility of, or enjoyed by,
TECHNOLOGIES, except to the extent ELECTRONICS' aggregate cumulative liability
under such adjustments exceeds $200,000. In the event ELECTRONICS aggregate
cumulative liability exceeds $200,000, then the payment obligations under
Article III of this Agreement shall be redetermined to reflect such adjustments
and ELECTRONICS shall pay TECHNOLOGIES or TECHNOLOGIES shall pay ELECTRONICS, as
the case may be, the difference between the amounts owed under such section as
so adjusted and the amounts owed as originally determined, together with an
appropriate share of any interest actually due or received in respect of such
adjustment; (b) any adjustments, however, that are a liability attributable to
the carryback of an ELECTRONICS loss or credit shall be allocable to ELECTRONICS
to the extent thereof. Any payment required pursuant to this Article V shall be
made promptly after the occurrence of such Final Determination.
ARTICLE VI
CONTROVERSIES
6.1 Taxes of ELECTRONICS Affiliated Group or Unitary Group. ELECTRONICS
------------------------------------------------------
shall have exclusive authority to represent TECHNOLOGIES and each TECHNOLOGIES
Subgroup member in any audit, examination or other controversy before the IRS or
any other governmental authority or court regarding the Taxes of the ELECTRONICS
Affiliated Group or ELECTRONICS Unitary Group for all taxable years or portions
thereof included in the Affiliated Period. Such authority shall include, but
not be limited to, (a) the exclusive control of any response to any examination
by the IRS or any other taxing authority, and (b) the exclusive
-8-
<PAGE>
control of any contest of any issue through a Final Determination, including,
but not limited to whether and in what forum to conduct such contest, the choice
of counsel, and whether and on what basis to settle. ELECTRONICS shall timely
notify TECHNOLOGIES of any controversy relating to Tax items of TECHNOLOGIES or
any other member of the TECHNOLOGIES Subgroup and promptly provide TECHNOLOGIES
with copies of all correspondence relating to such controversy. Subject to
ELECTRONICS' exclusive authority over Tax controversies as provided for herein,
TECHNOLOGIES shall have the right to consult with ELECTRONICS and participate in
the conduct of such controversies to the extent the controversy relates to items
of the TECHNOLOGIES Subgroup.
6.2 Other Taxes. Except as the parties may otherwise agree, each of
-----------
ELECTRONICS and TECHNOLOGIES shall have exclusive authority to represent itself
and its respective subgroup members in any controversies relating to Taxes of
its respective subgroup (or any members thereof), other than Taxes referred to
in Section 6.1.
6.3 Cooperation. ELECTRONICS and TECHNOLOGIES shall cooperate with each
-----------
other, and shall cause their respective subgroup members and representatives
also to cooperate, in the conduct of any controversy relating to Taxes. Such
cooperation shall include, without limitation, (a) execution of powers of
attorney or other documents necessary to enable the party having authority to
control a contest to take all actions desired by such party with respect
thereto, including making elections, filing claims for refund, and receiving
funds, and (b) making available to the other party, during normal business hours
and on reasonable terms, all books, records (including, but not limited to,
workpapers and schedules), information and employees reasonably requested in
connection with such controversy. In the event of any dispute between the
parties, the parties will adhere to Article 4 "Dispute Resolution" of the
"Distribution" agreement.
6.4 Records. ELECTRONICS and TECHNOLOGIES agree that all records,
-------
including but not limited to, tax returns, supporting schedules, workpapers,
correspondence and other documents within their possession or the possession of
the members of their respective subgroups and relating to Taxes arising during
the Affiliated Period, shall be retained for as long as such records may be
material to the determination of liabilities or refunds of such Taxes and shall
be made reasonably available to the other party upon request during normal
business hours for inspection and copying. Prior to destroying any such
records, the party in possession thereof shall notify the other of such intent
and shall offer to deliver such records to the other.
ARTICLE VII
CARRYBACKS
7.1 Carrybacks. Unless ELECTRONICS in its sole and absolute discretion
----------
consents thereto, or unless specifically required by law, neither TECHNOLOGIES
nor any member of the TECHNOLOGIES Subgroup shall carry back any losses or
credits arising after the Affiliated Period to a taxable year occurring during
the Affiliated Period, and TECHNOLOGIES and each member of the TECHNOLOGIES
Subgroup shall make any elections and take all such action necessary to avoid
any such carryback. Even if a carryback is required by law, ELECTRONICS
-9-
<PAGE>
shall make no payment to TECHNOLOGIES and TECHNOLOGIES shall be entitled to no
refund to the extent that the use of such carryback prevented ELECTRONICS or any
member of the ELECTRONICS Subgroup from using a credit or loss which it would
otherwise use in the year or years to which the TECHNOLOGIES credit or loss is
carried back. In the event that a carryback is not required by law, and
ELECTRONICS, in its sole and absolute discretion, consents to such a carryback,
then ELECTRONICS sole obligation shall be to make reasonable efforts to prepare
and file an amended return based on information supplied to ELECTRONICS by
TECHNOLOGIES and, in the event of the collection of any refund as a result
thereof, to pay to TECHNOLOGIES the amount thereof (including interest received
thereon) attributable to the carryback of such losses and credits. As a
condition precedent to any such action by ELECTRONICS, TECHNOLOGIES shall agree
to indemnify and hold ELECTRONICS harmless with respect to all costs and
expenses incurred in connection therewith and the full amount of any increase in
the ELECTRONICS Affiliated Group Taxes, including interest and penalties,
arising as a result of such amended return.
ARTICLE VIII
MISCELLANEOUS
8.1 Counterparts; Entire Agreement; Corporate Power.
-----------------------------------------------
(a) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party.
(b) This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and thereto, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter, and there are no agreements
or understandings between the parties other than those set forth or referred to
herein or therein.
(c) ELECTRONICS represents on behalf of itself and each other member
of the ELECTRONICS Group and TECHNOLOGIES represents on behalf of itself and
each other member of the TECHNOLOGIES Group as follows:
(i) each such person has the requisite corporate or other power
and authority and has taken all corporate or other action necessary in order to
execute and deliver this Agreement to which it is a party and, subject to
receipt of approval of the stockholders of ELECTRONICS of the Distribution, to
consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement to which it is a party has been duly executed
and delivered by it and constitutes a valid and binding agreement of it,
enforceable in accordance with the terms thereof.
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<PAGE>
8.2 Governing Law. This Agreement shall be governed by and construed and
-------------
interpreted in accordance with the laws of the State of California, irrespective
of the choice of laws principles of the State of California, as to all matters,
including matters of validity, construction, effect, enforceability, performance
and remedies.
8.3 Assignability. This Agreement shall be binding upon and inure to the
-------------
benefit of the parties hereto and thereto, respectively, and their respective
successors and assigns; provided, however, that no party hereto or thereto may
assign its respective rights or delegate its respective obligations under this
Agreement without the express prior written consent of the other parties hereto
or thereto.
8.4 Third Party Beneficiaries. Except for the indemnification rights
-------------------------
under this Agreement of any ELECTRONICS indemnitee or TECHNOLOGIES indemnitee in
their respective capacities as such, (a) the provisions of this Agreement are
solely for the benefit of the parties hereto or thereto and are not intended to
confer upon any person except the parties any rights or remedies hereunder, and
(b) there are no third party beneficiaries of this Agreement and this Agreement
shall not provide any third person with any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement. No party hereto shall have any right,
remedy or claim with respect to any provision of this Agreement to the extent
such provision relates solely to the other party hereto.
8.5 Notices. All notices or other communications under this Agreement
-------
shall be in writing and shall be deemed to be duly given when (a) delivered in
person or (b) deposited in the United States mail or private express mail,
postage prepaid, addressed as follows:
If to ELECTRONICS, to :
If to TECHNOLOGIES, to:
Any party may, by notice to the other party, change the address to which
such notices are to be given.
8.6 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof or thereof, or the application of such provision to persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid or unenforceable, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any
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<PAGE>
party. Upon such determination, the parties shall negotiate in good faith in an
effort to agree upon such a suitable and equitable provision to effect the
original intent of the parties.
8.7 Force Majeure. No party shall be deemed in default of this Agreement
-------------
to the extent that any delay or failure in the performance of its obligations
under this Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of materials, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
8.8 Publicity. Prior to the Distribution, each of TECHNOLOGIES and
---------
ELECTRONICS shall consult with the other prior to issuing any press releases or
otherwise making public statements with respect to the Distribution or any of
the other transactions contemplated by this Agreement and prior to making any
filings with any governmental authority with respect thereto.
8.9 Expenses. Except as expressly set forth in this Agreement, whether or
--------
not the Distribution is consummated, all third party fees, costs and expenses
paid or incurred in connection with the Distribution will be allocated to the
parties on an equitable basis.
8.10 Headings. The Article, Section and Paragraph headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.11 Waivers of Default. Waiver by any party of any default by the other
------------------
party of any provision of this Agreement shall not be deemed a waiver by the
waiving party of any subsequent or other default, nor shall it prejudice the
rights of the other party.
8.12 Specific Performance. In the event of any actual or threatened
--------------------
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party who is or is to be thereby aggrieved shall have the right
to specific performance and injunctive or other equitable relief of its rights
under this Agreement, in addition to any and all other rights and remedies at
law or in equity, and all such rights and remedies shall be cumulative. The
parties agree that the remedies at law for any breach or threatened breach,
including monetary damages, are inadequate compensation for any loss and that
any defense in any action for specific performance that a remedy at law would be
adequate is waived. Any requirements for the securing or posting of any bond
with such remedy are waived.
8.13 Amendments. No provisions of this Agreement shall be deemed waived,
----------
amended, supplemented or modified by any party, unless such waiver, amendment,
supplement or modification is in writing and signed by the authorized
representative of the party against whom it is sought to enforce such waiver,
amendment, supplement or modification.
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<PAGE>
8.14 Words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other genders as the
context requires. The terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Article and Section references are to the Sections to this Agreement unless
otherwise specified. The word "including" and words of similar import when used
in this Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified. The word "or" shall not be
exclusive.
IN WITNESS WHEREOF, the parties hereto have caused this Tax Allocation and
Indemnity Agreement to be executed by their duly authorized representatives.
ELECTRONICS
By:____________________________________
Name:__________________________________
Title:___________________________________
TECHNOLOGIES
By:____________________________________
Name:__________________________________
Title:___________________________________
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<PAGE>
EXHIBIT 2.4
ASSUMPTION OF LIABILITIES
AND
INDEMNITY AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAG
<S> <C> <C>
I. Technologies Assumption And Indemnity.................. 1
II. Electronics Assumption And Indemnity................... 3
III. Insurance Matters...................................... 3
IV. Procedures For Indemnification......................... 4
A. Third Party Claims..................................... 4
B. Indemnification Payments............................... 5
C. Other Adjustments...................................... 5
V. Consolidation, Merger, Transfer, Or Lease.............. 6
VI. Notices................................................ 6
VII. Dispute Resolution..................................... 7
VIII. Consent To Jurisdiction................................ 7
IX. Survival............................................... 8
X. General................................................ 8
A. Complete Agreement; Construction....................... 8
B. Amendments............................................. 8
C. Waiver................................................. 8
D. Severability........................................... 8
E. Governing Law.......................................... 8
F. Successors And Assigns................................. 9
G. Attorney Fees.......................................... 9
H. Title And Headings..................................... 9
I. Exhibits............................................... 9
J. Force Majeure.......................................... 9
</TABLE>
<PAGE>
This ASSUMPTION OF LIABILITIES AND INDEMNITY AGREEMENT (this "Agreement")
is entered into as of the _____ of September, 1997 by and between BEI
TECHNOLOGIES, INC., a Delaware corporation, having its executive offices at One
Post Street, Suite 2500, San Francisco, California 94104 ("Technologies"), and
BEI ELECTRONICS, INC., a Delaware corporation, having its executive offices at
83 Hobart Street, Hackensack, New Jersey, 07601 ("Electronics") (Technologies
and Electronics each being referred to as a "Party" and collectively as the
"Parties").
RECITALS:
WHEREAS, Electronics and Technologies have entered into that certain
Distribution Agreement dated as of the date hereof concerning the spinoff of
Technologies from Electronics (the "Distribution Agreement"); and
WHEREAS, Electronics and Technologies desire to allocate certain
liabilities and obligations associated with their respective businesses;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the Parties hereby agree as follows:
I. TECHNOLOGIES ASSUMPTION AND INDEMNITY.
Technologies shall solely assume, and shall indemnify and hold harmless
Electronics from and against:
A. All claims, damages, losses, liabilities, fines, penalties, costs and
expenses (including reasonable attorneys' fees and disbursements) (collectively,
"Liabilities") arising out of, associated with, or resulting from the
activities, business, operations, assets, properties, conduct or status of
Technologies on or after the Effective Time (as such date is defined in the
Distribution Agreement).
B. All Liabilities associated with the matters, current sites and
businesses described in Exhibit I, including, without limitation, those
Liabilities in connection with the removal, remediation or control of
environmental conditions at or associated with any of the sites identified
therein.
C. All Liabilities arising out of, associated with, or resulting from the
activities, business, operations, assets, properties, conduct or status of BEI
Sensors & Systems Company, Inc., Defense Systems Company, Inc., BEI Export
Sales, Inc., BEI Properties, Inc., SiTek, Inc., a BEI Company, and BEI
International, Inc. (including those companies' respective
<PAGE>
subsidiaries) prior to the Effective Time (as such term is defined in the
Distribution Agreement).
D. All Liabilities arising out of, associated with, or resulting from the
activities, business, operations, assets, properties, conduct or status of the
discontinued businesses and former sites related to BEI Sensors & Systems
Company, Inc., Defense Systems Company, Inc., BEI Export Sales, Inc., BEI
Properties, Inc., SiTek, Inc., a BEI Company, and BEI International, Inc.
(including those companies' respective subsidiaries) identified in Exhibit II,
including, without limitation, Liabilities in connection with the removal,
remediation or control of environmental conditions at any of the sites
identified thereby.
E. All claims and Liabilities for employee benefits for which
Technologies is responsible pursuant to Article 6 of the Distribution Agreement.
F. Notwithstanding the foregoing, matters involving the assumption of
liability and indemnification for taxes shall be governed by the terms of the
Tax Allocation and Indemnity Agreement and the Agreement Regarding Certain
Representations and Covenants, each dated as of the date hereof and each between
Technologies and Electronics (the "Tax Agreements").
G. Notwithstanding the foregoing, Technologies shall indemnify BEI for
all Liabilities to the extent they result from Technologies' gross negligence in
the provision of services under the Corporate Services Agreement dated as of the
date hereof between Technologies and Electronics, other than matters concerning
compliance with reporting to the Securities and Exchange Commission (the "SEC")
and the Nasdaq Stock Market (the "Nasdaq") which have been dealt with separately
in this Agreement.
H. Notwithstanding the foregoing, Technologies agrees to indemnify and
hold harmless Electronics, each of its directors, each of its officers who signs
a filing made with the SEC or the Nasdaq and each person, if any, who controls
Electronics within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act of 1934, as amended (the "Exchange Act"),
against any Liabilities to which Electronics, or any director, officer, or
controlling person of Electronics may become subject under the Securities Act or
the Exchange Act, insofar as such Liabilities arise out of or are based upon
errors or omissions made by Technologies in connection with the filing of
periodic reports with the SEC and the Nasdaq which are attributable to
negligence by Technologies in determining the necessity, form or timing of such
filing. Technologies shall not be responsible for and shall not be required to
indemnify Electronics, its directors, officers or controlling persons, for any
Liabilities resulting directly or indirectly from any untrue or allegedly untrue
statement of a material fact in any such filing or the omission or alleged
omission to state a material fact in any such filing if such untrue or allegedly
untrue statement was provided by Electronics to Technologies, or if such omitted
or allegedly omitted fact was not provided to Technologies in written form, in
connection with the preparation of the filing. Furthermore, Technologies shall
not indemnify Electronics for Liabilities incurred due to a late filing if the
information required to make the filing was not provided to Technologies in a
reasonably timely fashion after Technologies advised Electronics of the need to
make such filing.
<PAGE>
II. ELECTRONICS ASSUMPTION AND INDEMNITY.
Electronics shall solely assume, and shall indemnify and hold harmless
Technologies from and against:
A. All Liabilities arising out of, associated with, or resulting from the
activities, business, operations, assets, properties, conduct or status of
Electronics on or after the Effective Time.
B. All Liabilities arising out of, associated with, or resulting from the
activities, business, operations, assets, properties, conduct or status of
Electronics prior to the Effective Time, except for those described in Article I
above.
C. All claims and Liabilities for employee benefits for which Electronics
is responsible pursuant to Article 6 of the Distribution Agreement.
D. Notwithstanding the foregoing, matters involving the assumption of
liability and indemnification for taxes shall be governed by the terms of the
Tax Agreements.
III. INSURANCE MATTERS.
The amount which any indemnifying Party is or may be required to pay to any
indemnified Party hereunder shall be reduced (including, without limitation,
retroactively) by any proceeds of insurance policies or other amounts actually
recovered by or on behalf of such indemnified Party in reduction of the related
Liability. If an indemnified Party shall have received the payment (an
"Indemnity Payment") required by this Agreement from an indemnifying Party in
respect of any Liability and shall subsequently actually receive proceeds of
insurance policies or other amounts in respect of such Liability, then such
indemnified Party shall pay to such indemnifying Party a sum equal to the amount
actually received (up to but not in excess of the amount of any Indemnity
Payment made hereunder). An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto, or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a benefit they would not
otherwise be entitled to receive in the absence of the indemnification
provisions hereof by virtue of the indemnification provisions hereof.
IV. PROCEDURES FOR INDEMNIFICATION.
A. THIRD PARTY CLAIMS. If a claim or demand is made against an
indemnified Party by any person who is not a party to this Agreement (a "Third
Party Claim") as to which such indemnified Party is entitled to indemnification
pursuant to this Agreement, such indemnified Party shall notify the indemnifying
Party in writing, and in reasonable detail, of the Third Party Claim promptly
(and in any event within ten business days) after receipt by such indemnified
Party of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the
<PAGE>
indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the indemnifying Party shall not be liable for any expenses
incurred during the period in which the indemnified Party failed to give such
notice). Thereafter, the indemnified Party shall deliver to the indemnifying
Party, promptly (and in any event within ten business days) after the
indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified Party relating to the Third
Party Claim.
If a Third Party Claim is made against an indemnified Party, the
indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges in writing its obligation to indemnify the
indemnified Party therefor, to assume the defense thereof with counsel selected
by the indemnifying Party; provided, however, that such counsel is not
reasonably objected to by the indemnified Party. Should the indemnifying Party
so elect to assume the defense of a Third Party Claim, the indemnifying Party
shall not be liable to the indemnified Party for legal or other expenses
subsequently incurred by the indemnified Party in connection with the defense
thereof, unless in connection with the defense of such Third Party Claim there
is in the opinion of counsel for the indemnified Party a material conflict of
interest on any material issue between the position of the indemnified Party and
the position of the indemnifying Party. If the indemnifying Party assumes such
defense, the indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying Party, it being understood that the
indemnifying Party shall control such defense. The indemnifying Party shall be
liable for the fees and expenses of counsel employed by the indemnified Party
for any period during which the indemnifying Party has failed to assume the
defense thereof (other than during the period prior to the time the indemnified
Party shall have given notice of the Third Party Claim as provided above). If
the indemnifying Party so elects to assume the defense of any Third Party Claim,
the indemnified Party shall cooperate with the indemnifying Party in the defense
or prosecution thereof.
If the indemnifying Party acknowledges in writing its obligation to
indemnify the indemnified Party for a Third Party Claim, then in no event will
the indemnified Party admit any liability with respect to, or settle, compromise
or discharge, any Third Party Claim without the indemnifying Party's prior
written consent; provided, however, that the indemnified Party shall have the
right to settle, compromise or discharge such Third Party Claim without the
consent of the indemnifying Party if the indemnified Party releases the
indemnifying Party from its indemnification obligation hereunder with respect to
such Third Party Claim and such settlement, compromise or discharge would not
otherwise materially adversely affect the indemnifying Party. If the
indemnifying Party acknowledges in writing its obligation to indemnify the
indemnified Party for a Third Party Claim, the indemnified Party will agree to
any settlement, compromise or discharge of a Third Party Claim that the
indemnifying Party may recommend and that by its terms obligates the
indemnifying Party to pay the full amount of the liability in connection with
such Third Party Claim and releases the indemnified Party completely in
connection with such Third Party Claim and that would not otherwise materially
adversely affect the indemnified Party; provided, however, that the indemnified
Party may refuse to agree to any such settlement, compromise or discharge if the
indemnified Party agrees that the indemnifying Party's indemnification
obligation with respect to such Third Party Claim shall
<PAGE>
not exceed the amount that would be required to be paid by or on behalf of the
indemnifying Party in connection with such settlement, compromise or discharge.
Notwithstanding the foregoing, the indemnifying Party shall not be entitled
to assume the defense of any Third Party Claim (and shall be liable for the fees
and expenses of counsel incurred by the indemnified Party in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the indemnified
Party which the indemnified Party reasonably determines, after conferring with
its counsel, cannot be separated from any related claim for money damages. If
such equitable relief or other relief portion of the Third Party Claim can be so
separated from that for money damages, the indemnifying Party shall be entitled
to assume the defense of the portion relating to money damages.
B. INDEMNIFICATION PAYMENTS. Indemnification required by this Agreement,
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or loss, liability,
claim, damages or expense is incurred.
C. OTHER ADJUSTMENTS.
(1) The amount of any indemnification obligation with respect to any
Third Party Claim ("Indemnity Obligation") shall be (x) increased to take into
account any net tax cost actually incurred by the indemnified Party arising from
any payments received from the indemnifying Party (grossed up for such increase)
and (y) reduced to take into account any net tax benefit actually realized by
the indemnified Party arising from the incurrence or payment of any such
Indemnity Obligation. In computing the amount of such tax cost or tax benefit,
the indemnified Party shall be deemed to recognize all other items of income,
gain, loss, deduction or credit before recognizing any item arising from the
receipt of any payment with respect to an Indemnity Obligation or the incurrence
or payment of any Indemnity Obligation.
(2) In addition to any adjustments required pursuant to Article III
hereof or clause (1) of this paragraph C., if the amount of any Indemnity
Obligation shall, at any time subsequent to the payment required by this
Agreement, be reduced by recovery, settlement or otherwise, the amount of such
reduction, less any expenses incurred in connection therewith, shall promptly be
repaid by the indemnified Party to the indemnifying Party up to the aggregate
amount of any payments received from such indemnifying Party pursuant to this
Agreement in respect of such Indemnity Obligation.
V. CONSOLIDATION, MERGER, TRANSFER, OR LEASE.
Neither Party shall consolidate with or merge into any other person, or
convey, transfer or lease its properties and assets substantially as an entirety
to any other person, and neither Party shall permit any person to consolidate
with or merge into it or convey, transfer or lease its properties and assets
substantially as an entirety to said Party unless:
<PAGE>
A. In any case in which either Party shall consolidate with or merge into
another person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, the person formed by such
consolidation or into which said Party is merged or the person which acquires by
conveyance or transfer, or which leases the properties and assets of said Party
substantially as an entirety shall (i) be a corporation, (ii) be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and (iii) expressly assume, by an instrument
reasonably satisfactory to the other Party, each and every obligation of said
Party to be performed or observed hereunder;
B. After giving effect to such transaction, the person formed by such
consolidation or into which a Party is merged or the person which acquires by
conveyance, transfer or lease the properties and assets of a Party substantially
as an entirety must have consolidated stockholders' equity, as determined in
accordance with generally accepted accounting principles, at least equal to the
consolidated stockholders' equity of said Party immediately prior to the
consummation of such transaction; and
C. Said Party shall have delivered to the other Party a Certificate
executed by its Chief Executive Officer and Chief Financial Officer stating that
such consolidation, merger, conveyance, transfer or lease complies with this
Article V and with the terms of that certain Agreement Regarding Certain
Representations and Covenants, dated as of the date hereof and between
Technologies and Electronics, and that all conditions precedent herein relating
to such transaction have been complied with.
VI. NOTICES.
All notices and other communications hereunder shall be in writing and hand
delivered or mailed by registered or certified mail (return receipt requested)
or sent by any means of electronic message transmission with delivery confirmed
(by voice or otherwise) to the Parties at the following addresses (or at such
other addresses for a Party as shall be specified by like notice) and will be
deemed given on the date on which such notice is received:
To ELECTRONICS:
83 Hobart Street
Hackensack, New Jersey 07601
Attn: President
with a copy to:
One Post Street
Suite 2500
San Francisco, CA 94104
Attn: Chairman
To TECHNOLOGIES:
<PAGE>
One Post Street
Suite 2500
San Francisco, CA 94104
Attn: President
VII. DISPUTE RESOLUTION.
In the event of a controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, including, without limitation, any
claim based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), such matters shall be resolved in accordance with the provisions of
Article 4 of the Distribution Agreement.
VIII. CONSENT TO JURISDICTION.
This Article VIII shall not limit the provisions of Article VII hereof.
Each of the Parties irrevocably submits to the exclusive personal jurisdiction
and venue of (a) the Superior Court of the City and County of San Francisco,
California, and (b) the United States District Court for the Northern District
of California for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
Parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Northern District of California
located in San Francisco, California, or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Superior Court of the City and County of San Francisco, California. Each of the
Parties further agrees that service of any process, summons, notice or document
by U.S. registered mail to such Party's address set forth above shall be
effective service of process for any action, suit or proceeding in California
with respect to any matters to which it has submitted to jurisdiction in this
Article VIII. Each of the Parties irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the Superior
Court of the City and County of San Francisco, California, or (ii) the United
States District Court for the Northern District of California located in San
Francisco, California, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
IX. SURVIVAL.
All the indemnity obligations under this Agreement shall survive
indefinitely.
X. GENERAL.
A. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Exhibits, shall constitute the entire agreement between the Parties with respect
to the subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such
<PAGE>
subject matter. In the event of any inconsistency between this Agreement and
any Schedule hereto, the Schedule shall prevail.
B. AMENDMENTS. This Agreement may not be modified or amended except by
an agreement in writing signed by the Parties.
C. WAIVER. The failure of either Party to require strict performance by
the other Party of any provision in this Agreement will not waive or diminish
that Party's right to demand strict performance thereafter of that or any other
provision hereof.
D. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The Parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
E. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California, as such laws are applied to
agreements between California residents entered into and to be performed
entirely in California.
F. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors and permitted assigns.
G. ATTORNEY FEES. A Party in breach of this Agreement shall, on demand,
indemnify and hold harmless the other Parties hereto for and against all out-of-
pocket expenses, including, without limitation, legal fees, incurred by such
other Party by reason of the enforcement and protection of its rights under this
Agreement. The payment of such expenses is in addition to any other relief to
which such other Party may be entitled hereunder or otherwise.
H. TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
I. EXHIBITS. The Exhibits shall be construed with and as an integral
part of this Agreement to the same extent as if the same had been set forth
verbatim herein.
J. FORCE MAJEURE.
(1) ACTS CONSTITUTING FORCE MAJEURE. Neither Party shall be liable to
the other for a delay in its performance of this Agreement arising from causes
beyond its reasonable control. Without limiting the generality of the
foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
Party shall be
<PAGE>
required to resolve labor disputes, but shall use commercially reasonable
efforts to seek alternative sources to the extent practicable.
(2) NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either Party under this Agreement, whether or not such
circumstances are excused pursuant to Section J(1) above, such Party shall, when
it first becomes aware of such circumstances, promptly notify the other Party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either Party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other Party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of Electronics and Technologies as of the date first above
written.
BEI TECHNOLOGIES, INC. BEI ELECTRONICS, INC.
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
<PAGE>
EXHIBIT I
A. GENERAL LITIGATION AND CLAIMS.
None identified.
B. CURRENT SITES AND BUSINESSES.
1. San Francisco, California. (Corporate Headquarters.)
2. Maumelle, Arkansas. (Manufacturing, engineering, administrative and
research and development facility for sensors business.)
3. Tustin, California. (Manufacturing, engineering and administrative
facility for sensors business.)
4. Goleta, California. (Manufacturing, engineering and administrative
facility for sensors business.)
5. Campbell, California. (Manufacturing, administrative and research and
development facility for silicon microelectromechanical structures
business.)
6. San Marcos, California. (Manufacturing, engineering and
administrative facility for motors business.)
7. Sylmar, California. (Manufacturing, engineering, research and
development, and administrative facility for sensors business.)
8. Concord, California. (Manufacturing, engineering, research and
administrative facility for sensors business.)
<PAGE>
EXHIBIT II
Identified Discontinued Businesses And Former Plant Sites
1. Euless, Texas. (Manufacturing, engineering, warehouse and
administrative facility for defense business.)
2. East Camden, Arkansas. (Warehousing facility for defense business.)
Any sites or businesses discovered by Technologies or Electronics after the
Effective Time that are related solely to the businesses comprising Technologies
on the Effective Time.
<PAGE>
EXHIBIT 2.5
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
BY AND BETWEEN
BEI ELECTRONICS, INC.
AND
BEI TECHNOLOGIES, INC.
<PAGE>
BEI
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of this _____ day of September,
1997 by and between BEI ELECTRONICS, INC., with its principal executive offices
at [Address], (hereinafter referred to as "Electronics") and BEI TECHNOLOGIES,
INC., with its principal executive offices at One Post Street, Suite 2500, San
Francisco, California 94104 (hereinafter referred to as "Technologies")
(hereinafter collectively the "Parties" and each individually a "Party").
RECITALS
WHEREAS, Electronics and Technologies are contemplating entering into
a Distribution Agreement concerning the spin-off of Technologies from
Electronics (the "Distribution Agreement");
WHEREAS, prior to entering into the Distribution Agreement,
Electronics possesses certain Intellectual Property and Technology used
exclusively or primarily in the Technologies business;
WHEREAS, Technologies desires to own or have the right to use such
certain Intellectual Property and Technology used in its business;
WHEREAS, to allow each of Electronics and Technologies (and their
respective stockholders) to obtain the full value of its respective rights under
the Distribution Agreement, Technologies and Electronics desire to enter into
and execute this Agreement concerning the assignment and licensing of certain
Intellectual Property and Technology;
NOW, THEREFORE, in consideration of the above, and the mutual promises
set forth below, Electronics and Technologies agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
following meanings, on the understanding that words in the singular include the
plural and vice-versa. Headings and subheadings are used for convenience only
and are not intended as limitations in the Agreement or for use in interpreting
the Agreement.
"Agreement" shall mean this agreement as amended and/or supplemented from
time to time, including all the Exhibits attached hereto.
"Confidential Information" shall mean any and all information disclosed to
the receiving Party by the disclosing Party pursuant to this Agreement, in any
form such as, but not limited
1.
<PAGE>
to, visual, oral, written, graphic, electronic or model form, including but not
limited to know-how and trade secrets, whether patented or not and whether in
the laboratory, pilot plant or commercial plant stage (including drawings,
operating conditions, specifications and safety instructions) owned or
controlled by a Party.
"Effective Date" shall mean the Effective Time specified in the
Distribution Agreement.
"Electronics Businesses" shall mean the businesses of BEI Medical Systems
Company, Inc. (hereinafter "Medical Systems"), as they were carried out on or
before the Effective Date.
"Electronics Intellectual Property" shall mean the Intellectual Property,
not including trademarks or tradedress, owned or licensed in by Medical Systems
on or before the Effective Date.
"Electronics Products" shall mean those products that were made by Medical
Systems on or before the Effective Date and products acquired, developed or
established by or for Electronics or any of its Subsidiaries after the Effective
Date.
"Electronics Technology" shall mean all the Technology, that was used by or
derived from efforts by or on behalf of Medical Systems on or before the
Effective Date.
"Intellectual Property" shall mean all classes or types of patents, utility
models, design patents, copyrights, mask works and applications for the
aforementioned, in all countries of the world, owned by a Party and in existence
on or before the Effective Date.
"Medical Device" shall mean a product that is primarily intended for use in
the field of woman's health care and has virtually no other independent
application.
"Person" shall mean any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political sub-division thereof.
"Products" shall mean the Electronics Products and the Technologies
Products.
"Subsidiary" shall mean any corporation, partnership or other entity of
which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Technologies Businesses" shall mean the businesses of Electronics other
than the Electronics Businesses, as they were carried out on or before the
Effective Date.
2.
<PAGE>
"Technologies Intellectual Property" shall mean the Intellectual Property,
not including trademarks or tradedress, owned or licensed in by Electronics, its
Subsidiaries and their constituent companies and predecessor companies prior to
the Effective Date, other than Electronics Intellectual Property.
"Technologies Products" shall mean all products of Electronics other than
Electronics Products that were made by Subsidiaries of Electronics or their
constituent companies and their predecessor companies on or before the Effective
Date and all products acquired, developed or established by or for Technologies
or any of its Subsidiaries after the Effective Date.
"Technologies Technology" shall mean all the Technology, other than
Electronics Technology, that was used by or derived from efforts by or on behalf
of Electronics or its constituent companies and their predecessors on or before
the Effective Date.
"Technology" shall mean the body of knowledge owned by a Party or a
Subsidiary of a Party and in existence as of the Effective Date, including: (i)
information such as technical, engineering, maintenance, environmental and
safety information with respect to the design, equipment selection,
construction, installation, staffing and operation of facilities and equipment
for the design and manufacture of Products; (ii) formulae, process drawings and
descriptions, know-how, and technological and processing information, for the
design and manufacture of Products; and (iii) specifications and properties of
the Products.
"Term" shall mean the period of time during which this Agreement is in full
force and effect pursuant to Section 5.
2. ASSIGNMENT OF INTELLECTUAL PROPERTY.
2.1 ASSIGNMENT. At or prior to the Effective Time, Electronics
irrevocably agrees to assign and transfer to Technologies all of its right,
title and interest, together with all rights of priority, in and to the
Technologies Intellectual Property, the Technologies Technology and the
Technologies Products that are or will be owned by Electronics or any of its
Subsidiaries at the time of the assignment and transfer. Electronics will
retain all right, title and interest in and to the Electronics Intellectual
Property, the Electronics Technology and the Electronics Products.
2.2 DISCLAIMER. EXCEPT AS EXPRESSLY STATED IN SECTION 3.10, ELECTRONICS
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
INTELLECTUAL PROPERTY OR TECHNOLOGY ASSIGNED HEREBY, INCLUDING WITHOUT
LIMITATION AS TO THEIR VALIDITY, ENFORCEABILITY OR FITNESS FOR ANY PARTICULAR
USE OR PURPOSE. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF CONFIDENTIAL
INFORMATION OR INTELLECTUAL PROPERTY RIGHTS OBTAINED BY IT FROM THE OTHER PARTY
HEREUNDER.
3.
<PAGE>
3. LICENSES.
3.1 LIMITED CROSS LICENSE. Technologies and its Subsidiaries hereby grant
to Electronics an irrevocable, royalty free, worldwide, nonexclusive license,
with the right to sublicense, to use the Technologies Intellectual Property and
the Technologies Technology, that have been used by or on behalf of Electronics
in the Electronics Businesses on or before the Effective Date, solely for
designing, making, having made, using, offering for sale, selling and importing
Electronics Products that qualify as Medical Devices hereunder. Electronics and
its Subsidiaries hereby grant to Technologies an irrevocable, royalty free,
worldwide, nonexclusive license with the right to sublicense any improvements
developed by Electronics or its Subsidiaries with respect to Intellectual
Property referred to in the preceding sentence.
3.2 SUBLICENSE TERMS. Any sublicense granted pursuant to this Section 3
shall be consistent with and subject to the terms and conditions of this
Agreement.
3.3 LIMITATIONS. Notwithstanding any other provision of this Agreement,
no Party or its Subsidiaries shall be obligated to: (i) grant any license, or
make any disclosure, to the other Party with respect to Intellectual Property,
owned or controlled by such Party or its Subsidiaries, if to do so would violate
an agreement with an unrelated third party in effect on the Effective Date, or
(ii) grant any license, or make any disclosure, to the other Party with respect
to Intellectual Property owned or controlled by such Party or its Subsidiaries
if to do so would be in violation of law. If the violation can be avoided by a
more limited license, then the Parties, for themselves and on behalf of their
respective Subsidiaries, agree to grant same to the extent commercially
reasonable. Notwithstanding any other provision of this Agreement, following
the Effective Date, neither Party nor any of their respective Subsidiaries shall
be obligated to make any further disclosure to the other Party with respect to
any Technology or Intellectual Property licensed hereunder.
3.4 WARRANTY. Each Party warrants that (a) except as expressly set forth
in this Agreement, neither such Party nor any of its Subsidiaries has granted
nor will grant any licenses that conflict with the rights and licenses set forth
in this Agreement, and (b) such Party and its respective Subsidiaries have the
right to grant the rights and licenses granted by such Party or its respective
Subsidiaries in or pursuant to this Agreement. NO OTHER WARRANTY OF ANY KIND,
WHETHER EXPRESS OR IMPLIED, IS GIVEN BY ONE PARTY TO THE OTHER PARTY AND IN
PARTICULAR THE PARTIES DISCLAIM ANY WARRANTY THAT THEIR RESPECTIVE INTELLECTUAL
PROPERTY AND RIGHTS WITH RESPECT THERETO ARE VALID OR ENFORCEABLE OR USEFUL FOR
ANY PURPOSE.
3.5 EXPRESS LICENSES ONLY. Except for licenses expressly granted pursuant
to this Section 3, no other licenses are intended to be or are granted hereby,
and nothing in this Agreement shall be construed as, or result in, conveying by
implication, waiver or estoppel any right or license to either Party, any
Subsidiary or to any third party.
4.
<PAGE>
4. CONFIDENTIALITY.
4.1 CONFIDENTIALITY OBLIGATION. Each of the Parties agrees to keep
confidential and neither disclose to others nor use except as permitted herein
any Confidential Information received from the other Party or its Subsidiaries
pursuant to this Agreement.
4.2 LIMITS ON DISCLOSURE. The receiving Party shall treat such
Confidential Information in the same manner and with the same degree of care as
it uses with respect to its own Confidential Information of like nature and
shall disclose Confidential Information of the other Party only to its employees
or consultants who have a need to know it, provided that such employees and
consultants are bound to respect all confidentiality obligations provided for in
this Agreement.
4.3 EXCEPTIONS. The obligations set forth in Sections 4.1 and 4.2 shall
not apply with respect to any Confidential Information that:
4.3.1 PUBLIC KNOWLEDGE. Is generally available to the public or
subsequently becomes generally available to the public through no breach by the
receiving Party of confidentiality obligations under this Agreement or prior
agreements between the Parties concerning the Confidential Information; or
4.3.2 RECEIVED FROM THIRD PARTY. Is received without a
confidentiality obligation from a third party who is legally free to disclose
such Confidential Information and who did not receive such Confidential
Information in confidence from the disclosing Party; or
4.3.3 APPROVED FOR DISCLOSURE. Is approved in writing for release by
the disclosing Party or its Subsidiaries; or
4.3.4 SUCCESSOR IN INTEREST. Is disclosed to any permitted assignee
of this Agreement, provided that such assignee agrees in writing to be bound by
the provisions of this Agreement; or
4.3.5 INDEPENDENTLY DEVELOPED. Is independently developed by the
receiving Party without reference to the Confidential Information received from
the disclosing Party or its Subsidiaries.
4.4 PERMITTED DISCLOSURES. The provisions of Sections 4.1 and 4.2
notwithstanding, in exercising the rights granted under this Agreement, any
Party may disclose Confidential Information to others for purpose of
sublicensing, provided that any sublicenses pursuant to which any Confidential
Information is disclosed shall have first entered into a written confidentiality
and non-use obligation at least as stringent as that imposed on the Parties
pursuant to this Agreement.
4.5 SUBPOENA OR DEMAND. The provisions of Sections 4.1 and 4.2
notwithstanding, a Party may disclose Confidential Information if compelled to
do so pursuant to a subpoena or
5.
<PAGE>
similar demand for production of documents in connection with any suit or
arbitration proceeding, any administrative procedure or before a governmental or
administrative agency or instrumentality thereof or any legislative hearing or
other similar proceeding, provided that (a) the receiving Party shall promptly
notify the disclosing Party or its appropriate Subsidiary of the subpoena or
demand, (b) the receiving Party shall assert in good faith prior to making such
disclosure any available evidentiary privilege, and (c) the receiving Party
shall use its best efforts to maintain the confidential nature of the
Confidential Information by protective order or other means.
4.6 PROTECTION OF RIGHTS. The provisions of Sections 4.1 and 4.2
notwithstanding, any Party hereto may disclose Confidential Information to
others as may be necessary in a bona fide attempt to protect or enforce its
rights and privileges under this Agreement.
5. DURATION AND TERMINATION.
5.1 TERM OF AGREEMENT. This Agreement shall become effective on the
Effective Date, and shall continue in full force for ten years from the
Effective Date, at which time it shall terminate unless renewed by written
agreement of the Parties. After expiration of the Agreement pursuant to this
Section 5.1, the rights and obligations set forth in Sections 2, 3, 4, and 9
shall survive.
5.2 TERMINATION FOR MATERIAL BREACH. If either Party or a Subsidiary of
either Party commits a material breach with respect to any of such entity's
obligations hereunder, the other Party may give written notice to the allegedly
breaching Party or Subsidiary, specifying the alleged material breach and an
intention to terminate this Agreement and all extant licenses. The Party or
Subsidiary, charged with the alleged material breach shall have sixty (60) days
from the date of receipt of such written notice to cure the alleged material
breach. If the alleged material breach is not cured within said sixty (60)-day
period, the other Party may terminate this Agreement and any license still in
force that was granted to the breaching Party by sending a written notice of
termination to the Party who breached or whose Subsidiary breached and in this
event, neither Party waives any legal rights to recover damages resulting from
the termination of this Agreement.
5.3 INSOLVENCY. In the event that either Party shall: (i) become
insolvent or go into liquidation or receivership or be admitted to the benefits
of any procedure for the settlement or postponement of debts or be the subject
of bankruptcy proceedings filed against it, which proceedings are not terminated
within ninety (90) days of filing; or (ii) become party to dissolution
proceedings; then this Agreement and any and all obligations assumed hereby
(except as otherwise expressly provided for herein) may be terminated by the
other Party, if permitted by law, by giving written notice of such termination
on a date specified therein. [Expand]
6. RIGHTS UPON TERMINATION OTHER THAN UNDER SECTION 6.1.
6.1 TERMINATION OF LICENSES. Notwithstanding the foregoing, the licenses
granted under Section 3 to the Party committing a material breach as
contemplated by Section 5.2 may
6.
<PAGE>
be canceled immediately by the Party terminating this Agreement and such
breaching Party shall promptly forward to the other Party all copies of
Confidential Information, blue prints, drawings and data which it may have in
written or graphic or machine readable form and which have been proposed or
reproduced by it from the Confidential Information received from the other
Party. The termination of this Agreement pursuant to Section 5.2 shall not
affect the rights and licenses previously granted to the non-breaching Party,
which shall continue in full force and effect.
6.2 OBLIGATIONS SURVIVING TERMINATION. Upon termination pursuant to
Sections 5.2 or 5.3, the obligations of each Party to the other shall cease
except, subject to Section 6.1, the obligations set forth in Sections 3, 4 and 9
shall continue in full force and effect until completely discharged.
7. FORCE MAJEURE.
7.1 ACTS CONSTITUTING FORCE MAJEURE. Neither Party shall be liable to the
other arising out of a delay in its performance of this Agreement arising from
causes beyond its reasonable control. Without limiting the generality of the
foregoing, such events include any act of God; accident; explosion; fire;
earthquake; flood; strikes; labor disputes; riots; sabotage; embargo; equipment
failure; federal, state, or local legal restriction or limitation. Neither
Party shall be required to resolve labor disputes, but shall use commercially
reasonable efforts to seek alternative sources to the extent practicable.
7.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either Party under this Agreement, whether or not such
circumstances are excused pursuant to Section 7.1 above, such Party shall, when
it first becomes aware of such circumstances, promptly notify the other Party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either Party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other Party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
8. GUARANTEES, LIABILITIES AND INDEMNITIES.
8.1 LAWFUL POSSESSION. Each Party represents that to the best of its
knowledge and belief, it will be in the lawful possession of any Confidential
Information when disclosed by it pursuant to this Agreement and that the
disclosure of said Confidential Information shall not in any way violate any
agreement to hold such Confidential Information in confidence.
9. EXPORT CONTROL.
Each Party, for itself and on behalf of its Subsidiaries, agrees not to
export or reexport, or cause to be exported or reexported, any Confidential
Information furnished hereunder by the other Party or any of such other Party's
Subsidiaries or any Products designed or manufactured using any such
Confidential Information to any country to which, under the laws of the country
7.
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of origin of the Confidential Information, it is or may be prohibited from
exporting such Confidential Information or the direct product thereof.
10. ASSIGNMENT.
10.1 LIMITATIONS ON ASSIGNMENT. This Agreement shall not be assigned by
either Party to a third party without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, except to: a Subsidiary
of a Party, or a successor to the business of such Party to which this Agreement
relates, or a successor to all or substantially all of the assets of such Party,
provided that the successor agrees in writing to accept the rights and to be
bound by the obligations of the assigning Party, any other assignment being
void.
10.2 VIOLATION. Any assignment in violation of this Section 10 shall be
void and any attempt to assign or actual assignment in derogation of this
prohibition shall be a material breach of this Agreement.
11. MISCELLANEOUS.
11.1 COMPLETE AGREEMENT. This Agreement and the Distribution Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
11.2 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
11.3 NOTICES. All notices and other communications hereunder shall be in
writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a Party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
with a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
8.
<PAGE>
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
11.4 WAIVERS. The failure of either Party to require strict performance by
the other Party of any provision in this Agreement will not waive or diminish
that Party's right to demand strict performance thereafter of that or any other
provision hereof.
11.5 AMENDMENTS. Subject to the terms of Sections 5 and 6 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by the Parties.
11.6 SUBSIDIARIES. Each of the parties hereto shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such Party at
the time such performance is anticipated to occur in order to carry out the
intent of this Agreement.
11.7 THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the Parties hereto and their respective Subsidiaries and should not be deemed
to confer upon third parties any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
11.8 ATTORNEY FEES. Except as contemplated by the third to the last
sentence of Section 12.2 hereof, a Party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other Party hereto for and against all
out-of-pocket expenses, including, without limitation, legal fees, that are
finally awarded to and incurred by such other Party by reason of the enforcement
and protection of its rights under this Agreement. The payment of such expenses
is in addition to any other relief to which such other Party may be entitled
hereunder or otherwise.
11.9 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
11.10 SPECIFIC PERFORMANCE. Each of the Parties hereto acknowledges that
there is no adequate remedy at law for failure by such Party to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages, and therefore agree that
its agreements contained herein may be specifically enforced without the
requirement of posting a bond or other security, in addition to all other
remedies available to the other Party under this Agreement.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS SUCH LAWS ARE APPLIED TO
AGREEMENTS BETWEEN CALIFORNIA RESIDENTS ENTERED INTO AND PERFORMED ENTIRELY IN
CALIFORNIA.
9.
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11.12 SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The Parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
12. DISPUTE RESOLUTION.
12.1 ALTERNATIVE DISPUTE RESOLUTION. In the event of a controversy,
dispute or claim (other than controversies, disputes or claims related to
infringement, validity or enforceability of Intellectual Property) arising out
of, in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, including, without limitation, any
claim based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), such matters shall be resolved in accordance with the provisions of
Article 4 of the Distribution Agreement between the Parties dated as of the
Effective Date.
12.2 CONSENT TO JURISDICTION. This Section 12.2 shall not limit the
provisions of Sections 12.1 hereof. Each Party irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each Party agrees to commence any action, suit or proceeding relating
hereto either to the United States District Court for the Northern District of
California located in San Francisco, California or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Superior Court for the City and County of San Francisco, California. Each Party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party's address set forth above shall be effective
service of process for any action, suit or proceeding in California with respect
to any matters to which it has submitted to jurisdiction in this Section 12.2.
Each Party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Superior Court for the city and
County of San Francisco, California, or (ii) the United States District Court
for the Northern District of California located in San Francisco, California,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
12.3 CONTINUING OBLIGATIONS. It is expressly agreed that the failure of
the Parties to resolve a dispute on any issue to be resolved hereunder shall not
relieve either Party from any obligation set forth in this Agreement. In
addition, notwithstanding the pendency of any such dispute, neither Party will
be excused of its obligations hereunder to cooperate with the other to
effectuate the purposes of this Agreement.
10.
<PAGE>
IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be
executed in duplicate as of the date first written above.
BEI ELECTRONICS, INC. BEI TECHNOLOGIES, INC.
By: By:
------------------------ ------------------------
Name: Name:
---------------------- ----------------------
Title: Title:
--------------------- ---------------------
11.
<PAGE>
EXHIBIT 2.6
TRADEMARK ASSIGNMENT AND CONSENT AGREEMENT
THIS TRADEMARK ASSIGNMENT AND CONSENT AGREEMENT (the "Agreement") is
executed as of ____________________ ("Effective Date") by and between BEI
ELECTRONICS, INC. ("Electronics") a Delaware corporation having its principal
place of business at One Post Street, San Francisco, CA 94104, and BEI
TECHNOLOGIES, INC. ("Technologies"), a Delaware corporation having its principal
place of business at One Post Street, San Francisco, CA 94104.
RECITALS
Electronics and its wholly-owned subsidiary, BEI Sensors & Systems Company,
Inc. have adopted, are using or intend to use certain trade names and trademarks
in connection with sensors, engineered subsystems and associated components used
for the control of precision machinery and equipment, and Electronics and its
majority-owned subsidiary, BEI Medical Systems Company, Inc., have adopted, are
using or intend to use certain trade names and trade marks in connection with
medical equipment instruments and supplies, some of which, in each case, contain
or comprise the term BEI alone or in combination with other words or designs.
Technologies has been created to independently assume and through
subsidiaries to conduct the portion of Electronics' business related to sensors,
engineered subsystems and associated components used for the control of
precision machinery and equipment.
Electronics desires to grant, and Technologies desires to acquire, rights
in certain of Electronics' trade names and trademarks, some of which contain or
comprise the term BEI alone or in combination with other words or designs.
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Electronics and Technologies further desire to delineate their respective
trademark rights on a worldwide basis.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties hereby agree as follows.
1. ASSIGNMENT OF MARKS.
Electronics hereby assigns to Technologies all right, title, and
interest which it may have in and to the marks set forth in Schedule A (the
"Marks"), together with the goodwill of the business symbolized by the Marks.
Electronics will, at Technologies' expense, execute such further instruments and
take such further actions as may be necessary or appropriate to further effect,
evidence and record such assignments as necessary with governmental agencies.
2. DISCLAIMER OF WARRANTY.
All Marks assigned pursuant to this Agreement are assigned "as-is"
with respect to any trademark, service mark, trade name, or other designation
subject to this Agreement. Electronics makes no representation or warranty, and
disclaims all representations and warranties as to: (1) the validity of any
trademark or service mark registration; (2) its right to use any trademark,
service mark, trade name or other designation; (3) the registrability of any
term, designation, or other symbol as a trademark or service mark; (4) non-
infringement; or (5) any other right or interest pertaining to any trademark,
service mark, trade name, or other designation.
3. CONSENT TO OTHER PARTY'S USE OF BEI MARKS AND NAMES.
3.1 Technologies may use or register, or attempt to register any
trademark, service mark, trade name, or other designation containing or
comprising the term BEI, or any
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transliteration or translation thereof, throughout the world in connection with
(1) electronic devices and equipment used in non-medical applications and (2)
services related to the sale or use of those goods (the "Technologies
Business").
3.2 Electronics may use, register, or attempt to register any
trademark, service mark, trade name, or other designation containing or
comprising the term BEI, or any transliteration or translation thereof,
throughout the world in connection with (1) medical equipment, instruments and
other goods specifically used for medical care and (2) services related to the
sale or use of those goods (the "Electronics Medical Business").
3.3 Technologies will not use, register or attempt to register
anywhere in the world:
The BEI Triangular logo shown in Schedule B or any mark, logo or
designation confusingly similar thereto, provided that it may use the BEI
Rectangular logo shown in Schedule C without restriction;
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI in combination with the word "Medical" or
other term connoting the medical or health care fields or any transliteration or
translation thereof; or
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI, or any transliteration or translation
thereof, in connection with the Electronics Medical Business.
3.4 Electronics will not use, register or attempt to register:
The BEI Rectangular logo shown in Schedule C or any mark, logo or
designation confusingly similar thereto, provided that it may use the BEI
triangular logo shown in Schedule B without restriction;
3
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Any trademark, service mark, trade name or other designation
containing or comprising the term BEI in combination with the word
"Technologies" or "Technology" or any transliteration or translation thereof;
provided that Electronics may use the words "technology" or "technologies" in
their ordinary descriptive sense in identifying its goods, services or business;
or
Any trademark, service mark, trade name or other designation
containing or comprising the term BEI, or any transliteration or translation
thereof, in connection with the Technologies Business.
3.5 Technologies will not challenge Electronics' use of, registration
of, or attempt to register, any trademark, service mark, trade name, or other
designation comprising or containing the term BEI or any transliteration or
translation thereof in connection with the Electronics Medical Business, unless
such use, registration, or attempt to register violates the terms of paragraph
3.4 herein.
3.6 Electronics will not challenge Technologies' use of, registration
of, or attempt to register, any trademark, service mark, trade name, or other
designation comprising or containing the term BEI or any transliteration or
translation thereof in connection with the Technologies Business, unless such
use, registration, or attempt to register violates the terms of paragraph 3.3
herein.
3.7 Neither party may use any trade name comprising the term BEI or
any transliteration or translation thereof solely in combination with any
geographic term to identify its business, goods, or services where doing so
would be likely to cause confusion with the other party.
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3.8 The parties will cooperate with each other as needed in providing
evidence of the consents given herein or otherwise in effecting trademark,
service mark, or business name registration or for other purposes for which such
evidence may be needed consistent with the terms of this Agreement.
3.9 The parties believe that there is not likely to be confusion as
to their respective products or businesses if each party complies with the
foregoing terms governing use or registration of marks and names. In the event
such confusion occurs, the parties will cooperate as necessary and use all
commercially reasonable efforts to promptly resolve any such confusion and, if
appropriate, to direct third parties to the correct party. The parties agree to
use all commercially reasonable efforts to correct mistakes appearing in the
communications media regarding their respective corporate or trade names,
trademarks, or service marks and to respond to oral inquiries regarding the
parties' corporate or trade names, trademarks, or service marks by stating, to
the extent necessary to correct mistakes or respond to an inquiry, accurate
information about the parties' respective businesses or products.
4. TERM AND TERMINATION.
4.1 This Agreement shall be effective on the Effective Date. The
consent provisions as set forth in Section 3 shall continue in perpetuity unless
terminated in accordance with the provisions of this Agreement.
4.2 If either party discontinues all use of the mark BEI in the
ordinary course of trade everywhere in the world, including all use by
subsidiaries, affiliates, or licensees for the benefit of that party, for a
period of three consecutive years, the limitations on the other party's use of
the mark BEI in Paragraph 3.3 or Paragraph 3.4 of this Agreement, as the case
may be, shall terminate.
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5. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the trademark laws of the United States as they apply to trademark matters and
in accordance with the laws of the State of California as applied to contracts
entered into between California residents and to be performed entirely within
the State of California.
6. BREACH AND OPPORTUNITY TO CURE.
6.1 In the event that either party breaches any of its obligations
under this Agreement, the party claiming breach shall give notice in writing to
the other party. If the breach is curable, the party claimed to have breached
the Agreement shall have 45 days to cure the breach before the party claiming
the breach may bring legal action. Any statute of limitation governing such
claim shall be tolled pending the cure period. Notwithstanding the foregoing,
where a party reasonably believes that a breach of an obligation under this
Agreement may result in immediate, irreparable harm, the party shall be entitled
to seek injunctive relief first.
7. ATTORNEYS' FEES AND COSTS.
In the event either party hereto shall bring any action to enforce any
rights hereunder, the prevailing party in such action shall be entitled, in
addition to any other relief awarded by the court, to recover its reasonable
attorneys' fees and litigation expenses.
8. DISPUTE RESOLUTION.
8.1 ALTERNATIVE DISPUTE RESOLUTION. In the event of a controversy,
dispute or claim (other than controversies, disputes or claims related to
infringement, validity or enforceability of the Marks) arising out of, in
connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, including, without limitation, any
claim
6
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based on contract, tort, statute or constitution (collectively, "Agreement
Disputes"), such matters shall be resolved in accordance with the provisions of
Article 4 of the Distribution Agreement between the parties dated as of the
Effective Date.
8.2 CONSENT TO JURISDICTION. This Section 8.2 shall not limit the
provisions of Sections 8.1 hereof. Each party irrevocably submits to the
exclusive personal jurisdiction and venue of (a) the Superior Court for the City
and County of San Francisco, California and (b) the United States District Court
for the Northern District of California for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each party agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the Northern District of
California located in San Francisco, California or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Superior Court for the City and County of San Francisco, California. Each party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party's address set forth above shall be effective
service of process for any action, suit or proceeding in California with respect
to any matters to which it has submitted to jurisdiction in this Section 8.2.
Each party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Superior Court for the City and
County of San Francisco, California, or (ii) the United States District Court
for the Northern District of California located in San Francisco, California,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
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9. NOTICES.
All notices and other communications hereunder shall be in writing and
hand delivered or mailed by registered or certified mail (return receipt
requested) or sent by any means of electronic message transmission with delivery
confirmed (by voice or otherwise) to the parties at the following addresses (or
at such other addresses for a party as shall be specified by like notice) and
will be deemed given on the date on which such notice is received:
To BEI ELECTRONICS, INC.:
Prior to the Effective Time:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
After the Effective Time:
83 Hobart Street
Hackensack, NJ 07601
Attn: President
With a copy to:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: Chairman
To BEI TECHNOLOGIES, INC.:
One Post Street, Suite 2500
San Francisco, CA 94104
Attn: President
10. ENTIRE AGREEMENT.
This Agreement constitutes the complete, final and exclusive agreement
between the parties with respect to the subject matter hereof and shall
supersede any and all prior oral
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or written representations, conditions, warranties, understandings, proposals or
agreements between the parties regarding the subject matter hereof.
11. AMENDMENT AND WAIVER.
No provision of this Agreement may be amended or waived except by a
writing signed by both parties.
12. SEVERABILITY.
In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
13. ASSIGNMENT.
13.1 LIMITATIONS ON ASSIGNMENT. This Agreement shall not be assigned
by either party to a third party without the prior written consent of the other
party, which consent shall not be unreasonably withheld, except to: a Subsidiary
of a party, or a successor to the business of such party to which this Agreement
relates, or a successor to all or substantially all of the assets of such party,
provided that the successor agrees in writing to accept the rights and to be
bound by the obligations of the assigning party, any other assignment being
void.
13.2 VIOLATION. Any assignment in violation of this Section 13 shall
be void and any attempt to assign or actual assignment in derogation of this
prohibition shall be a material breach of this Agreement.
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14. THIRD PARTY BENEFICIARIES.
This Agreement is solely for the benefit of the parties hereto and
their respective Subsidiaries and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
15. FORCE MAJEURE.
15.1 ACTS CONSTITUTING FORCE MAJEURE. Neither party shall be liable to
the other for a delay in its performance of this Agreement arising from causes
beyond its reasonable control. Without limiting the generality of the foregoing,
such events include any act of God; accident; explosion; fire; earthquake;
flood; strikes; labor disputes; riots; sabotage; embargo; equipment failure;
federal, state, or local legal restriction or limitation. Neither party shall be
required to resolve labor disputes, but shall use commercially reasonable
efforts to seek alternative sources to the extent practicable.
15.2 NOTICE REQUIREMENT. When circumstances occur that delay the
performance of either party under this Agreement, whether or not such
circumstances are excused pursuant to Section 15.1 above, such party shall, when
it first becomes aware of such circumstances, promptly notify the other party,
by facsimile or by telephone confirmed in writing within two (2) business days
in the case of oral notice. Within ten (10) business days of the date when
either party first becomes aware of the event which it contends is responsible
for the delay, it shall supply to the other party in writing the reason(s) for
and anticipated duration of such delay, the measures taken and to be taken to
prevent or minimize the delay, and the timetable for the implementation of such
measures.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BEI TECHNOLOGIES, INC. BEI ELECTRONICS, INC.
a Delaware corporation a Delaware corporation
By: ___________________________ By: _______________________
Its: ___________________________ Its: _______________________
Address: One Post Street, Suite 2500 Address: One Post Street, Suite 2500
San Francisco, CA 94104 San Francisco, CA 94104
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SCHEDULE A
ELECTRONICS' COMMON-LAW, PENDING OR REGISTERED TRADEMARKS
TO BE ASSIGNED
<TABLE>
<CAPTION>
MARK APPLICATION/REGISTRATION NO. COUNTRY
<S> <C> <C>
BEI 1,109,920 United States
BEI and CODE DISK DESIGN 1,097,296 United States
BEI and ROCKET DESIGN 1,107,102 United States
BEI THE ENCODER COMPANY 1,223,228 United States
COMTRAC United States
DIGILINE 925,506 United States
DIGISEC 757,742 United States
EDCLIFF 705,558 United States
EXPRESS ENCODER United States
GYROCHIP 1,787,945 United States
HORIZON 75/267,840 United States
INSTAMOUNT United States
MICRO-LOC 1,142,345 United States
MICROSERIES United States
MODEL H2O 75/087,544 United States
MODEL H25 75/087,396 United States
MOTIONPAK 1,898,649 United States
OPTICAL RESOLVER 1,128,865 United States
SLIDELINE 951,891 United States
ULTRA-LOC 1,102,029 United States
WAVELABS 917,159 United States
BEI TMA290,044 Canada
BEI and DESIGN 94520745 France
BEI and DESIGN 1238124 France
BEI and DESIGN 1062171 Germany
BEI and DESIGN 2077915 Germany
BEI and DESIGN 420908 Italy
BEI and DESIGN 2042047 Japan
BEI and DESIGN 1202771 United Kingdom
</TABLE>
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SCHEDULE B
BEI TRIANGULAR LOGO
13
<PAGE>
SCHEDULE C
BEI RECTANGULAR LOGO
14
<PAGE>
AGREEMENT REGARDING CERTAIN
REPRESENTATIONS AND COVENANTS
This Agreement Regarding Certain Representations and Covenants (the
"Agreement") is entered into the ___ day of _______, 1997, by and between BEI
ELECTRONICS, Inc., a Delaware corporation ("ELECTRONICS"), and BEI Technologies,
Inc., a Delaware corporation ("TECHNOLOGIES") on behalf of themselves and all
members of the ELECTRONICS Subgroup and the TECHNOLOGIES Subgroup. It is
executed contemporaneously with the Tax Allocation and Indemnity Agreement (the
"Tax Allocation Agreement") between the same parties. All terms used herein
shall have the same meaning as in the Tax Allocation Agreement.
ARTICLE I
DEFINITIONS
To the extent not defined in the Tax Allocation Agreement, the terms used herein
are defined as follows:
"DISTRIBUTION DATE" shall mean the date on which the Distribution
shall be effected.
"PRE-DISTRIBUTION PERIOD" shall mean any Taxable period ending on or
before the close of business on the Distribution Date; provided that if a
--------
Taxable period ending after the Distribution Date contains any days which fall
prior to or on the Distribution Date, any portion of such Taxable period up to
or including the Distribution Date shall also be included in the Pre-
Distribution Period.
"RETURN" shall mean any Tax return, statement, report or form
(including estimated Tax returns and reports, extension requests and forms, and
information returns and reports) required to be filed with any taxing authority.
"TAX ASSET" shall mean any net operating loss, net capital loss,
investment Tax credit, foreign Tax credit, target jobs Tax credit, low income
housing credit, research and experimentation credit, charitable deduction or any
other credit or Tax attribute, including additions to basis of property, which
could reduce any Tax, including, without limitation, deductions, credits, or
alternative minimum net operating loss carryforwards related to alternative
minimum Taxes.
ARTICLE II
REPRESENTATIONS
<PAGE>
2.1 TECHNOLOGIES SUBGROUP REPRESENTATIONS. TECHNOLOGIES represents
on behalf of itself and each member of the TECHNOLOGIES Subgroup that, as of the
date hereof, and covenants that, on the Distribution Date, there is no plan or
intention (A) to liquidate TECHNOLOGIES or to merge or consolidate TECHNOLOGIES
with any other person subsequent to the Distribution, (B) to sell or otherwise
dispose of any asset of the TECHNOLOGIES Subgroup subsequent to the
Distribution, except in the ordinary course of business and except with respect
to the liquidation of Defense Systems Company, Inc. ("Defense") (C) to take any
action inconsistent with the information furnished to Davis Polk & Wardwell in
connection with its tax opinion with respect to the Distribution, (D) to issue
stock of TECHNOLOGIES, other than pursuant to the Distribution, representing
more than 20 percent of the total combined voting power or more than 20 percent
of the total value of all classes of TECHNOLOGIES stock.
2.2 ELECTRONICS SUBGROUP REPRESENTATIONS. ELECTRONICS represents on
behalf of itself and each member of the ELECTRONICS Subgroup that, as of the
date hereof, and covenants that, on the Distribution Date, there is no plan or
intention (A) to liquidate ELECTRONICS or to merge or consolidate ELECTRONICS
with any other person subsequent to the Distribution, except with respect to the
possible merger of BEI Medical Systems Company, Inc. ("Medical") with and into
ELECTRONICS immediately after the Distribution, (B) to sell or otherwise dispose
of any asset of the ELECTRONICS Subgroup subsequent to the Distribution, except
in the ordinary course of business, (C) to take any action inconsistent with the
information furnished to Davis Polk & Wardwell in connection with its tax
opinion with respect to the Distribution, (D) to issue stock of ELECTRONICS
representing 50 percent or more of the vote or value of all classes of
ELECTRONICS stock including, for this purpose, stock issued in connection with
the possible merger with Medical.
2.3 TECHNOLOGIES SUBGROUP AND ELECTRONICS SUBGROUP REPRESENTATIONS.
TECHNOLOGIES represents on behalf of itself and each member of the TECHNOLOGIES
Subgroup and ELECTRONICS represents on behalf of itself and each member of the
ELECTRONICS Subgroup that, as of the date hereof, and covenants that, on the
Distribution Date, none of them is or will be aware of any plan or intention by
the current shareholders of ELECTRONICS to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in, or securities of, ELECTRONICS or
TECHNOLOGIES subsequent to the Distribution.
ARTICLE III
COVENANTS
2
<PAGE>
3.1 TECHNOLOGIES SUBGROUP COVENANTS. TECHNOLOGIES covenants on
behalf of itself and each member of the TECHNOLOGIES Subgroup that (i) during
the two-year period following the Distribution Date, TECHNOLOGIES will not
liquidate, merge or consolidate with any other person, or sell, exchange,
distribute or otherwise dispose of its assets or those of the TECHNOLOGIES
Subgroup, except in the ordinary course of business and except with respect to
the liquidation of Defense, (ii) following the Distribution, TECHNOLOGIES will,
for a minimum of two years, continue the active conduct of the historic business
conducted by TECHNOLOGIES throughout the five year period prior to the
Distribution as required by Section 355 of the Code, (iii) during the two-year
period following the Distribution Date, TECHNOLOGIES will not issue stock
representing more than 20 percent of the total combined voting power or more
than 20 percent of the total value of all classes of TECHNOLOGIES stock, (iv) no
member of the TECHNOLOGIES Subgroup will take any action inconsistent with the
information furnished to Davis Polk & Wardwell in connection with its tax
opinion with respect to the Distribution, and (v) during the period beginning on
the Distribution Date and ending upon the expiration of the statute of
limitations period applicable to the Taxable year in which the Distribution
occurs (after giving effect to any extension, mitigation or waiver thereof), no
member of the TECHNOLOGIES Subgroup 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 business, take any other action, omit to take any
action or enter into any transaction that results in any increased Tax liability
with respect to a Pre-Distribution Period, or reduction of any Tax Asset that
was created in a Pre-Distribution Period, of the ELECTRONICS group or any member
thereof without first obtaining the written consent of an authorized
representative of ELECTRONICS; PROVIDED, HOWEVER, that if a change in law
(including the enactment of any statute or the issuance of any proposed,
temporary or final regulations, or administrative pronouncement or judicial
decision) would have a material adverse effect on the aggregate Tax liability of
the TECHNOLOGIES Subgroup then, notwithstanding anything to the contrary in this
clause (iii), TECHNOLOGIES shall be entitled to take such minimum action as is
necessary to eliminate or mitigate the effect of the change in law.
TECHNOLOGIES agrees to notify ELECTRONICS of any action taken under the proviso
contained in the preceding sentence.
3.2 ELECTRONICS SUBGROUP COVENANTS. ELECTRONICS covenants on behalf
of itself and each member of the ELECTRONICS Subgroup that (i) during the two-
year period following the Distribution Date, no member of the ELECTRONICS
Subgroup will liquidate, merge or consolidate with any other person, or sell,
exchange, distribute or otherwise dispose of its assets, except in the ordinary
course of business and except with respect to the possible merger of Medical
with and into ELECTRONICS, (ii) following the Distribution, the
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<PAGE>
ELECTRONICS Subgroup will, for a minimum of two years, continue the active
conduct of the historic business conducted by Medical throughout the five year
period prior to the Distribution as required by Section 355 of the Code, (iii)
during the two-year period beginning on the Distribution Date, ELECTRONICS will
not issue stock representing 50 percent or more of the vote or value of all
classes of ELECTRONICS stock including, for this purpose, stock issued in
connection with the possible merger with Medical, (iv) no member of the
ELECTRONICS Subgroup will take any action inconsistent with the information
furnished to Davis Polk & Wardwell in connection with its tax opinion with
respect to the Distribution, and (v) during the period beginning on the
Distribution Date and ending upon the expiration of the statute of limitations
period applicable to the Taxable year in which the Distribution occurs (after
giving effect to any extension, mitigation or waiver thereof), no member of the
ELECTRONICS Subgroup 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, take any other action, omit to take any action or enter
into any transaction that results in any increased Tax liability with respect to
a Pre-Distribution Period or reduction of any Tax Asset which was created in a
Pre-Distribution Period of the TECHNOLOGIES Subgroup without first obtaining the
written consent of an authorized representative of TECHNOLOGIES; PROVIDED,
HOWEVER, that if a change in law (including the enactment of any statute or the
issuance of any proposed, temporary or final regulations, or administrative
pronouncement or judicial decision) would have a material adverse effect on the
aggregate Tax liability of the ELECTRONICS Subgroup, then, notwithstanding
anything to the contrary in this clause (v), ELECTRONICS shall be entitled to
take such minimum action as is necessary to eliminate or mitigate the effect of
the change in law. ELECTRONICS agrees to notify TECHNOLOGIES of any action taken
under the proviso contained in the preceding sentence.
3.3 TECHNOLOGIES SUBGROUP AND ELECTRONICS SUBGROUP COVENANT. The
parties hereto agree to act in good faith in complying with the terms of this
Agreement.
3.4 EXCEPTIONS. Notwithstanding the foregoing, a member of the
TECHNOLOGIES Subgroup may take actions inconsistent with the covenants contained
in Section 3.1(i) through (v) above, and a member of the ELECTRONICS Subgroup
may take actions inconsistent with the covenants contained in Section 3.2(i)
through (v) above, if:
(i) TECHNOLOGIES or ELECTRONICS, as the case may be, obtains a ruling
from the Internal Revenue Service to the effect that such actions will not
result in the Distribution being taxable to ELECTRONICS or its shareholders; or
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<PAGE>
(ii) TECHNOLOGIES or ELECTRONICS, as the case may be, obtains an opinion
of counsel nationally recognized as an expert in federal income tax matters
and acceptable to the other party to the same effect as in Section 3.4(i).
ARTICLE IV
INDEMNIFICATION
4.1 TECHNOLOGIES INDEMNIFICATION OF ELECTRONICS. TECHNOLOGIES
shall indemnify and hold ELECTRONICS harmless for the breach of any
representation or covenant made by a member of the TECHNOLOGIES Subgroup in
this Agreement.
4.2 ELECTRONICS INDEMNIFICATION OF TECHNOLOGIES. ELECTRONICS shall
indemnify and hold TECHNOLOGIES harmless for the breach of any
representation or covenant made by a member of the ELECTRONICS Subgroup in
this Agreement.
4.3 DAMAGES. The damages payable upon a breach of a representation
or covenant contained herein shall be agreed upon by the parties in good
faith or, if they cannot agree, shall be resolved in accordance with the
provisions of Article IV of the Distribution Agreement entered into by the
parties contemporaneously herewith.
ARTICLE V
MISCELLANEOUS
5.1 MISCELLANEOUS. All Miscellaneous provisions set forth in
Article VIII of the Tax Allocation Agreement are hereby incorporated by
reference. These incorporated provisions will carry full force and effect
with respect to this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives.
ELECTRONICS ON BEHALF OF ITSELF AND EACH MEMBER OF
THE ELECTRONICS SUBGROUP
By:____________________________
Name:__________________________
Title:____________________________
TECHNOLOGIES ON BEHALF OF ITSELF AND EACH MEMBER OF
THE TECHNOLOGIES SUBGROUP
By:____________________________
Name:__________________________
Title:___________________________
6
<PAGE>
EXHIBIT 4.1
BEI
BEI TECHNOLOGIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
CUSIP 05538P 10 4
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.001 PAR VALUE PER SHARE, OF
BEI TECHNOLOGIES, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
[CORPORATE SEAL]
/s/ Robert R. Corr /s/ Charles Crocker
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
BEI TECHNOLOGIES, INC.
A statement of 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 as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between BEI Technologies, Inc (the
"Company") and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (the
"Rights Agent"), dated as of _________, 1997, as amended from time to time (the
Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
the Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. As described in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement) and certain related persons, whether
currently held by or on behalf of such Person or by any subsequent holder, shall
become null and void.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..............CUSTODIAN ..................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with rights of under Uniform Gifts to Minors
survivorship and not as tenants Act ......................................
in common (State)
UNIF TRF MIN ACT -- .........Custodian (until age.............)
(Cust)
..............Under Uniform Transfers
(Minor)
to Minors Act ............................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________
X _________________________________________
X _________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By ___________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
AMERICAN BANK NOTE COMPANY SEPT. 2, 1997 se
3504 ATLANTIC AVENUE
SUITE 12 052320bk
LONG BEACH, CA 90807
(562) 989-2333 Proof (INITIALS) REV.3
(FAX) (562)426-7450
<PAGE>
EXHIBIT 10.1
BEI TECHNOLOGIES, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER __, 1997
APPROVED BY STOCKHOLDERS ______________, 199__
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code, but expressly excludes BEI Electronics, Inc.
on and after the effective date of the distribution of the Company's Common
Stock to BEI Electronics, Inc. stockholders.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
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<PAGE>
(e) "COMPANY" means BEI Technologies, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS SERVICE" means the employment or relationship as a Director
or Consultant is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between locations of the Company or between the Company, Affiliates or
their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or The Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to determination,
as reported in The Wall Street Journal or such other source as the Board deems
reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
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<PAGE>
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(t) "PLAN" means this 1997 Equity Incentive Plan.
(u) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(v) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(w) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
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<PAGE>
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of two (2) or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more Non-
Employee Directors, in accordance with Rule 16b-3, or solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m). If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate one million six hundred thousand (1,600,000) shares
of Common Stock. Such figure is comprised of two distinct reserves: (i) eight
hundred thousand (800,000) shares specifically reserved to be granted as
substitute options to BEI Electronics, Inc. optionholders who become service
providers to the Company and (ii) eight hundred thousand (800,000) shares
reserved for new Stock Award issuances. In the event that the grant of
substitute options to BEI Electronics, Inc. optionholders does not completely
exhaust the share reserve set forth in clause (i) above, then such remaining
shares under the clause (i) share reserve shall terminate and shall not be
available for future grant under the Plan. However, in the event a Stock Award
granted pursuant
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<PAGE>
to either reserve shall for any reason expire or otherwise terminate after the
date of grant, in whole or in part, without having been exercised in full, the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Stock Awards
covering more than [two hundred fifty thousand (250,000)] shares of Common Stock
in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of
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<PAGE>
the grant of the Option, (A) by delivery to the Company of other Common Stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board. In the case of
any deferred payment arrangement, interest shall be payable at least annually
and shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6 (e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option within such period of
time designated by the Board, which shall in no event be later than the
expiration of the term of the Option as set forth in the Option Agreement (the
"Post-Termination Exercise Period") and only to the extent that the Optionee was
entitled to exercise the Option on the date Optionee's Continuous Service
terminates. In the case of an Incentive Stock Option, the Board shall determine
the Post-Termination Exercise Period at the time the Option is granted, and the
term of such Post-Termination Exercise Period shall in no event exceed three (3)
months from the date of termination. In addition, the Board may at any time,
with the consent of the Optionee, extend the Post-Termination Exercise Period
and provide for continued vesting; provided however, that any extension of such
period by the Board in excess of three (3) months from the date of termination
shall cause an Incentive Stock
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<PAGE>
Option so extended to become a Nonstatutory Stock Option, effective as of the
date of Board action. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement or as otherwise determined above, the Option
shall terminate, and the shares covered by such Option shall revert to the Plan.
Notwithstanding the foregoing, the Board shall have the power to permit an
Option to continue to vest during the Post-Termination Exercise Period.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's disability, the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
at the date of termination), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a three (3)-month period after the termination of, the Optionee's
Continuous Service, the Option may be exercised to the extent vested by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement), or (ii)
the expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after death, the Option is not exercised within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to
7
<PAGE>
time, and the terms and conditions of separate agreements need not be identical,
but each stock bonus or restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion. Notwithstanding the foregoing, the Board
or Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or Committee.
(e) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or Committee shall have the authority to effect, at any time
and from time to time, (i) the repricing of any outstanding Options under the
Plan and/or (ii) with the consent of any adversely affected holders of Options,
the cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than: eighty-five percent (85%) of the Fair Market Value for a
Nonstatutory Stock Option, one
8
<PAGE>
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of an Incentive Stock Option held by a 10%
stockholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or Committee may grant an Option
with an exercise price lower than that set forth above if such Option is granted
as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to the Plan. The repricing of an Option hereunder resulting in
a reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and the grant of a substitute Option; in the event of such
repricing, both the original and the substituted Options shall be counted
against the maximum awards of Options permitted to be granted pursuant to the
Plan, to the extent required by Section 162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom a
Stock Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and
9
<PAGE>
until such person has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
this Plan and all other plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is granted, or
any person to whom a Stock Award is transferred in accordance with the Plan, as
a condition of exercising or acquiring stock under any Stock Award, (1) to give
written assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3)
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<PAGE>
delivering to the Company owned and unencumbered shares of the Common Stock of
the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise; or (4) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving corporation (or an Affiliate thereof shall assume any
Stock Awards outstanding under the Plan or shall substitute similar Stock Awards
for those outstanding under the Plan, or (ii) such Stock Awards shall continue
in full force and effect. In the event any surviving corporation (or an
Affiliate) refuses to assume or continue such Stock Awards, or to substitute
similar Stock Awards for those outstanding under the Plan, then, with respect to
Stock Awards held by persons then performing services as Employees, Directors or
Consultants, the time during which such Stock Awards may be exercised shall be
accelerated and the Stock Awards terminated if not exercised prior to such
event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder
11
<PAGE>
approval is necessary for the Plan to satisfy the requirements of Section 422 of
the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the date of adoption by the Board, but
no Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by the
Board.
12
<PAGE>
BEI TECHNOLOGIES, INC.
STOCK OPTION GRANT NOTICE
(1997 EQUITY INCENTIVE PLAN)
BEI TECHNOLOGIES, INC. (the "Company"), pursuant to its 1997 Equity Incentive
Plan (the "Plan"), hereby grants to Optionee an option to purchase the number of
shares of the Company's common stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in Attachments I, II and
III, which are incorporated herein in their entirety.
Optionee: _________________________________
Date of Grant: _________________________________
Vesting Commencement Date: _________________________________
Shares Subject to Option: _________________________________
Exercise Price Per Share: _________________________________
Expiration Date: _________________________________
____ Incentive Stock Option ____ Nonstatutory Stock Option
EXERCISE SCHEDULE: Exercisable as vested.
VESTING SCHEDULE: 33% on one-year anniversary, 33% on 2nd anniversary and
the remaining 34% on 3rd anniversary.
PAYMENT: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement
or (iii) delivering shares of previously-owned common stock, as set forth in the
Stock Option Agreement.
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionee further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionee and the Company regarding the acquisition
of stock in the Company and supersede all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: _________________________
_________________________
BEI TECHNOLOGIES, INC. OPTIONEE:
By: _______________ _________________________
Signature
Title: _______________
Date: _______________ Date: __________________
Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
<PAGE>
NOTICE OF EXERCISE
BEI Technologies, Inc.
- -------------------------- Date of Exercise: _______________
- --------------------------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option: ___Incentive ___Nonstatutory
Stock option dated: _______________
Number of shares for
which option is exercised: _______________
Certificates to be
issued in name of: _______________
Total exercise price: $______________
Cash payment delivered: $______________
Value of______shares of
common stock delivered herewith/1/: $______________
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the Company's 1997 Equity Incentive Plan,
(ii) to provide for the payment by me to you (in the manner designated by you)
of your withholding obligation, if any, relating to the exercise of the Option,
and (iii) to the extent the Option is an incentive stock option, to notify you
in writing within fifteen (15) days after the date of any disposition of any of
the shares of Common Stock issued upon exercise of this Option that occurs
within two (2) years after the date of grant of the Option or within one (1)
--
year after such shares of Common Stock are issued upon exercise of the Option.
Very truly yours,
---------------------------------------
- ---------------------
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
<PAGE>
EXHIBIT 10.2
EXECUTIVE CHANGE IN CONTROL
BENEFITS AGREEMENT
THIS EXECUTIVE CHANGE IN CONTROL BENEFITS AGREEMENT (the "Agreement") is
entered into this _______ day of ______________, 199__ between ______________
("Executive") and BEI Technologies, Inc. ("Company"). This Agreement is
intended to provide Executive with the compensation and benefits described
herein upon the occurrence of specific events. Certain capitalized terms used
in this Agreement are defined in Article V.
Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY COMPANY
1.1 Company and Executive wish to set forth the compensation and benefits
which Executive shall be entitled to receive in the event of a Covered
Termination (as hereinafter defined).
1.2 This Agreement shall remain in full force and effect so long as
Executive is employed by Company; provided, however, that the rights and
obligations of the parties hereto contained in Articles II through VI shall
survive for eighteen (18) months following a Covered Termination (as hereinafter
defined).
1.3 The duties and obligations of Company to Executive under this
Agreement shall be in consideration for Executive's past services to Company and
Executive's continued employment with Company.
1.4 This Agreement shall not supersede or affect any other agreements
relating to Executive's employment or severance or a change in control of
Company.
ARTICLE II
SEVERANCE BENEFITS
2.1 ENTITLEMENT TO SEVERANCE BENEFITS. If Executive's employment with
Company terminates due to a Covered Termination following a Change in Control,
Company shall pay Executive the compensation and benefits described in this
Article II. If Executive's employment with Company terminates, but such
termination is not a Covered Termination, Executive will not be entitled to
receive any payments or benefits under this Article II.
1.
<PAGE>
2.2 SEVERANCE PAYMENT. Executive shall receive a lump sum severance
payment within thirty (30) days following a Covered Termination equal to the sum
of Annual Base Pay and Average Annual Bonus, subject to any applicable
withholding of federal, state or local taxes.
2.3 HEALTH BENEFITS. Following a Covered Termination, Executive and
Executive's covered dependents, pursuant to the health benefit continuation
provisions of the Employee Retirement Income Security Act of 1974, will be
eligible to continue their health, dental and vision coverage under any plan
providing such benefits maintained by Company on the same terms and conditions
as in effect immediately prior to such Covered Termination, until the earlier of
(i) Executive's commencement of new employment and coverage under such
subsequent employer's benefit plans providing such benefits or (ii) eighteen
(18) months following the Covered Termination. All costs associated with the
continuation of benefits shall be paid by Company.
2.4 MITIGATION. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Covered Termination, or
otherwise.
ARTICLE III
OTHER RIGHTS AND BENEFITS
3.1 NONEXCLUSIVITY. Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with Company. Except as otherwise expressly provided herein,
amounts which are vested benefits or which Executive is otherwise entitled to
receive under any plan, policy, practice or program of Company at or subsequent
to the date of a Covered Termination shall be payable in accordance with such
plan, policy, practice or program.
3.2 PARACHUTE PAYMENTS. If any amount or benefit received or to be
received by Executive pursuant to this Agreement would constitute an "excess
parachute payment" subject to excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Excise Tax"), the amount or benefit to be
received by Executive shall be reduced if such reduction, taking into account
all applicable federal, state and local income and employment taxes and the
Excise Tax, results in a greater after-tax benefit for Executive.
2.
<PAGE>
ARTICLE IV
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to so
subject a benefit hereunder shall be void.
ARTICLE V
DEFINITIONS
For purposes of this Agreement, the following terms shall be defined
as follows:
5.1 "AGREEMENT" means this Executive Change in Control Benefits
Agreement.
5.2 "ANNUAL BASE PAY" means Executive's annual base pay at the rate
in effect during the last regularly scheduled payroll period immediately
preceding (i) the Change in Control or (ii) the Covered Termination, whichever
is greater.
5.3 "AVERAGE ANNUAL BONUS" means the average of Executive's actual
annual cash incentive bonus for the three (3) fiscal years of Company preceding
the year in which the Change in Control occurs or in which a Covered Termination
occurs, whichever is greater. For purposes of the foregoing, "Company" shall
include BEI Electronics, Inc. and any subsidiary of BEI Electronics, Inc., if
Executive has been employed by such company.
5.4 "CHANGE IN CONTROL" means the consummation of any of the
following transactions:
(a) a merger or consolidation of Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of Company or such surviving
entity outstanding immediately after such merger or consolidation, or the sale,
lease, exchange or other transfer or disposition by Company of all or
substantially all (more than fifty percent (50%)) of Company's assets;
(b) any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) directly or indirectly of fifty percent (50%) or more of Company's
outstanding common stock; or
(c) a change in the composition of the Board of Directors of
Company (the "BEI Board") of Company within a three (3)-year period, as a result
of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either:
3.
<PAGE>
(A) are directors of Company as of the date hereof;
(B) are elected, or nominated for election, to the BEI Board with
the affirmative votes of at least a majority of the directors of Company who are
Incumbent Directors described in (A) above at the time of such election or
nomination; or
(C) are elected, or nominated for election, to the BEI Board with
the affirmative votes of at least a majority of the directors of Company who are
Incumbent Directors described in (A) or (B) above at the time of such election
or nomination.
Notwithstanding the foregoing, "Incumbent Directors" shall not include
an individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors of Company.
The provisions of paragraphs (b) and (c) above shall not apply to
private or public financing transactions for the purpose of raising operating or
working capital for Company, as long as such transactions have received the
approval of not less than two-thirds of the members of the BEI Board and the
person or persons providing the financing do not acquire operational control of
Company.
5.5 "COMPANY" means BEI Technologies, Inc. and any successor thereto.
5.6 "COVERED TERMINATION" means the voluntary or involuntary
termination of Executive's employment within twelve (12) months following a
Change in Control, including termination by reason of death or disability but
excluding termination by reason of fraud, misappropriation or embezzlement on
the part of Executive which resulted in material loss, damage or injury to
Company. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for fraud, misappropriation or embezzlement unless and until
there shall have been delivered to Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the BEI Board at a meeting of the BEI Board called and held for
such purpose (after reasonable notice to Executive and an opportunity for the
Executive, together with Executive's counsel, to be heard before the BEI Board).
Such resolution must provide that in the good faith opinion of the BEI Board,
Executive was guilty of fraud, misappropriation or embezzlement which resulted
in material loss, damage or injury to Company and must specify the particulars
thereof in detail.
ARTICLE VI
GENERAL PROVISIONS
6.1 EMPLOYMENT STATUS. This Agreement does not constitute a contract
of employment or impose on Executive any obligation to remain as an employee, or
impose on Company any obligation (i) to retain Executive as an employee, (ii)
to change the status of Executive as an at-will employee, or (iii) to change
Company's policies regarding termination of employment.
4.
<PAGE>
6.2 NOTICES. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by facsimile) or
the third day after mailing by first class mail, to Company at its primary
office location and to Executive at the address as then listed in Company's
payroll records. Any payments made by Company to Executive under the terms of
this Agreement shall be delivered to Executive either in person or at such
address.
6.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
6.4 WAIVER. If either party should waive any breach of any
provisions of this Agreement, such party shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
6.5 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between Executive and Company, and it is the complete, final, and
exclusive embodiment of their agreement with regard to this subject matter
except for existing agreements with Messrs. Wrench and Madni. It is entered
into without reliance on any promise or representation other than those
expressly contained herein.
6.6 AMENDMENT OR TERMINATION OF AGREEMENT. This Agreement may be
changed or terminated only upon the mutual written consent of Company and
Executive. The written consent of Company to a change or termination of this
Agreement must be signed by an executive officer of Company after such change or
termination has been approved by the Compensation Committee of the BEI Board.
6.7 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
6.8 HEADINGS. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor affect the meaning thereof.
6.9 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and Company, and their
respective successors, assigns, heirs, executors and administrators, except that
Executive may not assign any duties hereunder and may not assign any rights
hereunder without the written consent of Company, which consent shall not be
withheld unreasonably.
5.
<PAGE>
6.10 ATTORNEYS' FEES. If either party brings any action to enforce
its rights hereunder, the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs incurred in connection with such action,
regardless of the outcome of such action.
6.11 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California, without regard to choice-of-law provisions.
6.12 NON-PUBLICATION. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure is
mandated by applicable law.
6.13 CONSTRUCTION OF AGREEMENT. In the event of a conflict between
the text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year written above.
BEI TECHNOLOGIES, INC. EXECUTIVE
By:
---------------------------- -----------------------------
Name:
---------------------------
Title:
--------------------------
6.
<PAGE>
EXHIBIT 11.1
BEI TECHNOLOGIES, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
JUNE 28, 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.................. 7,021 6,926
Net effect of dilutive stock options based on the
treasury stock method............................... 110 182
------ ------
Computation of shares used in computing pro forma
earnings per common and common equivalent share..... 7,131 7,108
====== ======
Income from continuing operations.................... $1,794 $2,873
Income from discontinued operations.................. 1,389 1,698
------ ------
Net income........................................... $3,183 $4,571
====== ======
Pro forma earnings from continuing operations per
common share and common equivalent share............ $ 0.25 $ 0.40
Pro forma earnings from discontinued operations per
common share and common equivalent share............ 0.20 0.24
------ ------
Pro forma earnings per common share and common
equivalent share.................................... $ 0.45 $ 0.64
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEET AS OF JUNE 28, 1997 AND THE RELATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED JUNE 28, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 3,622
<SECURITIES> 0
<RECEIVABLES> 16,563
<ALLOWANCES> 0
<INVENTORY> 22,304
<CURRENT-ASSETS> 49,018
<PP&E> 54,547
<DEPRECIATION> 29,440
<TOTAL-ASSETS> 86,668
<CURRENT-LIABILITIES> 22,307
<BONDS> 18,516
0
0
<COMMON> 0
<OTHER-SE> 41,663
<TOTAL-LIABILITY-AND-EQUITY> 86,668
<SALES> 74,437
<TOTAL-REVENUES> 74,437
<CGS> 48,383
<TOTAL-COSTS> 48,383
<OTHER-EXPENSES> 22,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,392
<INCOME-PRETAX> 2,735
<INCOME-TAX> 941
<INCOME-CONTINUING> 1,794
<DISCONTINUED> 1,389
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,183
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 29, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-29-1996
<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> 71,398
<TOTAL-REVENUES> 71,398
<CGS> 44,390
<TOTAL-COSTS> 44,390
<OTHER-EXPENSES> 21,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,879
<INCOME-PRETAX> 4,113
<INCOME-TAX> 1,407
<INCOME-CONTINUING> 2,706
<DISCONTINUED> 1,139
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,845
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+A REGISTRATION STATEMENT RELATED TO THE COMMON STOCK OF BEI TECHNOLOGIES, +
+INC. HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT +
+YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION +
+OR AMENDMENT. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
EXHIBIT 99.1
SUBJECT TO COMPLETION OR AMENDMENT, DATED SEPTEMBER 11, 1997
PRELIMINARY INFORMATION STATEMENT
BEI TECHNOLOGIES, INC.
DISTRIBUTION OF APPROXIMATELY 7,026,000 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 26, 1997 (the
"Record Date"), of one share of BEI Technologies, Inc. ("Technologies" or the
"Company") Common Stock, par value $.001 per share ("Technologies Common
Stock"), for every one share of Electronics Common Stock owned. The
Distribution will result in all of the issued and outstanding shares of
Technologies Common Stock being distributed to holders of Electronics Common
Stock. See "Ownership of Technologies Common Stock by Certain Beneficial Owners
and Management" for further information regarding the share ownership of
Technologies following the Distribution. Electronics has transferred to
Technologies all of the electronic sensors and defense-related businesses
formerly conducted by Electronics. See "Description of the Business of BEI
Technologies, Inc."
The Distribution will be effective at the end of the day on September 27,
1997 (the "Effective Date"), with the distribution of Company stock
certificates commencing October 10 , 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
----
<S> <C>
AVAILABLE INFORMATION..................................................... iv
SUMMARY OF CERTAIN INFORMATION............................................ v
SUMMARY HISTORICAL FINANCIAL DATA......................................... viii
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA ............................... ix
FORWARD-LOOKING STATEMENTS................................................ 1
THE DISTRIBUTION.......................................................... 1
Reasons for the Distribution............................................ 1
Certain Federal Income Tax Consequences of the Distribution............. 2
Manner of Effecting the Distribution.................................... 3
Opinion of Financial Advisor............................................ 3
Relationship between Electronics and Technologies after the
Distribution........................................................... 5
Distribution Agreement................................................ 5
Corporate Services Agreement.......................................... 6
Tax Agreement......................................................... 6
Related Transactions.................................................... 7
Listing and Trading of Technologies Common Stock........................ 8
Other Consequences of the Distribution.................................. 8
FINANCING................................................................. 10
Bank Credit Facilities.................................................. 10
CAPITALIZATION............................................................ 11
THE BUSINESS--INTRODUCTION AND HISTORICAL OVERVIEW........................ 12
DESCRIPTION OF THE BUSINESS OF BEI TECHNOLOGIES, INC...................... 13
Business Summary and Strategy........................................... 13
Customers and Markets................................................... 14
Products and Proprietary Systems........................................ 14
Backlog................................................................. 16
Competition............................................................. 17
Manufacturing........................................................... 17
Research and Development................................................ 17
Employees............................................................... 18
Intellectual Property................................................... 18
Environmental Matters................................................... 18
Properties.............................................................. 19
Legal Proceedings....................................................... 19
SELECTED HISTORICAL FINANCIAL DATA........................................ 20
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA............................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 25
Comparison of Nine Months Ended June 28, 1997 and June 29, 1996......... 25
Net Sales............................................................. 25
Cost of Sales......................................................... 25
Selling, General and Administrative Expenses.......................... 25
Research, Development and Related Expenses............................ 26
Interest Expense and Other Income..................................... 26
Income from Continuing Operations..................................... 26
Income from Discontinued Operations................................... 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Liquidity and Capital Resources....................................... 26
Fiscal Years 1996, 1995 and 1994........................................ 27
Net Sales............................................................. 27
Cost of Sales......................................................... 27
Selling, General and Administrative Expenses.......................... 27
Research, Development and Related Expenses............................ 28
Interest Expense and Other Income..................................... 28
Provision for Income Taxes for Continuing Operations.................. 28
Deferred Income Taxes................................................. 28
Income (Loss) from Discontinued Operations............................ 28
Liquidity and Capital Resources....................................... 29
Effects of Inflation.................................................. 29
RISK FACTORS.............................................................. 30
Competition............................................................. 30
Limited Manufacturing Experience; Scale Up Risk; Product Recall Risk.... 30
Contracting with the U.S. Government.................................... 30
Research and Development................................................ 31
Manufacturing Processes and Equipment................................... 31
Dependence Upon Key Personnel........................................... 31
Dependence Upon Key Suppliers........................................... 31
Availability of Cost of Additional Funds................................ 32
Uncertainty of Tax Consequences......................................... 32
No Prior Public Market for Common Stock; Potential Volatility of Stock
Price.................................................................. 32
Anti-Takeover Effects of Delaware Law and Certain Charter Provisions;
Stockholder Rights Plan................................................ 32
Uncertainty of Future Profitability..................................... 33
Uncertainty of Dividends................................................ 33
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................... 33
Directors............................................................... 33
Classified Board of Directors........................................... 35
Board Compensation and Benefits......................................... 35
Committees of the Board of Directors.................................... 35
Audit Committee....................................................... 35
Compensation Committee................................................ 35
Compensation Committee Interlocks and Insider Participation............. 35
Certain Relationships................................................... 36
Executive Officers...................................................... 36
EXECUTIVE COMPENSATION.................................................... 37
Executive Compensation Prior to the Distribution........................ 37
Electronics Stock Option Grants and Exercises........................... 38
Employment Agreements................................................... 38
NEW INCENTIVE PLANS OF BEI TECHNOLOGIES, INC.............................. 39
1997 Equity Incentive Plan.............................................. 39
401(k) Plan............................................................. 40
Management Incentive Bonus Plan......................................... 40
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 40
Elimination of Liability of Directors................................... 40
Indemnification of Directors and Officers............................... 40
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OWNERSHIP OF TECHNOLOGIES COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .............................................................. 41
DESCRIPTION OF CAPITAL STOCK.............................................. 43
Authorized Capital Stock................................................ 43
Company Common Stock.................................................... 43
Company Preferred Stock................................................. 43
Common Stock Dividend Policy............................................ 43
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, THE BYLAWS AND STATE LAW.................................. 43
Classified Board of Directors........................................... 43
Number of Directors; Removal; Filling Vacancies......................... 44
No Stockholder Action by Written Consent; Special Meetings.............. 44
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 45
Preferred Stock......................................................... 46
Amendment of Certain Provisions of the Certificate and Bylaws........... 47
Anti-Takeover Legislation............................................... 47
Fair Price Provision.................................................... 47
Comparison with Certain Rights of Holders of Electronics Common Stock... 48
STOCKHOLDER RIGHTS PLAN................................................... 49
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Technologies has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") a Registration Statement on Form 10 (the
"Registration Statement") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to its Common Stock described
herein. The Registration Statement became effective on September , 1997.
This Information Statement does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is made hereby to the Registration Statement
and such exhibits and schedules. The Commission also maintains a World Wide
Web site (http://www.sec.gov.) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, it is expected that reports,
proxy statements and other information concerning the Company will be
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copies obtained at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of
the Commission at 7 World Trade Center, 13th floor, New York, New York 10048;
1401 Buckell Avenue, Suite 200, Miami, Florida 33131; Northwest Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661; 1801 California Street,
Suite 4800, Denver, Colorado 80202; and 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, California 90036. Copies of such information can be obtained by
mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish audited financial statements to its stockholders in connection with
its annual meetings of stockholders.
NO PERSON IS AUTHORIZED BY BEI ELECTRONICS, INC. OR THE COMPANY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS INFORMATION STATEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
iv
<PAGE>
SUMMARY OF CERTAIN INFORMATION
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Information Statement, which should be
read in its entirety. Certain capitalized terms used in this summary are
defined elsewhere in this Information Statement.
This Information Statement contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Information Statement.
THE DISTRIBUTION
Distributing Company........ BEI Electronics, Inc., a Delaware corporation
("Electronics"). The distributing company intends
to continue to pursue the medical device business
through its subsidiary, BEI Medical Systems
Company, Inc. ("Medical").
Distributed Company......... BEI Technologies, Inc., a Delaware corporation
("Technologies" or "the Company"), newly formed.
The primary continuing business of Technologies
will be the established motion sensor and control
business known as BEI Sensors & Systems Company,
Inc. ("Sensors & Systems").
Distribution Ratio.......... Each Electronics shareholder will receive one
share of Technologies Common Stock for every one
share of Electronics Common Stock held on the
Record Date. The shares of Technologies Common
Stock being distributed hereunder are referred to
herein as "Technologies Stock."
Shares to be Distributed.... shares of Technologies Common Stock
(par value, $.001 per share) will be distributed,
based on shares of Electronics Common
Stock outstanding on September 26, 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 26, 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 10, 1997. Electronics shareholders shall
not be required to make any payments or take any
other action to receive their Company Common
Stock. See "The Distribution--Manner of Effecting
the Distribution."
v
<PAGE>
Reasons for the 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 Technology Transfer and
License Agreement, an Assumption of Liabilities
and Indemnity Agreement, a Trademark Assignment
and Consent Agreement, a Corporate Services
Agreement, an Agreement Regarding Certain
Representations and Covenants and a Tax
Allocation and Indemnity Agreement governing the
relationship between the parties subsequent to
the Distribution. See "The Distribution--
Relationship between Electronics and Technologies
after the Distribution."
Related Transactions........ Prior to the Distribution, and subject to the
noteholders' agreement, Technologies will assume
Electronics' obligations related to the service
and repayment of $22.4 million in Senior Notes.
Management plans to transfer up to $9.0 million
in cash from Sensors & Systems to Electronics
which will be funded through a combination of
existing cash balances and borrowings by Sensors
& Systems of up to $9 million. The cash transfer
will be made to repay a portion of amounts due
from Sensors & Systems to Electronics resulting
from recurring intercompany transactions.
Management estimates that net intercompany
obligations of Electronics to Sensors & Systems
and Defense will be approximately $4.0 million at
the Distribution date. These net obligations will
be assumed by Technologies in connection with the
Distribution. After the Distribution,
Technologies intends to establish a bank line of
credit. There can be no assurance that Sensors &
Systems and Technologies will be able to obtain
such financing on terms acceptable to the Company
or that such financing, if obtained, will be
sufficient for the Company's needs. 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
vi
<PAGE>
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
Policy..................... Electronics has paid a cash dividend of $.02 per
share of Electronics Common Stock each quarter
since Electronics' initial public offering in
1989. The payment of future dividends, if any, by
Electronics or Technologies will be at the
discretion of their respective Boards of
Directors. See "The Distribution--Other
Consequences of the Distribution--Dividend
Policies."
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 June 28, 1997
and for the nine-month periods ended June 29, 1996 and June 28, 1997 have been
derived from unaudited interim combined financial statements included elsewhere
herein. In the opinion of management, the unaudited interim combined financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company at June 29, 1996 and June 28, 1997, and the results of its operations
for the nine-month periods then ended. The historical combined financial
statements of the Company do not necessarily reflect the results of operations
or financial position that would have resulted had the Company been a separate,
independent company and are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year. The historical
financial data does not include the effect of anticipated financing
transactions in connection with the Distribution (See "The Distribution--
Related Transactions"). See "Selected Unaudited Pro Forma Financial Data,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Summary Unaudited Pro forma
Financial Data" and "Combined Financial Statements" and accompanying notes
thereto. See also Note 1 of Notes to Combined Financial Statements for
explanation of shares used in pro forma earnings per share calculations.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $105,080 $89,391 $82,361 $90,475 $96,746 $71,398 $74,437
Income from continuing
operations before
interest expense and
income taxes........... 5,819 2,310 2,835 739 6,729 5,992 4,127
Depreciation and
amortization........... 4,502 5,354 5,602 5,913 5,915 4,333 4,296
Income (loss) from
continuing operations.. 2,840 599 321 (964) 2,873 2,706 1,794
Income (loss) from
discontinued operations
....................... 4,633 4,329 392 (1,077) 1,698 1,139 1,389
Net income (loss)....... 7,473 4,928 713 (2,041) 4,571 3,845 3,183
Pro forma earnings from
continuing operations
per common and common
equivalent share ...... $ 0.40 $ 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... $ 0.24 $ 0.20
Pro forma earnings per
common and common
equivalent share ...... $ 0.64 $ 0.45
Shares used in computing
pro forma earning per
common and common
equivalent share....... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $17,098 $35,052 $39,179 $29,774 $27,775 $28,829 $26,711
Total assets............ 91,106 92,361 97,852 92,418 92,171 90,900 86,668
Payable to BEI
Electronics, Inc....... 13,707 10,314 17,727 10,404 6,062 9,098 3,896
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,840 29,765 24,137 24,142 18,516
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 32,461 41,663
</TABLE>
ix
<PAGE>
BEI TECHNOLOGIES, INC.
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following summary unaudited pro forma financial data of the Company give
effect to certain planned financing transactions in connection with the
Distribution as if such transactions had occurred at the beginning of each
period presented for statement of operations data, and as of the balance sheet
date for balance sheet data. The planned financing transactions include
borrowings by Sensors & Systems of up to $9.0 million and the transfer of up to
$9.0 million in cash to Electronics as repayment of a portion of amounts
payable from Sensors & Systems to Electronics. There can be no assurance that
such financing will be available on terms acceptable to the Company or that
such financing, if obtained, will be sufficient for the Company's needs. The
planned financing transactions also include the assumption by Technologies of
net obligations payable by Electronics to Sensors & Systems and Defense,
estimated to be approximately $4.0 million at the time of the Distribution.
Interest charges on net amounts payable to Electronics have not been
significant.
The summary unaudited pro forma statement of operations data do not purport
to represent what the Company's results of operations would have been if the
financing transactions had occurred as of such dates or what such results will
be for any future periods. See "Selected Unaudited Pro forma Financial Data,"
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Combined Financial
Statements" and accompanying notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 28, JUNE 28,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales........................................... $96,746 $74,437
Operating income.................................... 6,487 3,881
Depreciation and amortization....................... 5,915 4,296
Income from continuing operations................... 2,503 1,449
Pro forma earnings from continuing operations per
common and common equivalent share................. $ 0 .35 $ 0.20
Shares used in computing pro forma earnings from
continuing operations per common and common
equivalent share................................... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
JUNE 28,
1997
-----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working Capital..................................................... $26,711
Total Assets........................................................ 86,668
Payable to (Receivable from) BEI Electronics, Inc................... (1,104)
Long-Term Debt (excluding current portion).......................... 27,516
Stockholders' Equity................................................ 37,663
</TABLE>
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<PAGE>
FORWARD-LOOKING STATEMENTS
This Information Statement may contain forward-looking statements that
involve risks and uncertainties. When used in this Information Statement, the
words "anticipate", "believe", "estimate", "expect" and similar expressions as
they relate to Electronics or the Company or their respective Boards of
Directors or management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "The Business," in "Risk Factors," in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Information Statement.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of Electronics, after careful study and analysis, has
concluded that it is in the best interests of Electronics and its stockholders
to undertake the Distribution based on its belief that each of its businesses
would enjoy substantially improved performance and access to capital markets
if its business, strategy, organization and employee incentives were tightly
focused on closely associated products and markets. The Board of Directors
believes that the Distribution should be beneficial to each of Electronics'
current businesses, because it will separate businesses with distinct
financial, investment and operating characteristics so that each can adopt
strategies and pursue objectives more appropriate to its specific businesses
than is possible under Electronics' present combined structure and so that
each company can be valued independently of the other. It is much easier for
management, employees and capital markets to focus on and understand the
business goals and objectives of a corporation that focuses on customers with
related needs and that specializes in products that have related engineering,
manufacturing, and marketing characteristics.
The Board of Directors of Electronics believes strategic planning should
begin with a review of the business environment and a company's competitive
position with other industry participants. In that setting, organizational
structure, personnel selection and incentive systems (in particular, stock
options, which provide long-term motivation to employees) can properly be
based on the specific business goals and strategies for the specific industry
in which the company operates. The Board believes it is substantially easier
for employees to relate to, internalize and endorse the business strategy of a
specific industry rather than an aggregation of different industries.
The Board of Directors of Electronics believes that Technologies' growth
will be better facilitated in several ways as a separate public company.
Foremost among the anticipated benefits is the expectation that, as a separate
public company, Technologies will be able to obtain needed financing on more
favorable terms than its businesses now can as a part of Electronics. In
addition, management believes that it will be better able to attract and
motivate existing and new key employees by providing stock-based incentive
compensation tied directly to the results of their efforts as reflected in the
market price of the Technologies Common Stock. The establishment of the
Technologies Common Stock as a separate, publicly-traded equity security
should provide Technologies enhanced acquisition opportunities by using
Technologies Common Stock as consideration.
The Board of Directors of Electronics foresees similar benefits for Medical
if it were a separate company. Financing is expected to be more readily
available from that portion of the equity market that desires to specialize in
emerging medical device companies in contrast with the present condition in
which medical, industrial and defense businesses are all co-mingled inside
Electronics. The ability to attract and to provide incentives to employees who
wish to make a career with a medical products company should also be enhanced,
as will the ability to make acquisitions of medical companies using Medical
stock as currency.
Finally, the Board of Directors of Electronics expects that the Distribution
will enable capital markets to better recognize and evaluate the different
merits of Technologies and Medical as separate public companies,
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<PAGE>
enhancing the likelihood that each will achieve appropriate market recognition
of its performance and prospects. Electronics' management believes that the
financial and investment communities do not fully value Electronics, in large
part because Electronics operates businesses in disparate industries. The
Board of Directors of Electronics believes that the separation of Technologies
and Medical would allow potential lenders and equity investors to understand
more clearly the business of each company and will thereby reduce each
company's cost of capital.
For the reasons stated above, the Electronics Board of Directors believes
that the Distribution is in the best interests of Electronics and its
stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
As a condition to the completion of the Distribution, Electronics and the
Company will receive an opinion from Davis Polk & Wardwell, special tax
counsel to Electronics, to the effect that, although the matter is not free
from doubt, the Distribution will qualify as tax-free to Electronics and its
stockholders under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"). The tax opinion will be based upon factual
determinations and upon legal issues as to which there are no regulations,
published rulings or judicial decisions directly on point. For those reasons,
the opinion will be qualified as being not free from doubt. In addition,
opinions of counsel are not binding on the Service or the courts. The Service
may challenge positions taken based upon this opinion. Although for the
reasons discussed above the matter is not free from doubt, Davis Polk &
Wardwell is of the opinion that if the Service were to assert that the
Distribution did not qualify as tax-free, the Service would not prevail in a
judicial proceeding in which the issues and facts were properly presented.
Assuming that the Distribution qualifies as tax-free for federal income tax
purposes:
(i) An Electronics stockholder will not recognize gain or loss as a
result of the Distribution.
(ii) An Electronics stockholder will apportion its tax basis for its
Electronics Common Stock between its Electronics Common Stock and
Technologies Common Stock received in the Distribution in proportion to the
relative fair market values of the Electronics Common Stock and
Technologies Common Stock on the Effective Date.
(iii) An Electronics stockholder's holding period for the Technologies
Common Stock received in the Distribution will include the period during
which the stockholder held the Electronics Common Stock with respect to
which the Distribution was made, provided that the Electronics Common Stock
is held as a capital asset by the stockholder as of the Effective Date.
(iv) Except to the extent of any excess loss accounts or deferred
intercompany gains, no gain or loss will be recognized to Electronics as a
result of the Distribution.
The tax opinion will rely upon, among other things, certain representations
made by Electronics and Technologies to Davis Polk & Wardwell. If it were
subsequently determined that those representations were inaccurate or
incomplete, the conclusion in the tax opinion could not be relied upon.
If the Distribution does not qualify as a tax-free distribution, the fair
market value of the shares of Technologies Common Stock received by the
Electronics stockholders would be taxable as a dividend. In that event, the
tax basis of the shares of Technologies Common Stock held by the Electronics
stockholders after the Distribution would not change and the tax basis of the
shares of Technologies Common Stock would be equal to their fair market value
on the Effective Date. In addition, Electronics would recognize a capital gain
equal to the difference between the fair market value of the shares of
Technologies Common Stock and Electronics' basis in the shares.
Current U.S. Department of Treasury ("Treasury") regulations require each
Electronics stockholder who receives Technologies Common Stock pursuant to the
Distribution to attach to such stockholder's federal income tax return for the
year in which the Distribution occurs a descriptive statement concerning the
Distribution.
2
<PAGE>
Electronics (or the Company on its behalf) will make available requisite
information to each Electronics stockholder of record as of the Record Date.
ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE
PARTICULAR FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM.
For a description of agreements pursuant to which Electronics and the
Company have provided for certain tax sharing and other tax matters, see
"Relationship Between Electronics and Technologies After the Distribution--Tax
Agreement."
MANNER OF EFFECTING THE DISTRIBUTION
Electronics will effect the Distribution on the Distribution Date by
delivering 7,025,843 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 7,025,543 shares of Technologies Common Stock
outstanding, assuming there are 7,025,543 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 10,1997.
OPINION OF FINANCIAL ADVISOR
Electronics retained SBC Warburg Dillon Read, Inc. formerly Dillon, Read &
Co. Inc. ("Dillon Read") to act as Electronics' financial advisor in
connection with the Distribution and related matters based upon Dillon Read's
experience and expertise. Dillon Read rendered a written opinion to the Board
of Directors of Electronics that, as of the date of its opinion and subject to
the considerations set forth in such opinion, the proposed Distribution is
fair from a financial point of view to the holders of shares of Electronics
Common Stock.
THE FULL TEXT OF DILLON READ'S WRITTEN OPINION DATED 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.
3
<PAGE>
In arriving at its opinion, Dillon Read (i) conducted discussions with
members of the senior management of Electronics and with the senior management
of Technologies with regard to the business and prospects of each company;
(ii) analyzed certain historical business and financial information related to
Electronics and Technologies prepared by Electronics management; (iii)
reviewed certain financial projections for Electronics and Technologies
prepared by Electronics management; (iv) reviewed public information relating
to Electronics, including Electronics' Annual Report and Form 10-K for the
five fiscal years ended September 28, 1996; (v) reviewed public information
with respect to certain other companies engaged in businesses which Dillon
Read believed to be generally comparable to certain of the businesses
conducted by Electronics and Technologies; (vi) reviewed the Information
Statement; and (vii) conducted such other studies, analyses and investigations
and reviewed such other economic and market data as Dillon Read deemed
necessary or appropriate.
In connection with the delivery of its opinion, Dillon Read discussed with
the Board, among other things, Dillon Read's analysis of the possible post-
Distribution market values of Electronics Common Stock and Technologies Common
Stock. The analysis was based on a range of price/earnings multiples of 1997
and 1998 calendar year earnings estimates for the Company and equity market
capitalizations less cash for Electronics. The price/earnings multiples and
equity market capitalizations less cash used in the analysis were compared to
the price/earnings multiples and equity market capitalizations less cash for
certain publicly-traded companies which Dillon Read deemed generally
comparable to the Company and Electronics, respectively. The analysis
generally indicated that, on a post-Distribution basis, based on the earnings
estimates and price/earnings multiples and equity market capitalizations less
cash that were considered most appropriate, the combined implied market value
of one share of Electronics Common Stock and one share of Technologies Common
Stock would exceed the closing market price per share of Electronics Common
Stock on the day prior to the Board's determination to pursue the
Distribution.
In addition, Dillon Read analyzed the financial effects of the Distribution,
including (i) the ability to enhance the value of the Company's businesses as
an independent company with a lower cost of new debt and equity financing,
simplified management structure and focused management incentives, (ii) the
ability to reposition Electronics with a greater emphasis on its medical
devices business, (iii) creating enhanced acquisition opportunities using
stock as consideration, (iv) the enhanced focus of Electronics' and the
Company's management teams, and (v) the tax-free nature of this transaction.
Dillon Read also discussed with the Board Dillon Read's view of certain
potential detriments of the Distribution, including potential redistribution
of Technologies Common Stock for a period of time following the Distribution.
In rendering its opinion, Dillon Read with the Board's consent, assumed and
relied upon, without independent verification, the accuracy and completeness
of the information reviewed by Dillon Read for the purposes of its opinion.
With respect to the financial budgets and forecasts, Dillon Read, at the
Board's direction, assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Electronics and the Company. Dillon Read did not make
any independent valuation or appraisal of the assets or liabilities,
contingent or otherwise, of Electronics or the Company, nor has Dillon Read
been furnished with any such appraisals.
Dillon Read noted that Electronics, as a condition to the Distribution,
expects to receive an opinion from Davis, Polk & Wardwell to the effect that
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
assumed that the Distribution will be completed substantially on the basis set
out in the Information Statement.
4
<PAGE>
Dillon Read was not asked to, and did not, provide any opinion as to the
valuation or long-term viability of Electronics or the Company as independent
public companies following the Distribution. In rendering its opinion, Dillon
Read did not opine as to the price at which the common stock of Electronics or
the Company will trade after the Distribution is effected.
As financial advisor to Electronics in connection with the Distribution,
Dillon Read has been paid an advisory fee of $100,000 which compensated Dillon
Read for the time and efforts expended in rendering advice in connection with
the Distribution and upon consummation of the Distribution, Dillon Read will
be paid a transaction fee of $400,000. Electronics has agreed to reimburse
Dillon Read for its out-of-pocket expenses incurred in connection with its
services as financial advisor. Electronics has also agreed to indemnify Dillon
Read and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Dillon Read or any of its
affiliates against certain liabilities, including liabilities under the
federal securities laws, and expenses related to Dillon Read's engagement.
Dillon Read was selected by the Electronics' Board to act as Electronics'
financial advisor based upon Dillon Read's qualifications, expertise and
reputation. Dillon Read is a nationally recognized investment banking firm and
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings and private
placements.
RELATIONSHIP BETWEEN ELECTRONICS AND TECHNOLOGIES AFTER THE DISTRIBUTION
Immediately following the Distribution, all outstanding shares of
Technologies Common Stock will be owned by stockholders of Electronics. Shares
of the two companies will trade independently.
Subsequent to the Distribution, Technologies will operate independently from
Electronics. Electronics and Technologies are not expected to become
competitors because the companies will be engaged in the development and
marketing of different types of products with different applications in
different markets. See "Description of the Business--Competition."
Because Electronics has provided Sensors with treasury, management,
financial and other administrative services in the past, Technologies will
expand its financial, tax and administrative staffs as a result of the
Distribution.
Distribution Agreement. The general terms and conditions of the Distribution
are set forth in the Distribution Agreement to be entered into between
Electronics and Technologies prior to the Distribution. The following is a
summary of the principal provisions of the Distribution Agreement. 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 and
the executive office function which are held by Electronics in exchange for
the Technologies Common Stock. See "The Business--Introduction and Historical
Overview."
The Distribution Agreement also provides for assumption by Technologies of
$22.4 million in Senior Note obligations of Electronics, the renegotiation and
assumption by Technologies of the existing credit agreement between
Electronics and Canadian Imperial Bank of Commerce ("CIBC"), the repayment of
certain intercompany accounts and the assumption by Technologies of
approximately $4.0 million in intercompany obligations due Electronics by
Sensors & Systems and Defense at the time of the Distribution. See "Related
Transactions--Assumption of Note Obligations," and "Financing--Bank Credit
Facilities" below.
The Distribution Agreement provides that Technologies has the right to hire
certain individuals approved by Electronics who are or have been employees of
Electronics. Electronics will have no further responsibility or
5
<PAGE>
liability with respect to the employment relationship of such employees upon
the effectiveness of the Distribution, other than with respect to the final
settlement of obligations with respect to such employees under existing
Electronics incentive and benefit plans.
The Distribution Agreement provides that in connection with the transfer of
assets and the assumption of liabilities relating to the separation of the
businesses of Technologies and Electronics, Technologies and Electronics shall
execute or cause to be executed various conveyancing and assumption
instruments in such forms as the parties to the Distribution Agreement shall
agree.
Pursuant to the Distribution Agreement, Electronics agrees to obtain all
consents, permits and authorizations necessary to transfer and agrees to
transfer to Technologies any assets associated with Technologies business that
have not been transferred by the Effective Date. In addition, Electronics
agrees to obtain consents, permits and authorizations necessary to permit
Technologies to assume any liabilities associated with Technologies business
that have not been assumed by Technologies by the Effective Date. There are no
material assets or liabilities related to the business of the Company that
will not be transferred to the Company effective on or shortly following the
Effective Date. The Distribution Agreement also provides that expenses
associated with the Distribution will be charged to and paid by Electronics
and allocated to the parties on an equitable basis.
Assumption of Liabilities and Indemnification Agreement. Under the Assumption
of Liabilities and Indemnification Agreement, except as provided in the Tax
Agreement described below, Technologies and Electronics will each be responsible
for all claims and liabilities relating to their respective businesses, whether
or not such claims and liabilities are asserted prior to the Distribution, and
will each indemnify the other against such claims and liabilities. Electronics
will have no continuing financial interest in Technologies, except that it may
remain an obligor or guarantor for certain existing obligations of Technologies
pursuant to the Distribution Agreement. Technologies has agreed to indemnify
Electronics to the extent of any payments made on those obligations. In
connection with the Distribution, Electronics will attempt to obtain releases
from its existing guarantees relating to certain of Technologies' obligations.
To the extent it is unsuccessful, Electronics will remain liable after the
Distribution on such guarantees, subject to Technologies' indemnification of
Electronics. See the Assumption of Liabilities and Indemnity Agreement between
Electronics and Technologies which has been filed as Exhibit 2.3 to the
Registration Statement.
Corporate Services Agreement. Electronics and Technologies will make
available to each other for a transition period generally not expected to
exceed the end of calendar year 1998 certain personnel, services and records,
with each party being reimbursed for any costs and expenses incurred in
connection therewith. The Corporate Services Agreement further provides for
Medical's continued use, during such period, of certain centralized staff
services and systems, such as health claims administration, oversight of
compliance with public company reporting requirements, the preparation and
filing of tax returns and the administration of retirement plan asset
investment services, with Technologies being paid on an arm's length basis for
such services.
Tax Agreement. Prior to the Distribution, agreements will also be entered
into that reflect each party's rights and obligations with respect to
deficiencies and refunds of federal, state or other income taxes relating to
the business of Electronics that are attributable to periods ending prior to
or on the Effective Date (the "Tax Agreement"). The Tax Agreement also
expresses each party's intention with respect to certain tax attributes of
Technologies after the Distribution. The Tax Agreement provides that
Electronics shall be responsible for federal, state and local income taxes
relating to the Sensors & Systems and Defense Systems businesses of
Technologies for periods up to and including the Effective Date. The Tax
Agreement provides for payments between the two companies for certain audit
adjustments made after the Distribution that cover pre-Distribution tax
liabilities. Other provisions cover the handling of audits, settlements, stock
options, elections, accounting methods, and return filings in cases where both
companies have an interest in the results of these activities. In addition,
the Tax Agreement requires Electronics and Technologies to cooperate in
preparing those filings that cover overlapping taxable periods that include
the Effective Date.
Pursuant to the Tax Agreement the Company will agree to refrain from
engaging in certain transactions for two years following the Effective Date
unless it shall first provide Electronics with a ruling from the Internal
6
<PAGE>
Revenue Service or an unqualified opinion of nationally recognized tax counsel
that the transaction will not cause the Distribution to become taxable.
Transactions subject to these restrictions will include, among other things,
the liquidation, merger, or consolidation with another company, the issuance
or redemption of Company Common Stock, the sale, distribution or other
disposition of assets out of the ordinary course of business, and the
discontinuation of certain businesses, except as such transaction relates to
the discontinuation of the Defense business. The Company will generally agree
to indemnify Electronics against any tax liability resulting from the
Company's breach of any covenant or representation contained in the Tax
Agreement with respect to such transactions. In addition, the Company and
Electronics have each agreed that neither party will take any action
inconsistent with the information furnished by it in connection with the
rendering of the legal opinion regarding the tax-free nature of the
Distribution and, until the expiration of the statute of limitations period
applicable to the taxable year in which the Distribution occurs, neither party
will make or change any accounting method, amend any tax return or take any
tax position on any tax return, change the manner in which it conducts its
business, or take (or omit to take) another action that results in any
increased tax liability relating to a pre-Distribution tax period. The Company
and Electronics have each agreed to indemnify the other for liabilities
arising as a result of the breach by the Company or Electronics, as the case
may be, of the Tax Agreement.
Technology Transfer and License Agreement. The Technology Transfer and
License Agreement provides for the assignment of intellectual property and
technology other than trademarks to the party that utilized it prior to the
Distribution. Technologies also grants Electronics an irrevocable, royalty
free, worldwide, nonexclusive license to utilize the intellectual property and
technology assigned to Technologies to produce medical devices if such
intellectual property and technology had been used by Electronics or its
subsidiaries prior to the Distribution (the "Licensed Technology"). In
exchange, Technologies is granted an irrevocable, royalty free, worldwide,
nonexclusive license to utilize any improvements to the Licensed Technology
developed by Electronics. See the form of Technology Transfer and License
Agreement which has been filed as Exhibit 2.5 to the Registration Statement.
Trademark Agreement and Consent Agreement. The Trademark Assignment and
Consent Agreement assigns existing trademarks between the parties based upon
usage prior to the Distribution. See the Trademark Assignment and Consent
Agreement between Electronics and Technologies which has been filed as Exhibit
2.6 to the Registration Statement.
RELATED TRANSACTIONS
Assumption of Note Obligations. Electronics currently has $22.4 million of
outstanding Series A and Series B Senior Notes. The Series A Notes call for
principal repayments of $3.4 million on October 1 of each year through the
year 2000. The Series B Notes call for principal repayments of $2.2 million on
November 15 through the year 2000. The interest on the Notes was 6.73%. In
connection with the Distribution, Technologies will assume the Senior Note
obligations subject to the noteholders' agreement, at a revised rate of
interest of 7.23% and the modification of certain financial covenants to be
more favorable to the Company. The repayment terms on the Notes will not
change as a result of the assumption. See Note 5 of Notes to Combined
Financial Statements.
Financing Transactions. Prior to the Distribution, Sensors & Systems plans
to transfer up to $9.0 million in cash to Electronics to repay a portion of
amounts due from Sensors & Systems to Electronics from recurring intercompany
transactions. The net balance of intercompany obligations owed to Electronics
by Sensors & Systems and Defense was $3.9 million on June 28, 1997. At the
Distribution date and including the effects of the cash transfer, management
estimates the net intercompany obligations of Electronics to Sensors & Systems
and Defense will be approximately $4.0 million. See Note 15 to Combined
Financial Statements.
Management anticipates the cash transfer will be funded by a combination of
Sensors & Systems' existing cash balances and new borrowings by Sensors &
Systems of up to $9.0 million as described under "Financing--Bank Credit
Facilities" below. The net intercompany obligations of Electronics will be
assumed by Technologies and all the other assets and liabilities of Sensors &
Systems and Defense will be contributed to Technologies as
7
<PAGE>
part of the Distribution. After the Distribution, Technologies intends to
establish a credit facility with a financial institution. There can be no
assurance that Sensors & Systems and Technologies will be able to obtain such
financing on terms acceptable to the company or that such financing, if
obtained, will be sufficient for the Company's needs.
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 Technologies Common Stock will be outstanding.
The Transfer Agent and Registrar for the Technologies Common Stock will be
ChaseMellon Shareholder Services, L.L.C. For certain information regarding
options to purchase Technologies Common Stock that are expected to become
outstanding after the Distribution, see "--Other Consequences of the
Distribution--Stock Options" and "New Incentive Plans of BEI Technologies,
Inc.--1997 Equity Incentive Plan."
It is anticipated that certain investment banking firms will make a market
in Technologies Common Stock following the Distribution. Any such market
making activity may be discontinued at any time, without notice. There can be
no assurance that an active trading market in Technologies Common Stock will
develop, or, if a market does develop, at what prices Technologies Common
Stock will trade.
Shares of Technologies Common Stock distributed to Electronics stockholders
in the Distribution will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act. Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company and may
include certain officers and directors of the Company as well as principal
stockholders of the Company, if any. Persons who are affiliates of the Company
will be permitted to sell their shares of Technologies Common Stock only
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 or another exemption from the registration requirements
of the Securities Act.
OTHER CONSEQUENCES OF THE DISTRIBUTION
Dividend Policies. Electronics has paid a cash dividend of $.02 per share of
Electronics Common Stock each quarter since its initial public offering in
1989. The payment of future dividends, if any, by Electronics or the Company
will be at the discretion of the Electronics Board of Directors and the
Company's Board of Directors, respectively.
8
<PAGE>
Certain Anti-takeover Effects. The Certificate of Incorporation and Bylaws
of the Company contain several provisions that may make the acquisition of
control of the Company more difficult or expensive. With respect to certain of
these provisions, the Certificate of Incorporation of the Company differs from
the Certificate of Incorporation of Electronics. In addition, the Board of
Directors of the Company has adopted a Stockholder Rights Plan that has
certain anti-takeover effects. See "Certain Anti-takeover Effects of Certain
Provisions of the Certificate of Incorporation, the Bylaws and State Law" and
"Stockholder Rights Plan."
Stock Options. Holders of vested incentive and nonstatutory stock options to
purchase Electronics Common Stock ("Vested Options") will be entitled to
exercise such Vested Options prior to the Record Date and thereafter to
receive shares of Technologies Common Stock as part of the Distribution.
Holders of Vested Options who do not exercise such Options prior to the Record
Date, together with holders of unvested incentive and nonstatutory stock
options to purchase Electronics Common Stock ("Unvested Options"), will have
such unexercised Vested Options and such Unvested Options converted to vested
and unvested incentive stock options and nonstatutory stock options, as
appropriate, to purchase Technologies Common Stock issued under the 1997
Technologies Equity Incentive Plan. As a result of the conversion to vested
and unvested incentive stock options and nonstatutory stock options to
purchase Technologies Common Stock, the Vested Options and Unvested Option to
purchase Electronics Common Stock will be cancelled. Based on options to
purchase Electronics Common Stock outstanding as of the Record Date, it is
anticipated that options to purchase shares of Technologies Common Stock will
be issued pursuant to the conversion. The conversion will be based on the
following criteria:
(i) the excess of the aggregate fair market value of the shares of
Technologies Common Stock subject to the option immediately after the
conversion over the aggregate option price of such shares may not be more
than the excess of the aggregate fair market value of the shares of
Electronics Common Stock subject to the option immediately before such
conversion over the aggregate option price of such shares;
(ii) on a share by share comparison, the ratio of the option price to the
fair market value of the shares of Technologies Common Stock subject to the
option immediately after the conversion may not be more favorable to the
optionee than the ratio of the option price to the fair market value of the
shares of Electronics Common Stock subject to the option immediately before
the conversion; and
(iii) the new option does not give the option holder additional benefits
that such holder did not have under the old option.
RESTRICTED STOCK. As of August 1, 1997, 352,550 shares of Electronics'
Common Stock had been issued pursuant to awards of restricted stock granted
under the Electronics' 1992 Restricted Stock Plan ("Electronics' Restricted
Stock"), including 94,636 shares issued to individuals who will continue as
directors or officers of the Company after the Distribution. See "Executive
Compensation--Executive Compensation Prior to the Distribution--Summary
Compensation Table." In addition, 257,914 shares of Electronics Restricted
Stock have been issued to individuals who will continue as employees of the
Company or a subsidiary of the Company after the Distribution.
Each holder of the shares of Electronics Restricted Stock will receive as a
result of the Distribution of Technologies Common Stock vested and unvested
shares in amounts equal to the number of vested and unvested shares of
Electronics Restricted Stock held by such holder on the Record date. Based on
the number of shares of Electronics Restricted Stock outstanding on June 28,
1997, it is anticipated that a total of 352,550 shares of Technologies Stock
will be issued in connection with the Distribution to holders of Electronics
Restricted Stock.
The Company has adopted a 1997 Equity Incentive Plan under which
consultants, employees and directors of the Company are eligible to receive
restricted stock awards. See "New Incentive Plans of BEI Technologies, Inc.--
1997 Equity Incentive Plan."
9
<PAGE>
FINANCING
Electronics' practice has been to incur long-term debt at the parent company
level rather than the subsidiary level, even when the funds obtained from such
borrowings have been used in the businesses of its subsidiaries. Accordingly,
financing requirements of Sensors & Systems generally have been funded through
intercompany accounts with Electronics.
BANK CREDIT FACILITIES
In order to support its initial funding needs, including the transfer by
Sensors & Systems of up to $9 million to Electronics prior to the Distribution
to repay a portion of amounts payable to Electronics, Sensors & Systems plans
to borrow up to $9 million under a note from Canadian Imperial Bank of
Commerce ("CIBC"). After the Distribution, Technologies intends to establish a
line of credit with CIBC. See "The Distribution--Related Transactions--
Financing Transactions". Interest on borrowings under the line of credit will
be based upon either the Prime Commercial Lending Rate of CIBC or the rate
which would be offered by CIBC to prime banks in the interbank Eurodollar
market, depending on the term of the loan. Management believes that as a
result of the Distribution, Technologies will be able to obtain new financing
on more favorable terms than new financing Electronics could obtain absent the
Distribution. However, there can be no assurance that Sensors & Systems or
Technologies will be able to obtain such financing from CIBC or other sources
on terms acceptable to the Company or that such financing if obtained will be
sufficient for the Company's needs.
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.
10
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth, as of June 28, 1997, the capitalization of
Technologies on a historical basis, and on a pro forma basis giving effect to
the Distribution, including the borrowing of up to $9.0 million by Sensors &
Systems, the transfer of up to $9.0 million in cash to Electronics to repay a
portion of amounts payable from Sensors & Systems to Electronics, and the
assumption by Technologies of net intercompany obligations of Electronics to
Sensors & Systems and Defense, estimated to be approximately $4.0 million at
the time of the Distribution. Technologies intends to establish a bank line of
credit. There can be no assurance that Sensors & Systems or Technologies will
be able to obtain such financing on terms acceptable to the Company or that
such financing, if obtained, will be sufficient for the Company's needs. This
table should be read in conjunction with the "Description of Capital Stock,"
"Selected Unaudited Pro Forma Financial Data," "Selected Historical Financial
Data," and "Combined Financial Statements" and Notes thereto appearing
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
JUNE 28, 1997
----------------
PRO
ACTUAL FORMA
------- -------
<S> <C> <C>
Long-term debt(1):
Current portion............................................ $ 5,627 $ 5,627
Non-current portion........................................ 18,516 27,516
Payable to (Receivable from) BEI Electronics, Inc.(1)........ 3,896 (1,104)
Stockholders' equity:
Preferred Stock, pro forma; $.001 par value; 2,000,000
shares authorized, no shares issued and outstanding....... -- --
Common stock, pro forma $.001 par value; 20,000,000 shares
authorized, 7,003,000 shares issued and outstanding(2).... -- --
Retained earnings............................................ 42,949 38,949
Unearned Restricted Stock.................................... (1,286) (1,286)
------- -------
Total stockholders' equity............................... 41,663 37,663
------- -------
Total capitalization..................................... $69,702 $69,702
======= =======
</TABLE>
- --------
(1) See Notes 5, 7 and 15 of Notes to Combined Financial Statements.
(2) Excludes pro forma effect of Common Stock issuable on exercise of stock
options of Electronics to acquire 159,167 shares of its Common Stock.
11
<PAGE>
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 Common Stock based on
management's belief that each of its businesses would enjoy substantially
improved performance and access to capital markets if its business strategy,
organization and employee incentives were tightly focused on closely
associated products and markets. For a more complete discussion of the
business reasons for the distribution, see "The Distribution--Reasons for the
Distribution."
BEI Technologies, Inc., a Delaware corporation newly organized in June 1997,
is currently a wholly-owned subsidiary of Electronics. As of the 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 the product line through acquisitions of
complementary technologies.
A key feature of the Company's strategy is to be widely recognized as the
most capable source for the sensor categories it has selected. Its traditional
emphasis is on highly engineered motion sensing components and assemblies. The
Company believes it differentiates itself by offering (a) appropriate
technology to solve a customer problem (including innovative proprietary
technology); (b) quality service; and (c) engineering assistance in
recommending and prescribing technical solutions for its customers'
applications. Sensors' product are not sold as commodities. Its strategy is to
provide technical advice and customer service that, together with the products
themselves, create value and give the customer confidence that the product has
been expertly prescribed and applied.
By way of more specific examples, the Company's engineers regularly address
the following typical machine control requirements of customers:
(1) A pick and place robot needs to know how far its elbow and wrist joints
have moved in order to control the speed and position of its "hand."
(2) After a power outage, an elevator system needs to know exactly where
each car is before permitting motion to resume. (Is the car between floors or
not? Are the doors open or closed?) In both the foregoing examples, the
Company's encoders could measure speed, distance, or exact location.
(3) An antenna on a moving ship needs to be actively stabilized so that the
antenna will continuously point at a satellite or another ship's pencil beam
laser signal. For such an application the Company might provide its
proprietary "GyroChip" quartz rate sensor. It might also provide motor-
encoders and actuators to drive the compensating action of such a system.
(4) Some luxury automobiles now have computer-controlled stability
enhancement systems to assist drivers in maintaining control of the vehicle in
slippery conditions. In some of these systems one of the Company's sensors
tells the computer system the present direction and angle of the steering
wheels, while another of the Company's sensors instantly measures and reports
the presence of "yaw" forces which--if not corrected--could cause the vehicle
to spin out or "fishtail". The automation system in this case relies on
sensors to compare the driver's indicated directions and the actual result.
The system can then take corrective action automatically. Here the Company
provides special "GyroChip" quartz sensors as well as encoder and
potentiometer combinations.
13
<PAGE>
(5) Advanced engine control systems in tractors, trucks, materials handling
and construction equipment need to know throttle position data in order to
assure efficient and clean combustion and safe and reliable gear changes and
other automated functions. The Company's potentiometers provide the necessary
throttle position data.
(6) Semiconductor production equipment requires extremely fast yet accurate
control of start-move-stop action on x-y positioners and tools. The Company's
magnetic actuators provide the energizing force for such tasks.
(7) Process automation systems and various medical systems such as those for
cryosurgery and respiration therapy require compact, high reliability pressure
measurement and fast acting valves, which are accommodated by the Company's
silicon pressure sensors and/or magnetic actuators.
CUSTOMERS AND MARKETS
The foregoing examples illustrate a few of the thousands of machine control
situations for which the sensors of the Company are used. Customers who buy
the Company's products are makers and users of many different kinds of
machinery and systems used in diverse markets and industries. Important market
categories include factory automation, process automation, transportation
(including cars, trucks, mass transit, construction and farm equipment),
health care and scientific equipment, and military, space and
telecommunications.
The Company considers its large number of customers and the vast scope of
existing and potential applications for its products to be a source of the
Company's existing business strength and an opportunity for substantial long
term growth.
The Company's brands have been well established in North America for many
years and were distributed during the past fiscal year through Sensors &
Systems' direct sales force to more than 6,400 different commercial customers,
principally in the United States. These customers included both end users and
original equipment manufacturers. The value of individual orders from
commercial customers--which account for approximately two thirds of total
sales--is typically less than $100,000.
Sales from continuing operations to the U.S. Government (or prime
contractors who manage government funded projects) represented approximately
27% of the Company's sales in fiscal 1996, 32% in fiscal 1995 and 40% in
fiscal 1994. No commercial customer accounted for more than 10% of sales in
fiscal year 1996, 1995 or 1994. The Company sells approximately 10% of its
products in international markets. The Company has initiated actions which it
believes will increase its penetration of international markets.
The Company also seeks to use its proprietary sensor capabilities to create
value-added subsystems or products. The goal is to make such high margin
products, enabled by the Company's proprietary technology, a growing part of
the Company's business. For example, the Company's success in providing
components for pointing and stabilizing telecommunications antennae has led to
it exploring the market for a unique stabilized platform for optical systems
that the Company may offer as a product.
PRODUCTS AND PROPRIETARY SYSTEMS
The Company's main product groups may be categorized as follows:
1. Sensors (for motion and pressure measurement),
2. Products Complementary to Sensors (motors and actuators), and
3. Engineered Subsystems (such as inertial guidance units, electronic servo
control systems, scanner assemblies and cryocoolers)
14
<PAGE>
A more detailed description of the products and systems designed,
manufactured and sold by the Company follows below:
Sensors:
Shaft Encoders. Shaft encoders translate the motion of rotating shafts
directly into digitally coded electronic signals. These digitally coded
signals facilitate interpretation of the sensed motion by microcomputer
processors that are used to control the operation of machinery and equipment.
Sensors & Systems offers a wide array of encoders to serve a variety of
applications. The most common applications are for factory automation, office
automation, and transportation equipment, but specialized versions are also
used for military and space hardware. Value-added assemblies which employ
shaft encoders include servo motors and servo drive electronic control
systems.
Precision Potentiometers. Similar in basic function to encoders,
potentiometers measure motion by analog (not digital) changes in electrical
potential. These changes may sometimes be subsequently translated into digital
code. Potentiometers are used as economical motion or position-sensing devices
for throttle, steering, suspension, and seat and mirror position controls in
automobiles and in some heavy equipment, such as earth movers, and
construction and farm machinery. They are also used as position sensors in
such applications as actuators on molding presses, saw mills and numerous
other types of industrial equipment and in oil well logging calipers.
Incorporating Sensors & Systems' potentiometer technology with its proprietary
shaft encoder technology has resulted in a highly engineered steering wheel
position sensor used for intelligent stability control systems for automobiles
and potentially for other vehicles in the future.
Rate Sensors and Accelerometers. These products provide precise and reliable
measurement of minute linear and angular motion for control, guidance and
instrumentation. In general, these devices operate without need for direct
linkage to the driving mechanisms. Such measurements are required for heading
and attitude reference instruments in aircraft and missiles, stabilization of
satellites, pointing and control of antennae on aircraft, ships and other
moving platforms, navigation of oil well drill bit assemblies, and for
intelligent vehicle stability and navigation systems in the automotive
industry.
Mechanical accelerometers and rate sensors using traditional technology
(e.g., a moving mass suspended by a pivot and jewel mechanism) rely on the
movement of complex machined metallic parts to measure motion. In contrast,
Sensors & Systems' miniature, solid state accelerometers and rate sensors are
based on innovative and proprietary chemical micro-machining of a single
element from crystalline quartz using photolithographic methods similar to
those used in the manufacture of silicon semiconductor chips. The advantages
of quartz rate sensors and accelerometers over traditional mechanical units
are increased reliability, reduced size, and lower production and life cycle
costs.
BEI GyroChip(R) Sensors. The Company's family of GyroChip quartz rate
sensors, developed primarily for commercial gyro applications, have found use
in such varied requirements as navigation of autonomous (robotic) guided
vehicles, ocean buoy and sea-state monitoring, and stabilization of pointing
systems for antennas and optical systems. The most 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.
15
<PAGE>
Micro-Electromechanical Sensors (MEMS). MEMS are a new category of ultra
small devices, usually micro-machined from crystalline materials such as
quartz or silicon. The GyroChip sensors and other quartz devices discussed
above are examples of MEMS currently being sold by Electronics. Management
expects Sensors & Systems' MEMS research and development programs to lead to
new devices for sensing motion, pressure and other physical parameters.
Products Complementary to Sensors:
Brushless DC Motors. Brushless DC Motors give high performance and
efficiency in compact, lightweight packages and ease of interface with
microprocessors. The motors, which feature high energy magnets, are
characterized by long life and low acoustic and electrical noise. They are
well suited to high speed, high reliability applications, such as in operating
rooms where the risk of sparks from a brush motor would be hazardous or where
electrical noise could disrupt computers or computer-controlled equipment.
Magnetic Actuators. Magnetic actuators are used in place of motors or
solenoids to achieve precise control of short stroke linear or limited rotary
motion. Actuators using very high energy magnets are also produced for
specialized applications requiring intense force, torque or acceleration
relative to the size of the device.
Engineered Subsystems:
Avionics Controls. In 1995, Electronics discontinued production of rocket
propelled ordnance systems. Certain avionics control units (electronic black
boxes), which were part of the rocket system product mix, continue in backlog,
however, and will in the future be reported as a part of Technologies'
continuing Sensors & Systems business.
Cryocoolers. The Company's proprietary, compact and lightweight stirling
cycle refrigerators are designed for cooling advanced electronic vision
sensors to liquid nitrogen temperatures. These cryocoolers are utilized in
infrared cameras used in surveillance, night vision pilotage systems and
superconducting applications.
Inertial Measurement Units (IMU's). These subsystems are a fundamental
element of virtually all inertial navigation and position or attitude
reporting systems. Even systems that rely on the Global Positioning Satellite
(GPS) network frequently must have an IMU built in to assure a back-up in case
the GPS signal is interrupted. Technologies' quartz rate sensors have made new
breakthroughs in size, reliability and cost for the proprietary IMU subsystems
it builds.
Scanner Assemblies. Scanner assemblies are an integral subsystem of the
optics in military night vision systems that guide the infrared image to the
focal plane sensor array. These subsystems consist of spinning or
reciprocating mirrors, a motor and an encoder in a precision servo loop. The
Company's motion control know-how helps assure that the scanner delivers
jitter-free, well-resolved images.
Servo Systems. Servo Systems are closed-loop electronic systems that control
the position or velocity of rotating shafts or other moving parts by accepting
a desired rate or position input from computers or keyboards, monitoring the
position or rate of movement (using an appropriate encoder or other sensor)
and constantly providing feedback that indicates whether the desired
performance has been achieved.
BACKLOG
The Company's commercial operations typically ship standard products within
30 to 90 days after receipt of a purchase authorization. Management of the
Company believes that its competitive position depends in part on minimizing
the time that elapses between receipt and shipment of an order. Products that
require special analysis, design or testing, such as those produced for
customers in the aviation, defense or space technology markets, are generally
shipped from six to eighteen months after receipt of the purchase
authorization.
16
<PAGE>
Backlog of the Company's continuing businesses at June 28, 1997 and at June
29, 1996, was as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Backlog............................................. $47,197 $42,239
</TABLE>
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the next twelve months of scheduled deliveries under existing
contracts. Some contracts undertaken by Sensors & Systems extend beyond one
year. Accordingly, portions of such contracts are carried forward from one
year to the next as part of backlog. Approximately 46% of the backlog as of
June 28, 1997 is scheduled for shipment during fiscal 1997; all of the
remainder of the backlog is scheduled for shipment during fiscal 1998.
In the case of U.S. Government contracts, backlog includes only the
applicable portion of contracts that are fully funded by a procuring
Government agency. All U.S. Government contracts and subcontracts are subject
to termination by the U.S. Government for convenience. There can be no
assurance that all existing contract backlog will eventually result in revenue
and, accordingly, the amount of backlog at any date is not necessarily a
reliable indicator of future revenue or profitability trends.
COMPETITION
Competitors for various products offered by the Company are found among
certain divisions or product lines of large, diversified companies such as
Allied-Signal, Boeing, Danaher Corp., Litton, Northrop, Honeywell and
Rockwell. Smaller or product-specific companies, some of whose products
compete include Encoder Products, Kollmorgen, Kulite Semiconductor, Dynamics
Research Corp., Pacific Scientific, Papst, Renco Encoders, Axsys Technologies,
and Servo Magnetics.
In its principal markets, the Company believes that competition is based
primarily on design, performance, reliability, price, delivery, service and
support. The Company believes that it competes favorably with respect to these
factors.
MANUFACTURING
The Company's manufacturing operations provide a mix of standard catalog
products and products designed to meet the specialized requirements of a
particular customer. The Company's products, whether standard or "custom", are
normally manufactured in response to customers' orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies that
are proprietary to the Company.
A special code pattern generator designed by and proprietary to the Company
is used to produce shaft encoder parts. Special quartz micromachining
equipment is used for the production of QRS units. Special high throughput
automated or semi-automated equipment is used for the production of QRS
assemblies, brushless motors and potentiometers. Some parts are fabricated
under clean room conditions.
RESEARCH AND DEVELOPMENT
The major research and development focus has been to improve performance and
yield of existing products, with special emphasis on the quartz sensors used
in high accuracy IMU's and high volume yaw rate sensors for the automotive
industry. Substantial effort has also been devoted to the development of
manufacturing methods necessary to deliver competitive prices and quality in
the automotive market. Other development has focused on expanding applications
of existing sensors.
The Company has also produced prototypes of future products incorporating
silicon micro-electromechanical sensors (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
17
<PAGE>
Management of the Company believes that its future success will depend in
part on its ability to continue to enhance its existing products, and to
develop and introduce new products that maintain technological leadership,
meet a wider range of customer needs and achieve market acceptance.
Accordingly, the Company's internally funded research, development and related
engineering expenditures were approximately $3.6 million, $4.0 million and
$6.1 million in fiscal 1996, 1995 and 1994, respectively. In addition,
customer funded research and development expenditures charged to cost of sales
were $3.0 million, $6.3 million and $5.4 million, respectively, for the same
periods.
EMPLOYEES
As of June 28, 1997, the units that will comprise Technologies had 948
employees, including 122 in research, development and engineering, 74 in
administration, 71 in marketing and sales, and 681 in operations. The Company
believes that its continued success depends on its ability to attract and
retain highly qualified personnel. The Company's employees are not 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>
LOCATION DESCRIPTION OF FACILITY
-------- -----------------------
<C> <S>
Maumelle, Arkansas...... Own 50,000 square foot manufacturing, engineering,
administrative and research and development
facility.
Campbell, California.... Sublease 5,000 square foot manufacturing,
administrative and research and development
facility.
Concord, California..... Own 101,000 square foot manufacturing, engineering
and administrative facilities.
Goleta, California...... Own 22,000 square foot manufacturing, engineering and
administrative facility.
San Marcos, California.. Lease 35,000 square foot manufacturing, engineering
and administrative facilities.
Sylmar, California...... Sublease 83,000 square foot manufacturing,
engineering and administrative facility.
Tustin, California...... Lease 80,000 square foot manufacturing, engineering
and administrative facility.
Euless, Texas........... Own 72,000 square foot manufacturing facility
presently being offered for sale. Sublease 2,000
square foot warehouse facility, used primarily for
record storage.
</TABLE>
LEGAL PROCEEDINGS
The Company has pending various legal actions arising in the normal course
of business. Management believes that none of these legal actions,
individually or in the aggregate, will have a material impact on the Company's
business, financial condition or results of operations.
19
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected historical financial data which relates to the
balance sheets at September 30, 1995 and 1996 and statements of operations
data for the three years in the period ended September 28, 1996 have been
derived from the combined financial statements of Technologies audited by
Ernst & Young, LLP, independent auditors, included elsewhere herein. The
following selected historical financial data which relate to the balance
sheets at October 3, 1992, October 2, 1993 and October 1, 1994 and statements
of operations data for the two years in the period ended October 2, 1993 are
derived from unaudited combined financial statements not included in this
Information Statement. The selected historical financial data at June 28, 1997
and for the nine-month periods ended June 29, 1996 and June 28, 1997 have been
derived from unaudited financial statements included elsewhere herein. In the
opinion of management, the unaudited combined financial statements include all
adjustments consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position of the Company at June 29, 1996
and June 28, 1997 and the results of operations for the nine-month periods
then ended. The historical combined financial statements of the Company do not
necessarily reflect the results of operations or financial position that would
have been obtained had the Company been a separate, independent company and
are not necessarily indicative of the results to be expected for any other
interim period or any future fiscal year. See "Selected Unaudited Pro Forma
Financial Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Combined Financial Statements" and
accompanying notes thereto. See also Note 1 of Notes to Combined Financial
Statements for explanation of shares used in pro forma per share calculations.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------ -----------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $105,080 $89,391 $82,361 $90,475 $96,746 $71,398 $74,437
Income from continuing
operations before
interest expense and
income taxes........... 5,819 2,310 2,835 739 6,729 5,992 4,127
Depreciation and
Amortization........... 4,502 5,354 5,602 5,913 5,915 4,333 4,296
Income(loss) from
continuing operations . 2,840 599 321 (964) 2,873 2,706 1,794
Income(loss) from
discontinued operations
....................... 4,633 4,329 392 (1,077) 1,698 1,139 1,389
Net income(loss)........ 7,473 4,928 713 (2,041) 4,571 3,845 3,183
Pro forma earnings from
continuing operations
per common and common
equivalent share ...... 0.40 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share ...... 0.24 0.20
Pro forma earnings per
common and common
equivalent share ...... 0.64 0.45
Shares used in computing
pro forma earnings per
common and common
equivalent share....... 7,108 7,131
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $17,098 $35,052 $39,179 $29,774 $27,775 $28,829 $26,711
Total assets............ 91,106 92,361 97,852 92,418 92,171 90,900 86,668
Payable to BEI
Electronics, Inc. ..... 13,707 10,314 17,727 10,404 6,062 9,098 3,896
Long-term debt
(excluding current
portion)............... 2,096 18,779 29,860 29,765 24,137 24,142 18,156
Stockholders' equity.... 40,493 41,318 30,928 28,863 33,246 32,461 41,663
</TABLE>
20
<PAGE>
BEI TECHNOLOGIES
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data give effect to
certain planned financing transactions in connection with the Distribution as
if such transactions had occurred at the beginning of each period for
statement of operations data, and as of the balance sheet date for balance
sheet data. The planned financing transactions include borrowings by Sensors &
Systems of up to $9.0 million and the transfer of up to $9.0 million in cash
to Electronics as repayment of a portion of amounts payable from Sensors &
Systems to Electronics. There can be no assurance that such financing will be
available on terms acceptable to the Company or that such financing, if
obtained, will be sufficient for the Company's needs. The planned financing
transactions also include the assumption by Technologies of net obligations
payable by Electronics to Sensors & Systems and Defense, estimated to be
approximately $4.0 million at the time of the Distribution. Interest charges
on net amounts payable to Electronics have not been significant.
The selected unaudited pro forma statements of operations data do not
purport to represent what the Company's results of operations would have been
if the financing transactions had occurred as of such dates or what such
results will be for any future periods. See "Selected Historical Financial
Data", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Combined Financial Statements" and accompanying
notes thereto.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA,
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $96,746 $ -- $96,746
Cost of Sales.............................. 60,494 -- 60,494
------- ----- -------
36,252 -- 36,252
Selling, general and administrative
expenses.................................. 26,157 -- 26,157
Research, development and related expenses. 3,608 -- 3,608
------- ----- -------
29,765 -- 29,765
------- ----- -------
Operating income........................... 6,487 -- 6,487
Other income............................... 242 -- 242
Interest expense........................... (2,444) (617)(3) (3,061)
------- ----- -------
Income before income taxes................. 4,285 (617) 3,668
------- ----- -------
Income taxes............................... 1,412 (247)(3) 1,165
------- ----- -------
Income from continuing operations.......... $ 2,873 $(370) $ 2,503
======= ===== =======
Pro forma earnings from continuing
operations per common and common
equivalent share, as adjusted(4).......... $ 0.35
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share(5)................ 7,108
=======
</TABLE>
See accompanying notes.
21
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $74,437 $ -- $74,437
Cost of Sales.............................. 48,383 -- 48,383
------- ------ -------
26,054 -- 26,054
Selling, general and administrative
expense................................... 19,014 -- 19,014
Research, development and related expenses. 3,159 -- 3,159
------- ------ -------
22,173 -- 22,173
------- ------ -------
Operating income........................... 3,881 -- 3,881
Other income............................... 246 -- 246
Interest expense........................... (1,392) (510)(3) (1,902)
------- ------ -------
Income before income taxes................. 2,735 (510) 2,225
------- ------ -------
Income taxes............................... 941 (165)(3) 776
------- ------ -------
Income from continuing operations.......... $ 1,794 $ (345) $ 1,449
======= ====== =======
Pro forma earnings from continuing
operations per common and common
equivalent share, as adjusted(4).......... $ 0.20
=======
Shares used in computing pro forma earnings
from continuing operations per common and
common equivalent share(5)................ 7,131
=======
</TABLE>
22
<PAGE>
BEI TECHNOLOGIES, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets............................ $49,018 $ -- $49,018
Equipment, furniture and fixtures, net.... 25,107 -- 25,107
Other assets.............................. 12,543 -- 12,543
------- ------- -------
Total assets.............................. $86,668 $ -- $86,668
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities....................... $22,307 $ -- $22,307
Long-term debt, less current portion...... 18,516 9,000 (1) 27,516
Payable to(receivable from) BEI
Electronics, Inc......................... 3,896 (9,000)(1) --
-- 4,000 (2) (1,104)
Other liabilities......................... 286 -- 286
Stockholders' equity
Preferred stock........................... -- -- --
Common stock.............................. -- -- --
Retained earnings......................... 42,949 (4,000)(2) 38,949
Unearned restricted stock................. (1,286) -- (1,286)
------- ------- -------
Total stockholders' equity.............. 41,663 (4,000) 37,663
------- ------- -------
Total liabilities and stockholders'
equity................................. $86,668 $ -- $86,668
======= ======= =======
</TABLE>
See accompanying notes.
23
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed combined balance sheet as of June 28, 1997
and combined statements of operations for the nine months ended June 28, 1997
and for the year ended September 28, 1996, give effect to the following
adjustments:
(1) Reflects borrowing of $9.0 million by Sensors & Systems and transfer of
up to $9.0 million in cash to Electronics as repayment of a portion of amounts
payable by Sensors & Systems to Electronics.
(2) Reflects the assumption by Technologies of net intercompany obligations
payable by Electronics to Sensors & Systems and Defense, estimated to be
approximately $4.0 million at the time of the Distribution.
(3) Reflects interest expense incurred on the $9.0 million of proforma
indebtedness as if the debt was issued by the Company at the beginning of each
period presented using the Company's incremental borrowing rate, which is
based on the terms of Electronics' currently available line of credit.
Management believes that as a result of the Distribution, Technologies will be
able to obtain financing on more favorable terms than new financing
Electronics could obtain absent the Distribution. However, there can be no
assurance that Sensors & Systems or Technologies will be able to obtain such
financing on terms acceptable to the Company or that such financing , if
obtained, will be sufficient for the Company's needs. The pro forma income tax
benefit of such interest charges have been computed using the Company's
historical tax rate.
(4) Pro forma earnings from continuing operations per share as adjusted,
reflects the impact of the adjustments described above.
(5) Pro forma earnings from continuing operations per common and common
equivalent share 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 treasury stock method
assuming that upon exercise the holder would receive one share of Technologies
common stock for each share of Electronics common stock acquired through
exercise of such options.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in this
section and risks discussed in "The Business," in "Risk Factors" and elsewhere
in this Information Statement.
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items in the Company's
historical Combined Statements of Operations.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------- ---------------------
JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales...................... 59.6 62.8 62.5 62.2 65.0
----- ----- ----- ----- -----
Gross profit....................... 40.4 37.2 37.5 37.8 35.0
Operating expenses:
Selling, general and
administrative expenses......... 29.7 28.3 27.0 25.8 25.5
Provision for royalty and related
expenses........................ -- 3.9 -- -- --
Research, development and related
expenses........................ 7.4 4.4 3.7 3.8 4.2
----- ----- ----- ----- -----
Operating income................... 3.3 0.6 6.8 8.2 5.3
Other income....................... 0.1 0.2 0.2 0.2 0.3
Interest expense................... (2.6) (2.5) (2.5) (2.6) (1.9)
----- ----- ----- ----- -----
Income (loss) before income taxes
from continuing operations........ 0.8 (1.7) 4.5 5.8 3.7
Provision for income taxes
(credit).......................... 0.4 (0.7) 1.5 2.0 1.3
----- ----- ----- ----- -----
Income (loss) from continuing
operations........................ 0.4 (1.0) 3.0 3.8 2.4
Income (loss) from discontinued
operations, net of income taxes... 0.5 (1.3) 1.7 1.6 1.9
Net Income (loss).................. 0.9% (2.3)% 4.7% 5.4% 4.3%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
RESULTS OF OPERATIONS
Net Sales
Net sales from continuing operations for the first nine months of fiscal
1997 increased $3.0 million or 4.3% from the prior year. Sales of automotive
and other commercial products increased $1.9 million and $6.7 million,
respectively, but were partially offset by decreases in sales to government
contractors or subcontractors of $5.5 million.
Cost of Sales
Continuing operations cost of sales as a percentage of net sales increased
from 62.2% to 65.0%. Continuing operations incurred cost overruns on the
development of some products for aerospace applications. In addition, average
costs of goods sold as a percentage of sales for new automotive applications
are higher than for other commercial products due to start-up efforts.
Selling, General and Administrative Expenses
Continuing operations selling, general and administrative expenses as a
percentage of net sales decreased from 25.8% in the first nine months of
fiscal 1996 to 25.5% in the first nine months of fiscal 1997. Actual selling,
25
<PAGE>
general and administrative expenses increased from $18.5 million in the first
nine months of fiscal 1996 to $19.0 million in the first nine months of fiscal
1997, including $1.7 million in charges associated with the settlement of a
legal dispute by arbitration in the first quarter of fiscal year 1997. See
Note 11 to the Combined Financial Statements.
Research, Development and Related Expenses
Research, development and related expenses as a percentage of net sales for
the first nine months of fiscal 1997 have increased 0.5% from the same period
in fiscal 1996 due to increased research spending to support the production of
MEMS and the development of automotive and other commercial products.
Interest Expense and Other Income
Interest costs in the first nine months of fiscal 1997 decreased by $0.5
million from the same period in fiscal 1996. The lower interest expense is the
result of the repayment of $5.6 million of debt in the first quarter of 1997.
Income from Continuing Operations
The decline in income from continuing operations, from $2.7 million in the
first nine months of fiscal 1996 to $1.8 million in the first nine months of
fiscal 1997, primarily reflects the after tax charge in fiscal year 1997 of
$1.1 million incurred in connection with an arbitration to settle a royalty
dispute and a 2.8% decrease in gross profit as a percentage of sales.
Income from Discontinued Operations
In June 1997, the Board of Directors of Electronics approved a formal plan
for discontinuation of the operations of the Defense Systems business segment.
This segment was primarily a manufacturer of Hydra 70 ("H 70") military
rockets whose production was shut down at the end of fiscal 1996. Accordingly,
the results of operations of the Defense Systems segment have been reported as
discontinued operations for all periods presented. Defense Systems' income
decreased slightly from $0.6 million in the third quarter of fiscal 1996 to
$0.5 million in the third quarter of fiscal 1997. Defense Systems' improved
gross profit on the non-H 70 products, together with a $1.3 million decline in
selling, general and administration expenses due to the closure of the H 70
production line, resulted in income from discontinued operations increasing to
$1.4 million in the first nine months of fiscal 1997 from $1.1 million in the
first nine months of fiscal 1996.
Liquidity and Capital Resources
During the first nine months of fiscal 1997, operations provided $2.9
million in cash. Operating cash inflows consisted primarily of income adjusted
for the positive impact of non-cash charges from depreciation and amortization
of $4.3 million, and changes in assets and liabilities of discontinued
operations of Defense Systems of $2.7 million. Offsetting these inflows were
inventory increases of $3.1 million, the negative impact of a change in
deferred taxes of $1.8 million, and a net decrease in trade payables and
accrued expenses and other liabilities of $3.6 million, primarily due to a
payment $5.3 million of amounts accrued in fiscal 1996 and in the first
quarter of fiscal 1997 in connection with the final settlement of an
arbitration. See Note 11 of Notes to the Combined Financial Statements.
Cash used in investing activities in the first nine months of fiscal 1997
consisted primarily of $6.0 million for capital expenditures, which is
consistent with spending in the first nine months of the prior fiscal year.
Capital equipment requirements may increase in future periods and the Company
may expand the use of lease financing to fund such requirements.
The Company had no material capital commitments at June 28, 1997.
26
<PAGE>
The Internal Revenue Service (IRS) audited Electronics' income tax returns
for the fiscal years 1993 through 1995. In the third quarter of fiscal year
1997, Electronics reached a settlement with the IRS for all issues raised for
these years, resulting in the payment of $1.7 million in additional taxes for
those years, of which approximately $1.0 million relates to Technologies. The
settlement related primarily to the timing of deductions resulting from
acquisitions made by Electronics. The payment of these additional taxes
resulted in an increase in deferred tax assets and did not affect the
provision for income taxes in the third quarter of fiscal year 1997.
As of June 28, 1997, the Company was in compliance with all financial
covenants on outstanding debt.
In connection with the Distribution and subject to the noteholders
agreement, the Company will assume existing indebtedness of Electronics in the
amount of approximately $22.4 million. In order to support its initial funding
needs, including the transfer by Sensors & Systems of up to $9 million to
Electronics prior to the Distribution to repay a portion of amounts payable to
Electronics, Sensors & Systems plans to borrow up to $9 million under a note
from Canadian Imperial Bank of Commerce ("CIBC"). After the Distribution,
Technologies intends to establish a line of credit with CIBC. See "The
Distribution--Related Transactions--Financing Transactions". Interest on
borrowings under the line of credit will be based upon either the Prime
Commercial Lending Rate of CIBC or the rate which would be offered by CIBC to
prime banks in the interbank Eurodollar market, depending on the term of the
loan. Management believes that as a result of the Distribution, Technologies
will be able to obtain new financing on more favorable terms than new
financing Electronics could obtain absent the Distribution. However, there can
be no assurance that Sensors & Systems or Technologies will be able to obtain
such financing from CIBC or other sources on terms acceptable to the Company
or that such financing if obtained will be sufficient for the Company's needs.
FISCAL YEARS 1996, 1995 AND 1994
Net Sales
In fiscal 1996, net sales from continuing operations increased 6.9% to $96.7
million from $90.5 million in fiscal 1995. This increase reflects the
continued growth in sales of commercial product lines, including those for
industrial, automotive and medical markets.
In fiscal 1995, net sales from continuing operations increased 9.9% to $90.5
million from $82.4 million in fiscal 1994, primarily reflecting the continued
growth in sales of commercial product lines, including those for industrial,
automotive and medical markets.
The Company's sales to international customers were approximately 11.3%,
10.7% and 9.6% of the Company's net sales from continued and discontinued
operations for fiscal 1996, 1995 and 1994, respectively.
Cost of Sales
During fiscal 1996, the Sensors & Systems segment cost of sales as a
percentage of sales from continuing operations remained relatively flat,
decreasing 0.3% to 62.5% from 62.8% in fiscal 1995. Cost of sales as a
percentage of sales increased 3.2% to 62.8% in fiscal 1995 from 59.6% in
fiscal 1994 primarily due to a lower priced product mix.
Downward pressure on gross profit margins is expected to continue,
especially for military contracts. The Company's gross profit margins from
sales to the U.S. Government for military and space products are generally
lower than gross profit margins from sales of commercial and industrial
products. Management is continuing measures intended to reduce costs and
improve average margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
from continuing operations were 27.0%, 28.3% and 29.7% in fiscal 1996, 1995
and 1994, respectively.
27
<PAGE>
Fiscal 1996 selling, general and administrative expenses increased $0.6
million from $25.6 million in fiscal 1995 to $26.2 million. Selling, general
and administrative expenses increased to support operations selling commercial
products, with a portion of the increase offset by declines in operations
selling government products.
Fiscal 1995 selling, general and administrative expenses increased to $25.6
million from $24.4 million in fiscal 1994. The Company experienced higher
selling, general and administrative expenses to support sales growth in
commercial product lines. In addition to selling, general and administrative
expense, the Company recorded a charge in the fourth quarter of fiscal 1995 in
the amount of 3.9% of net sales ($3.5 million) for royalty and related costs
incurred on the basis of an interim arbitration ruling.
Research, Development and Related Expenses
The Company's internally funded research, development and related expenses
as a percentage of net sales from continuing operations were 3.7%, 4.4% and
7.4% for fiscal 1996, 1995 and 1994, respectively.
Research and development expenses declined slightly in fiscal 1996 as
engineering effort was shifted to manufacturing support as production of new
automotive sensors began to ramp up.
Research and development spending in fiscal 1995 was concentrated in support
of the growth of the commercial product lines. Consequently, certain programs
were phased out while emphasis on development of sensors for the automotive
industry was increased.
The Company believes that the continued timely development of new products
and enhancements to its existing products is essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will increase in absolute amount, but may fluctuate as a percentage of sales
depending on the Company's success in acquiring customers or, in some cases,
U.S. Government funding.
Interest Expense and Other Income
Interest expense was $2.4 million, $2.3 million and $2.2 million in fiscal
1996, 1995 and 1994 respectively. Interest is paid primarily on the Senior
Note debt. There was no new long-term debt issued during fiscal 1996.
Other income in fiscal 1996, 1995, and 1994 is comprised of royalty income
and interest income earned on highly liquid investments.
Provision for Income Taxes for Continuing Operations
The Company's effective tax (benefit) rate was 33.0%, (38.4%), and 50.2%,
for fiscal 1996, 1995 and 1994, respectively. The effective tax rate reflects
the statutory federal tax rate and the weighted average tax rate of the states
in which the Company conducts business. The fiscal 1996 tax rate reflects
realization of additional federal and state tax credits for research and
development identified in 1996. The fiscal 1995 effective tax rate was lower
than the effective rate in fiscal 1994 due to losses in certain states where
realization of the benefits of the losses is uncertain.
Deferred Income Taxes
At September 28, 1996, the Company had net deferred tax assets of $1,852,000
composed of deferred tax assets of $5,139,000, net of the valuation allowance
of $94,000, and deferred tax liabilities of $3,287,000. The Company believes
it is likely that the benefits of the deferred tax assets will be realized
through the reduction of future taxable income and the reversal of existing
deferred tax liabilities.
Income (Loss) from Discontinued Operations
Income (loss) for Defense Systems was $1.7 million, $(1.1) million and $0.4
million in fiscal 1996, 1995 and 1994, respectively. The fiscal 1996 income
reflects the receipt of a $3.6 million pre-tax settlement for a prior
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<PAGE>
year H 70 contract. The $(1.1) million loss in 1995 was due primarily to
additional contract completion costs of $1.5 million associated with the wind
up of rocket related business.
Liquidity and Capital Resources
During fiscal 1996, operations provided $13.5 million in cash, including
cash provided by discontinued operations of $6 million. Net income of $4.6
million plus non-cash charges for depreciation and amortization of $4.2
million and $1.7 million, respectively, and a decrease in deferred tax assets
of $0.7 million, were partially offset by inventory purchases of $2.2 million
and an increase in trade receivables of $0.8 million.
Investing activities in fiscal 1996 consisted primarily of the purchase of
$3.6 million in capital equipment.
The Company paid BEI Electronics, Inc. $4.3 million in fiscal 1996.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
29
<PAGE>
RISK FACTORS
The following factors are applicable to Technologies which is expected to
report as a single business segment. These factors should be considered in
evaluating Technologies and its business prospects. This Information Statement
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth herein and elsewhere in this Information Statement.
COMPETITION
Competitors for various products offered by Technologies' Sensors & Systems
business are noted above under "Description of the Business--Competition". In
addition, the Company also may compete with manufacturers of competing
technologies, such as resolvers, inductosyns, laser and fiber optic gyros and
magnetic encoders. Many of the Company's existing competitors in each market,
and also a number of potential entrants into these markets, have significantly
greater financial resources and manufacturing capabilities, are more
established, have larger marketing and sales organizations and larger
technical staffs. There can be no assurance that other companies will not
develop more sophisticated, more cost-effective or otherwise superior products
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK; PRODUCT RECALL RISK
Technologies is in the process of scaling up production of its automotive
yaw sensors for the quantities required by the automobile market. The Company
has relatively limited experience in large-scale manufacturing. The Company
currently manufactures moderate quantities of its automotive yaw sensor in the
Concord, California facility and its steering sensor in the Tustin, California
facility. Manufacturers sometimes encounter difficulties in scaling up
production of new products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel. If such difficulties were encountered by the Company in
manufacturing scale-up, they could have a material adverse effect on its
business, financial condition and results of operations. There can be no
assurance that future manufacturing difficulties or product recalls, either of
which could have a material adverse effect on the Company's business,
financial condition and results of operations, will not occur.
CONTRACTING WITH THE U.S. GOVERNMENT
Approximately 27%, 32% and 40% of the net sales of units comprising the
continuing operations of Technologies in fiscal 1996, 1995 and 1994,
respectively, were derived from contracts with the U.S. Government or under
subcontract to other prime contractors to the Government. Because a
significant portion of Technologies' business is derived from contracts with
the Department of Defense or other agencies of the Government, the Company's
business is sensitive to changes in Government spending policies, which can
have significant variations from year to year. At various times, the Company's
results have been adversely affected by contract cutbacks and there can be no
assurance that the Company's results of operations will not in the future be
materially and adversely affected by changes in Government procurement
policies or reductions in Government expenditures for products furnished by
the Company.
Under applicable regulations, various audit agencies of the Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. The Government also has the right to review retroactively the
cost records under most Government contracts. Contract prices may be adjusted
in the event the Government determines that the Company submits incomplete,
inaccurate or obsolete cost or pricing data. Government contracts and
subcontracts generally provide for either a fixed price, negotiated fixed
price or cost-plus-fixed-fee basis for remuneration. The majority of the
contracts with the Government are competitive fixed price or negotiated fixed
price contracts, although cost-plus-fixed-fee contracts were approximately 5%
of the Company's net sales from continuing operations in fiscal 1996. For
fixed price contracts, the Company bears the
30
<PAGE>
risk of cost overruns and derives the benefits from cost savings. As a result,
greater risks are involved under fixed price contracts than under cost-plus
contracts because failure to anticipate technical problems, estimate costs
accurately or control costs during contract performance may reduce or
eliminate the contemplated profit or may result in a loss.
All Government contracts contain termination clauses that allow the contract
to be terminated either for contractor default or for the convenience of the
Government. In the event of termination for the convenience of the Government,
the clause typically provides that the contractor will receive payment for
work-in-progress, including profit. To date, termination of Sensors & Systems'
contracts by the Government has not had any significant effect on the
Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's
results of operations in the future.
Portions of the Company's government business are sometimes classified. As a
result, the Company may be prohibited from disclosing the substance or status
of such business.
RESEARCH AND DEVELOPMENT
The Company depends in part on its research and development initiatives to
provide new products and product improvements which will maintain the
Company's favorable reputation in its various markets. There can be no
assurance that the outcome of its research and development activity will yield
the desired results.
MANUFACTURING PROCESSES AND EQUIPMENT
The Company manufactures certain products such as quartz rate sensors and
some shaft encoders using highly complex proprietary processes and equipment.
The possibility exists that equipment could be damaged or that process
disciplines and controls could be temporarily lost. Such events could disrupt
production, which could have a material adverse effect on the Company's
business and results of operations.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees could have a
material adverse effect on the Company. The Company's success will also depend
on its ability to attract and retain additional highly qualified management
and technical personnel. The Company faces intense competition for qualified
personnel, many of whom are often subject to offers from competing employers.
There can be no assurance that the Company will be able to retain its key
employees, or that it will be able to attract or retain additional skilled
personnel as required. The Company does not currently maintain key person
insurance on any employee. See "Description of the Business of BEI
Technologies, Inc.--Employees" and "Directors and Executive Officers of the
Company."
DEPENDENCE UPON KEY SUPPLIERS
Although the majority of the components used in Company products are
available from multiple sources, several components are built to Technologies'
specifications. Such components include quartz, scanner motors, ASIC's and
LED's. While the Company currently relies on single suppliers for these
components, it believes the components could be manufactured by alternative
suppliers with minimal supply reduction should the need arise to change
vendors. To date, the Company has not experienced any significant
interruptions in the supply of these components, but there can be no assurance
that there will not be a significant disruption in the supply of such
components in the future, or in the event of such disruption, that the Company
will be able to locate alternative suppliers of the components with the same
quality at an acceptable price. An interruption in the supply of components
used in the manufacture of the Company's products, particularly as the Company
scales up its manufacturing activities in support of commercial sales, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
31
<PAGE>
AVAILABILITY AND COST OF ADDITIONAL FUNDS
Management believes that new financing will be available to Technologies on
more favorable terms as a result of the Distribution than new financing for
Electronics absent the Distribution. However, Technologies has no assurance
that, as an independent public company, it will be able to obtain financing
upon terms as favorable as those obtained by Electronics prior to the
Distribution, or that available financing will be sufficient for the Company's
needs.
UNCERTAINTY OF TAX CONSEQUENCES
As a condition to the completion of the Distribution, Electronics and the
Company will receive an opinion from Davis Polk & Wardwell to the effect that,
although the matter is not free from doubt, the Distribution will qualify as a
tax-free spin-off under Section 355 of the Code.
The tax opinion will rely upon, among other things, certain representations
made by Electronics and Technologies to Davis Polk & Wardwell. If it were
subsequently determined that those representations were inaccurate or
incomplete, the conclusion in the tax opinion could not be relied upon. As
reflected in the tax opinion, the applicability of Section 355 to the
Distribution is complex and may be subject to differing interpretations.
Accordingly, there can be no assurance that the Internal Revenue Service will
not successfully challenge the applicability of Section 355 to the
Distribution, or assert that the Distribution fails the requirements of
Section 355 on the basis of facts either existing at the Effective Date or
that may arise after the Effective Date. See "The Distribution--Certain
Federal Income Tax Consequences of the Distribution."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Distribution, there has been no public market for Company
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or will continue after the Distribution. Until
the Common Stock is fully distributed and an orderly market develops, the
prices at which the Common Stock trades may fluctuate significantly. The
market price of Electronics Common Stock has been subject to significant
fluctuation in recent years. Accordingly, the market price of Company Common
Stock may be subject to wide fluctuations in response to quarter-to-quarter
fluctuations in operating results, announcements of technological innovations
or new products by the Company or its competitors, general industry and market
conditions, changes in earnings estimates by analysts and other events or
factors.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS;
STOCKHOLDER RIGHTS PLAN
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. While the Company has no present
intention to issue shares of Preferred Stock, such issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law (the "Delaware Law"),
and the Company's Certificate of Incorporation contains a fair price
provision, the combined effect of which prohibits the Company from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 and the fair price provision
could have the effect of delaying or preventing a change of control of the
Company. The Company's Certificate of Incorporation provides for staggered
terms for the members of the Board of Directors. The staggered Board of
Directors and certain other provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying or preventing changes
in control or management of the Company, which could adversely affect the
market price of the Company's
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<PAGE>
Common Stock. Furthermore, the Board of Directors of the Company has adopted a
Stockholder Rights Plan that has certain anti-takeover effects. Rights issued
under the plan will cause substantial dilution to a person or group that
attempts to acquire the Company on terms not approved by the Company's Board
of Directors. See "Certain Anti-Takeover Effects of Certain Provisions of the
Certificate of Incorporation, the Bylaws and State Law" and "Stockholder
Rights Plan."
UNCERTAINTY OF FUTURE PROFITABILITY
As a subsidiary of Electronics, Sensors & Systems was profitable in fiscal
1994 and 1996, but sustained an operating loss in fiscal 1995. The Company's
ability to increase revenues and sustain profitability will be largely
dependent on the market acceptance of products currently under development as
well as the successful implementation of the Company's business and marketing
strategy. There can be no assurance that the Company will be able to sustain
or increase sales or sustain profitability. See "Selected Historical and Pro
Forma Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNCERTAINTY OF DIVIDENDS
No assurance can be given that the Company's Board of Directors will in the
future authorize the payment of dividends.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company and their ages as of
August 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles Crocker.............. 58 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary D. Wrench............... 64 Senior Vice President, Chief Financial
Officer and Director
Dr. Asad Madni............... 49 Vice President and Director
Dr. Lawrence A. Wan.......... 58 Vice President, Chief Technical Officer
Robert R. Corr............... 51 Secretary, Treasurer & Controller
Richard M. Brooks(1)(2)...... 69 Director
George S. Brown(2)........... 75 Director
C. Joseph Giroir, Jr.(1)(2).. 58 Director
Dr. William G. Howard, Jr.(1) 55 Director
Dr. Robert Mehrabian(1)...... 55 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS
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.
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<PAGE>
Mr. Brown, a founder of Electronics, will have served as a director of
Electronics from October 1974 until his resignation immediately before the
Distribution. Mr. Brown served as President and Chief Executive Officer of
Electronics from October 1974 until his retirement from that position in July
1990, when he became a consultant to Electronics. Prior to founding
Electronics, Mr. Brown served from 1971 until 1974 as Executive Vice President
and General Manager of Baldwin Electronics, Inc., a subsidiary of D.H. Baldwin
Company and the predecessor of Electronics. Mr. Brown holds a B.S.E.E. from
the University of Oklahoma.
Mr. Crocker, a founder of Electronics, has served as Chairman of the Board
of Directors of Electronics since October 1974, and will continue as Chairman
for both Electronics and Technologies following the Distribution. Mr. Crocker
assumed the positions of President and Chief Executive Officer of Electronics,
effective October 1, 1995. Mr. Crocker will resign as President and CEO of
Electronics and assume those positions for Technologies following the
Distribution. Mr. Crocker served as President of Crocker Capital Corporation,
a Small Business Investment Company, from 1970 to 1985, and as General Partner
of Crocker Associates, a venture capital investment partnership, from 1970 to
1990. He currently serves as a director of Fiduciary Trust Company
International, Pope & Talbot, Inc. and KeraVision. Mr. Crocker holds a B.S.
from Stanford University and an M.B.A. from the University of California,
Berkeley.
Mr. Giroir will have served as a director of Electronics from 1978, until
his resignation immediately before the Distribution. He served as the
Secretary of Electronics from 1974 to early 1995. He is currently a member of
the law firm of Giroir, Gregory, Holmes & Hoover, plc. From 1965 to 1988,
Mr. Giroir was a member of Rose Law Firm, a Professional Association. Both law
firms have rendered services to Electronics. Mr. Giroir holds a B.A. and an
L.L.B. from the University of Arkansas and an L.L.M. from Georgetown
University.
Dr. Madni will be appointed Vice President of the Company and will serve as
a director following the Distribution. Dr. Madni was appointed President of
Sensors & Systems in October 1993, which was formed by the consolidation of
BEI Motion Systems Company and the BEI Sensors and Controls Group, of which
Dr. Madni was President since October 1992. Prior to joining BEI in 1992, he
served for 17 years in various executive and technical management positions
with Systron Donner Corporation, a manufacturer of avionics and aerospace
sensors and subsystems. He was most recently Chairman, President and CEO of
Systron Donner Corporation, a subsidiary of Thorn/EMI. Dr. Madni's degrees
include a Bachelor of Science and Master of Science in Engineering from the
University of California, Los Angeles and a Ph.D. in Engineering from
California Coast University.
Dr. Howard will have served as a director of Electronics from December 1992
until his resignation immediately prior to the Distribution. He is currently
an independent consulting engineer in microelectronics and technology-based
business planning. From 1987 to 1990, Dr. Howard served as Senior Fellow of
the National Academy of Engineering and, prior to that time, held various
technical and management positions with Motorola, Inc., most recently as
Senior Vice President and Director of Research and Development. 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
34
<PAGE>
director of Electronics and of Technologies following the Distribution. From
April 1985 to July 1993, he served as Vice President of Electronics and
President and Chief Executive Officer of BEI Motion Systems Company, Inc.,
then a wholly owned subsidiary of Electronics that is now a part of Sensors &
Systems. Other experience includes twenty years with Hughes Aircraft Company
including an assignment as President of Spectrolab, Inc., a Hughes subsidiary.
Mr. Wrench holds a B.A. from Pomona College and an M.B.A. from the University
of California, Los Angeles.
CLASSIFIED BOARD OF DIRECTORS
The Company has a classified Board of Directors, which may have the effect
of deterring hostile takeovers or delaying changes in control of management of
the Company. For purposes of determining their term of office, directors are
divided into three classes, with the term of office of the first class to
expire at the 1998 annual meeting of stockholders, and the term of office of
the second class to expire at the 1999 annual meeting of stockholders and the
term of office of the third class to expire at the 2000 annual meeting of
stockholders. Class I consists of Mr. Brown and Mr. Crocker; Class II consists
of Mr. Giroir, Dr. Madni and Mr. Wrench; and Class III consists of Mr. Brooks,
Dr. Howard and Dr. Mehrabian. Directors elected to succeed those directors
whose terms expire will be elected to a three year term of office. All
directors hold office until the next annual meeting of stockholders at which
their terms expire and until their successors have been duly elected and
qualified. Executive officers serve at the discretion of the Board. There are
no family relationships among any of the officers and directors.
BOARD COMPENSATION AND BENEFITS
Each non-employee director of the Company will receive a monthly fee of
$1,000. Each non-employee director of the Company will also receive a fee of
$500 for each Board or committee meeting attended and a fee of $250 for each
telephone conference Board meeting in which such director participated. The
members of the Board of Directors will also be eligible for reimbursement for
their expenses incurred in connection with attendance at Board meetings in
accordance with Company policy.
COMMITTEES OF THE BOARD OF DIRECTORS
Technologies will establish Audit and Compensation Committees of the Board.
Members of the Audit and Compensation Committees will not be employees of
Technologies.
Audit Committee. The Audit Committee will meet with the Company's
independent accountants at least annually to review the results of the annual
audit and to discuss the financial statements; will recommend to the Board the
independent accountants to be retained; will receive and consider the
accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with audit and financial controls;
and will periodically review the results of the Company's internal audit
program and responses by management. The Audit Committee will be composed of
four directors: Mr. Brooks, who will be the Chairman of the Committee,
Mr. Giroir, Dr. Howard and Dr. Mehrabian.
Compensation Committee. The Compensation Committee will make recommendations
concerning salaries and incentive compensation, award stock options and
restricted stock to eligible executives, employers and consultants under the
Company's equity incentive plan, will administer the Company's option plan,
and will otherwise determine compensation levels and perform such other
functions regarding compensation as the Board may delegate. The Compensation
Committee will be composed of three non-employee directors: Mr. Brown, who
will be the Chairman of the Committee, and Messrs. Brooks and Giroir.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Brown, who will serve as a member of the Compensation Committee of the
Company and who until his resignation as a director of Electronics served as
Chairman of the Compensation Committee of Electronics,
35
<PAGE>
is a founder of Electronics and served as President and Chief Executive
Officer of BEI Electronics from October 1974 until his retirement from that
position in July 1990. Mr. Brown has served as a consultant to Electronics and
will continue in that capacity with the Company.
Mr. Giroir, who will serve as a member of the Compensation Committee of the
Company, served as Corporate Secretary of Electronics from 1974 until early
1995, for which he received no compensation in addition to that received as
director's fees.
CERTAIN RELATIONSHIPS
Mr. Brown provided consulting services to Electronics pursuant to which he
was paid a retainer of $3,000 per month and a fee of $750 per day of service.
In the fiscal year ended September 28, 1996, Electronics paid Mr. Brown
$41,250 under the agreement.
Pursuant to his consulting agreement with Electronics, Mr. Brown
participated in the Electronics medical and life insurance plans. In fiscal
1996, Electronics paid $4,800 in premiums on behalf of Mr. Brown.
Dr. Howard provides consulting services to Electronics pursuant to an
agreement under which he is paid $1,000 per day of service in addition to his
monthly director's fee of $1,000. In the fiscal year ended September 28, 1996,
Electronics paid Dr. Howard $500 under the agreement.
EXECUTIVE OFFICERS
In addition to Messrs. Crocker and Wrench and Dr. Madni, whose positions
with Electronics and Technologies, experience and educational background are
described under "Directors" above, the following persons will also serve as
Executive Officers of Technologies:
Dr. Wan is Vice President of Engineering of Sensors & Systems and is
President of Sensors & Systems' subsidiary, SiTek Inc. Dr. Wan has also served
as Vice President, Corporate Technology for Electronics since April 1991. Dr.
Wan will resign from his current position with Electronics immediately prior
to the Distribution and will become Vice President, and Chief Technical
Officer for Technologies. From 1984 until 1990, Dr. Wan served as Vice
President, Engineering for Systron Donner Corporation. Between 1979 and 1984,
he held various technical and general management positions with Systron Donner
Corporation. From 1968 to 1979, he served as Chief Executive Officer for
Sycom, Inc. a commercial electronics company which he founded. From 1964 to
1968, he worked for Hughes Aircraft Company, where he headed the Radar Systems
Section of the Hughes Ground Systems Group. In 1962, Dr. Wan and two other
professors established an Engineering School at University of California,
Santa Barbara, where he also taught Engineering. Dr. Wan holds a B.S., M.S.
and Ph.D. degrees in Engineering and Applied Sciences from Yale University.
Mr. Corr will serve as Secretary, Treasurer and Controller of Technologies.
Mr. Corr was named Secretary of Electronics in February 1995 and has served as
Controller since November 1989 and Treasurer since November 1987. Mr. Corr
will resign from his current positions with Electronics immediately prior to
the Distribution. From 1978 to 1987, he was employed by AMPEX Corporation, an
electronics and magnetic media company, in various financial positions. From
1975 to 1978, he was an Auditor with Arthur Andersen & Co. Mr. Corr received a
B.B.A. from Loyola University and is a Certified Public Accountant in the
State of California.
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<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PRIOR TO THE DISTRIBUTION
All of the information set forth in the following tables reflect
compensation earned based on services rendered to Electronics by its Chief
Executive Officer and its four other most highly compensated executive
officers (the "Named Executive Officers"), each of whom has assumed similar
positions with Technologies.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) RESTRICTED
--------------------- STOCK ALL OTHER
SALARY(2) BONUS AWARDS(3)(4) COMPENSATION(5)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- --------------------------- ---- --------- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mr. Charles Crocker........ 1996 260,775 35,000 0 3,252
Chairman of the Board,
President and 1995 195,150 0 0 3,240
Chief Executive Officer 1994 195,150 0 0 3,830
Mr. Gary D. Wrench......... 1996 264,000 35,000 48,750 4,370
Senior Vice President and
Chief Financial Officer 1995 264,000 0 0 4,223
1994 246,000 0 0 5,314
Dr. Asad M. Madni.......... 1996 239,312 95,000 65,000 5,488
President, BEI Sensors &
Systems Company, Inc.
Dr. Lawrence A. Wan........ 1996 190,922 45,000 26,000 7,792
Vice President, Corporate
Technology 1995 182,100 45,000 15,000 6,920
1994 187,100 0 10,247 6,631
Mr. Robert R. Corr......... 1996 149,600 16,000 13,000 3,681
Secretary, Treasurer and
Controller 1995 139,600 12,000 7,875 3,635
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,
37
<PAGE>
$2,790 and $2,471 paid in fiscal 1994 to Messrs. Crocker, Wrench, Wan and
Corr, respectively, as a normal contribution pursuant to Electronics'
Retirement Savings Plan. The remaining sum for each Named Executive Officer
is attributable to premiums paid by Electronics for group term life
insurance.
ELECTRONICS STOCK OPTION GRANTS AND EXERCISES
Electronics granted options to its executive officers and key employees
under its Amended 1987 Incentive Stock Option Plan (the "Plan"). As of June
28, 1997, options to purchase a total of 389,162 shares had been granted and
were outstanding under the Plan and options to purchase 473,819 shares
remained available for grant thereunder. During the fiscal year ended
September 28, 1996, there were no stock options granted to the Named Executive
Officers. Electronics has not issued any stock appreciation rights. The
following table shows, for fiscal 1996, certain information regarding options
exercised, and held at year end, by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1996, AND FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
---------------------------- ----------------------------
NAME EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(3)
---- ---------------------------- ----------------------------
<S> <C> <C>
Mr. Charles Crocker..... 0/0 0/0
Mr. Gary D. Wrench...... 92,000/0 624,500/0
Dr. Asad M. Madni....... 20,000/0 75,000/0
Dr. Lawrence A. Wan..... 20,000/0 162,400/0
Mr. Robert R. Corr...... 16,000/0 85,000/0
</TABLE>
- --------
(1) Mr. Wrench exercised an option to purchase 4,000 shares of the Common
Stock. None of the other Named Executive Officers exercised any stock
options.
(2) Includes both "in-the-money" and "out-of-the-money" options.
(3) The fair market value of the underlying shares on the last day of the
fiscal year less the exercise price. See "The Distribution--Other
Consequences of the Distribution--Stock Options" for information regarding
the effect of the Distribution on outstanding Electronics stock options.
EMPLOYMENT AGREEMENTS
The employment agreement between Electronics and Mr. Wrench, Senior Vice
President, Chief Financial Officer and a director of the Company, will be
assumed by Technologies. The employment agreement provides that if Mr. Wrench
is terminated by the Company, or a change in control occurs, he will receive
from the Company his then full-time current salary for twelve months after
such termination.
The employment agreement between Electronics and Dr. Madni, President of
Sensors & Systems, will be assumed by Technologies. The employment agreement
renews annually on the anniversary date of the agreement. The agreement
provides that if the Company terminates Dr. Madni without cause or a change in
control of the Company occurs and Dr. Madni executes a general release of
liability, he will receive from the Company his then current full-time salary
and medical, dental and life insurance benefits for the 12 months following
the termination or change of control, his annual bonus prorated to the date of
termination or change in control and an amount equal to the average of the
bonuses paid Dr. Madni over the prior three completed fiscal years, including,
as applicable, bonuses paid by Electronics.
The Company will enter into Executive Change in Control Benefit Agreements
with each of the Named Executive Officers. Under such an agreement, an
executive will receive a lump sum severance payment of one year's base pay
plus the average annual bonus over the preceding three fiscal years
(including, if applicable, prior service with Electronics) if the executive's
employment with the Company terminates voluntarily or involuntarily within
twelve months following a change in control of the Company, as defined in the
agreement, unless the termination is for cause, as defined in the agreement.
The Company will also pay for the executive's
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and his/her dependents' health coverage for up to eighteen months following a
termination of employment for which the executive received a severance payment
under the agreement.
NEW INCENTIVE PLANS OF BEI TECHNOLOGIES, INC.
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in September , 1997. The Incentive Plan provides
for the grant or issuance of incentive stock options to employees and
nonstatutory stock options, restricted stock purchase awards, and stock
bonuses to consultants, employees and directors (collectively, "Stock
Awards"). A total of 1,600,000 shares of common stock is available for stock
awards under the Incentive Plan. To date no options, awards or bonuses have
been granted under the Incentive Plan. Incentive stock options granted under
the Incentive Plan are intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Code.
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors which, in the case of stock options, determines optionees
and the terms of options granted, including the exercise price, the number of
shares subject to the option and the exercisability thereof.
The terms of options granted under the Incentive Plan may not exceed ten
years from the date of grant. It is anticipated that shares covered by options
under the Incentive Plan will typically vest at the rate of 33% on the first
anniversary of the vesting start date, 33% on the second anniversary of the
vesting start date and 34% on the third anniversary of the vesting start date,
although shares may be subject to different vesting terms. No Stock Award may
be transferred by the holder other than by will or the laws of descent or
distribution or (except for incentive stock options) pursuant to a "qualified
domestic relations order." An optionee whose relationship with the Company or
any of its subsidiaries ceases for any reason (other than by death or
permanent and total disability) may exercise options in the three-month period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such shorter or longer period determined by the Board of
Directors.
Shares subject to Stock Awards granted under the Incentive Plan that have
lapsed or terminated may again be subject to Stock Awards granted under the
Plan. The Board of Directors has the authority to effect, with the consent of
affected holders, the cancellation of outstanding Stock Awards in return for
the grant of new Stock Awards for the same or a different number of Stock
Awards with an exercise price per share of 85%, 100% or, under certain
circumstances, 110% of fair market value of the Company Common Stock on the
new grant date, with the shares subject to the outstanding Stock Awards being
canceled again becoming available for grant under the Incentive Plan.
In the event of a dissolution or liquidation of the Company, specified type
of merger or other corporate reorganization, to the extent permitted by law,
all outstanding Stock Awards will either be assumed by the surviving entity or
continue in full force and effect. In the event that the surviving entity
declines to assume or substitute similar awards, then the time during which
such Stock Awards may be exercised will be accelerated and the Awards
terminated if not exercised prior to the event. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise to obtain control of the Company.
The Incentive Plan will terminate on September 10, 2007 unless sooner
terminated by the Board of Directors.
See "The Distribution--Other Consequences of the Distribution--Stock
Options" for information regarding the conversion of outstanding options to
purchase Electronics Common Stock options to purchase Technologies Common
Stock and "The Distribution--Other Consequences of the Distribution--Restated
Stock" for information regarding the issuance of shares of restricted stock of
Technologies to holders of restricted stock of Electronics.
39
<PAGE>
401(k) PLAN
In September , 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) 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 8
years. Incentive awards totalling approximately $608,250 were made with
respect to fiscal year 1996. The amounts of such incentive payments to Messrs.
Crocker, Wrench and Corr and to Drs. Madni and Wan are included in the
"Summary Compensation Table" under "Compensation of Executive Officers--
Executive Compensation Prior to the Distribution."
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ELIMINATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation of the Company (the "Certificate") provides
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Law, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the Delaware Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Company shall be eliminated or limited to the fullest extent
permitted by the Delaware Law, as so amended from time to time.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of the Company only if he or
she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws (the "Bylaws") provide that the Company will indemnify
its directors and executive officers and may indemnify its other officers,
employees and other agents to the extent not prohibited
40
<PAGE>
by the Delaware Law. Under the Bylaws, indemnified parties are entitled to
indemnification to the fullest extent permitted by law. The Bylaws also
require the Company to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the indemnified
party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification.
OWNERSHIP OF TECHNOLOGIES COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
expected to be owned following the Distribution, directly or indirectly by:
(i) each director; (ii) each of the Named Executive Officers; (iii) all 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 August 1, 1997. The ownership information presented below assumes
no change in beneficial ownership of Electronics Common Stock or of the stock
underlying options between August 1, 1997 and the Record Date.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
--------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(2)
---------------- --------- ----------
<S> <C> <C>
Mr. Charles Crocker(3)............................... 1,557,904 22.2%
One Post Street
Suite 2500
San Francisco, CA
Brinson Partners, Inc.(4)............................ 614,600 8.7%
209 S. LaSalle Street
Chicago, IL
Dimensional Fund Advisors, Inc.(5)................... 431,000 6.1%
1299 Ocean Avenue
Penthouse
Santa Monica, CA 90402-1005
So Gen International Fund, Inc.(6)................... 427,000 6.1%
1221 Avenue of the Americas
8th Floor
New York, NY 10020
Kennedy Capital Management, Inc...................... 424,100 6.0%
10829 Olive Blvd.
St. Louis, MO
Mr. Richard M. Brooks(7)............................. 10,000 *
Mr. George S. Brown(7)(8)............................ 96,752 1.4%
Mr. Robert R. Corr(7)................................ 28,700 *
Mr. C. Joseph Giroir, Jr.(7)......................... 10,000 *
Dr. William G. Howard, Jr. .......................... -- *
Dr. Asad M. Madni(7)................................. 80,267 1.1%
Dr. Robert Mehrabian................................. -- *
Dr. Lawrence A. Wan(7)............................... 39,250 *
Mr. Gary D. Wrench(7)(9)............................. 120,419 1.7%
All executive officers and directors as a group (10
persons)(10)........................................ 1,943,292 26.9%
</TABLE>
- --------
* Less than one percent.
41
<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 7,025,843 shares outstanding on
August 1, 1997, adjusted as required by rules promulgated by the SEC.
Outstanding shares do not include 934,424 shares held as Treasury Stock
as of August 1, 1997.
(3) Includes 400,000 shares held by Charles Crocker as trustee for his adult
children, as to which Mr. Crocker disclaims beneficial ownership. Also
includes 54,936 shares held in a trust of which Mr. Crocker is
beneficiary and sole trustee. Mr. Crocker has the power to vote and
dispose of the shares in each of these trusts.
(4) Represents shares held by Brinson Partners, Inc. ("Partners"), which has
the sole power to vote and dispose of the shares held by it; and shares
held by Brinson Trust Company ("Trust"), which has the sole power to vote
and dispose of the shares held by it. Trust is a wholly-owned subsidiary
of Partners which is a wholly-owned subsidiary of Brinson Holdings, Inc.
("Holdings"). Holdings may be deemed to share the power to vote and
dispose of all shares held by Partners and Trust, and Partners may be
deemed to share the power to vote and dispose of all shares held by
itself or Trust. Therefore, both Holdings and Partners each may be deemed
a beneficial owner of all the shares held by Partners and Trust.
(5) Represents shares held by Dimensional Fund Advisors, Inc., DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company. Officers of
Dimensional Fund Advisors, Inc. have sole power to vote and dispose of
shares beneficially owned by it, including shares held by DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company.
(6) Represents shares held by So Gen International Fund, Inc., Sogen
International SICAV and Ohio National Fund, Global Contrarian, each of
which shares the power to vote and dispose of such shares with Societe
Generale Asset Management Corp.
(7) Includes shares which certain officers and directors have the right to
acquire within 60 days after the date of this table pursuant to
outstanding options as follows: Mr. Brooks, 10,000 shares; Mr. Brown,
39,624 shares; Mr. Corr, 16,000 shares; Mr. Giroir, 10,000 shares; Dr.
Madni, 20,000 shares; Dr. Wan, 20,000 shares; Mr. Wrench, 78,400 shares;
and all executive officers and directors as a group, 194,024 shares. See
"The Distribution--Other Consequences of the Distribution--Stock Options"
for information regarding the conversion of outstanding options to
purchase Electronics Common Stock into options to purchase Technologies
Common Stock. Also includes shares that certain officers and directors
have the right to vote pursuant to unvested portions of restricted stock
awards as follows: Mr. Corr, 8,374 shares; Dr. Madni, 47,047 shares; Dr.
Wan, 12,814 shares; Mr. Wrench, 15,105 shares; and all executive officers
and directors as a group, 83,340 shares.
(8) Includes 57,128 shares held in a revocable trust of which Mr. Brown and
his wife, Mildred S. Brown, are beneficiaries and sole trustees. Mr. and
Mrs. Brown, acting alone, each has the power to vote and dispose of such
shares.
(9) Includes 25,276 shares held in a revocable trust of which Mr. Wrench and
his wife, Jacqueline Wrench, are beneficiaries and sole trustees. Mr. and
Mrs. Wrench, acting alone, each has the power to vote and dispose of such
shares. Also includes 16,743 shares which Mr. Wrench, acting alone, has
power to vote and dispose of.
(10) Includes the shares described in the Notes above.
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<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 the
stockholders of Electronics in the Distribution. All of the shares of Company
Common Stock issued in the Distribution will be validly issued, fully paid and
nonassessable.
COMPANY COMMON STOCK
The holders of Company Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of
directors, and, except as otherwise required by law or provided in any
resolution adopted by the Board with respect to any series of Company
Preferred Stock, the holders of such shares exclusively will possess all
voting power. The Certificate of Incorporation of the Company does not provide
for cumulative voting in the election of directors. Thus, under the Delaware
Law, the holders of more than one-half of the outstanding Company Common Stock
generally will be able to elect all of the directors of the Company then
standing for election. Subject to any preferential rights of any outstanding
series of Company Preferred Stock created by the Board from time to time, the
holders of Company Common Stock will be entitled to such dividends as may be
declared from time to time by the Board from funds available therefor, and
upon liquidation will be entitled to receive pro rata all assets of the
Company available for distribution to such holders.
COMPANY PREFERRED STOCK
Under the Certificate, the Board will be authorized to provide for the issue
of shares of Company Preferred Stock, in one or more series, and to fix for
each such series such powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the
Board providing for the issue of such series and as are permitted by the
Delaware Law. See "Certain Anti-takeover Effects of Certain Provisions of the
Certificate of Incorporation, the Bylaws and State Law--Preferred Stock" and
"Stockholder Rights Plan."
COMMON STOCK DIVIDEND POLICY
The payment and amount of cash dividends on the Common Stock after the
Distribution will be subject to the discretion of the Company's Board of
Directors.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION,
THE BYLAWS AND STATE LAW
The Certificate and the Bylaws of the Company contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to
the Certificate and the Bylaws.
CLASSIFIED BOARD OF DIRECTORS
The Certificate and Bylaws provide that the Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The Board consists of the persons referred to under "Directors and
Executive Officers of the Company" above. The Certificate and the Bylaws
provide that, of the initial directors of the Company, approximately one-third
will continue to serve until the 1998 Annual Meeting
43
<PAGE>
of Stockholders, approximately one-third will continue to serve until the 1999
Annual Meeting of Stockholders, and approximately one-third will continue to
serve until the 2000 Annual Meeting of Stockholders. Of the initial directors,
Mr. Brown and Mr. Crocker will serve until the 1998 Annual Meeting of
Stockholders, Mr. Giroir, Dr. Madni and Mr. Wrench will serve until the 1999
Annual Meeting of Stockholders and Mr. Brooks, Dr. Howard and Dr. Mehrabian
will serve until the 2000 Annual Meeting of Stockholders. Starting with the
1998 Annual Meeting of Stockholders, one class of directors will be elected
each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board. At least
two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board. Such a delay may help
ensure that the Company's directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as
well as any available alternatives to the proposal and to act in what they
believe to be the best interest of the stockholders. The classification
provisions will apply to every election of directors, however, regardless of
whether a change in the composition of the Board would be beneficial to the
Company and its stockholders and whether or not a majority of the Company's
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. The
classification of the Board could thus increase the likelihood that incumbent
directors will retain their positions. In addition, because the classification
provisions may discourage accumulations of large blocks of the Company's stock
by purchasers whose objective is to take control of the Company and remove a
majority of the Board, the classification of the Board could tend to reduce
the likelihood of fluctuations in the market price of the Company Common Stock
that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Company Common Stock at a higher market price than might
otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that, subject to any rights of holders of Company
Preferred Stock to elect additional directors under specified circumstances,
the number of directors will be fixed from time to time exclusively pursuant
to a resolution adopted by the Board. In addition, the Bylaws provide that,
unless the Board otherwise determines, any vacancies will be filled only by
the affirmative vote of a majority of the remaining directors, though less
than a quorum. Accordingly, the Board could prevent any stockholder from
enlarging the Board and filling the new directorships with such stockholder's
own nominees.
Under the Delaware Law, unless otherwise provided in the Certificate,
directors serving on a classified board may only be removed by the
stockholders for cause. In addition, the Certificate and the Bylaws provide
that directors may be removed only for cause and only upon the affirmative
vote of holders of at least 80% of the voting power of all the then
outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate and the Bylaws provide that, stockholder action can be taken
only at an annual or special meeting of stockholders and prohibit stockholder
action by written consent in lieu of a meeting. The Bylaws provide that
special meetings of stockholders can be called by a majority of the Board or
by resolution of the Board. Stockholders are not permitted to call a special
meeting of stockholders or to require that the Board call a special meeting.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by the Company.
The provisions of the Certificate and the Bylaws prohibiting stockholder
action by written consent may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special
44
<PAGE>
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.
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
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<PAGE>
notice of other proposed business, the Stockholder Notice Procedure will also
provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board,
will provide the Board with an opportunity to inform stockholders, prior to
such meetings, of any business proposed to be conducted at such meetings,
together with any recommendations as to the Board's position regarding action
to be taken with respect to such business, so that stockholders can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the Bylaws do not give the Board any power to approve or disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
PREFERRED STOCK
The Certificate authorizes the Board to establish one or more series of
Company Preferred Stock and to determine, with respect to any series of
Company Preferred Stock, the terms and rights of such series, including
(i) the designation of the series, (ii) the number of shares of the series,
which number the Board may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the number of
shares thereof then outstanding), (iii) whether dividends, if any, will be
cumulative or noncumulative and the dividend rate of the series, (iv) the
dates at which dividends, if any, will be payable, (v) the redemption rights
and price or prices, if any, for shares of the series, (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares
of the series, (vii) the amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security,
of the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion price or prices
or rate or rates, any adjustments thereof, the date or dates as of which such
shares shall be convertible and all other terms and conditions upon which such
conversion may be made, (ix) restrictions on the issuance of shares of the
same series or of any other class or series, and (x) the voting rights, if
any, of the holders of such series.
The Company believes that the ability of the Board to issue one or more
series of Company Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Company Preferred
Stock, as well as shares of Company Common Stock, will be available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. The Nasdaq currently requires stockholder approval as a prerequisite
to listing shares in several instances, including where the present or
potential issuance of shares could result in an increase in the number of
shares of common stock, or in the amount of voting securities, outstanding of
at least 20%. If the approval of the Company's stockholders is not required
for the issuance of shares of Company Preferred Stock or Company Common Stock,
the Board may determine not to seek stockholder approval.
Although the Board has no intention at the present time of doing so, it
could issue a series of Company Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Board will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its
stockholders. The Board, in so acting, could issue Company Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the Board, including a
tender offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock. See "Stockholder Rights Plan" below.
46
<PAGE>
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.
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
47
<PAGE>
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 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.
48
<PAGE>
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 September , 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").
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 September , 2007 (the "Final Expiration Date"), unless
the Rights are earlier redeemed or exchanged by the Company, in each case, as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or other property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion
price, less than the then current
49
<PAGE>
market price of the Preferred Shares or (iii) upon the distribution to holders
of the Preferred Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Preferred Shares) or of subscription rights or warrants
(other than those referred to above). The exercise of Rights for Preferred
Shares is at all times subject to the availability of a sufficient number of
authorized but unissued Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidation or combinations of the Common Shares occurring, in any case,
prior to the Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares would be entitled to a
minimum preferential liquidation payment of $100 per share, but would be
entitled to receive an aggregate payment equal to 100 times the payment made
per Common Share. Each Preferred Share will have 100 votes, voting together
with the Common Shares. Finally, in the event of any merger, consolidation or
other transaction in which Common Shares are exchanged, each Preferred Share
will be entitled to receive 100 times the amount of consideration received per
Common Share. These rights are protected by customary anti-dilution
provisions. Because of the nature of the Preferred Shares' dividend and
liquidation rights, the value of one one-hundredth of a Preferred Share should
approximate the value of one Common Share. The Preferred Shares would rank
junior to any other series of the Company's preferred stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring
Person and its associates and affiliates (which will thereafter be void), will
for a 60-day period have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the
Right (or, if such number of shares is not and cannot be authorized, the
Company may issue Preferred Shares, cash, debt, stock or a combination thereof
in exchange for the Rights). This right will terminate 60 days after the date
on which the Rights become nonredeemable (as described below), unless there is
an injunction or similar obstacle to exercise of the Rights, in which event
this right will terminate 60 days after the date on which the Rights again
become exercisable.
Generally, under the Plan, an "Acquiring Person" shall not be deemed to
include (i) the Company, (ii) a subsidiary of the Company, (iii) any employee
benefit or compensation plan of the Company, (iv) any entity holding Common
Shares for or pursuant to the terms of any such employee benefit or
compensation plan, or (v) an Excluded Person which shall mean Mr. Crocker so
long as he and any trust or other fiduciary account for the benefit of Mr.
Crocker or his ancestors, descendents, siblings or spouse (a "Trust")
beneficially own 30% or less of the outstanding Common Shares; provided,
however, that Mr. Crocker and any Trust shall not be an Excluded Person if
such persons beneficially own more than 30% of the outstanding Common Shares
without the prior approval of the Board of Directors of the Company. In
addition, except under limited circumstances, no person or entity shall become
an Acquiring Person as the result of the acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such person or entity to
15% or more of the Common Shares then outstanding.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its associates or affiliates or certain
other persons in which such persons have an interest, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,
that number of shares of common stock of the acquiring company which at the
time of such transaction will have a market value of two times the exercise
price of the Right.
At any time after an Acquiring Person becomes an Acquiring Person and prior
to the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company
50
<PAGE>
may exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share, per Right (or, at the
election of the Company, the Company may issue cash, debt, stock or a
combination thereof in exchange for the Rights), subject to adjustment.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of
a Preferred Share issuable upon the exercise of one Right, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the earliest of (i) the day of the first public
announcement that a person has become an Acquiring Person or (ii) the Final
Expiration Date, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $.001 per Right (the "Redemption
Price"). 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.
51
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Operations.......................................... F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Stockholders' Equity................................ F-6
Notes to Combined Financial Statements..................................... F-7
Schedule of Valuation and Qualifying Accounts.............................. S-1
Report of Ernst & Young LLP, Independent Auditors, as to Schedule.......... S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BEI Electronics, Inc.
We have audited the accompanying combined balance sheets of the businesses
to comprise BEI Technologies, Inc. (as described in Note 1 to the combined
financial statements) as of September 28, 1996 and September 30, 1995, and
related combined statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended September 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of BEI Technologies,
Inc. at September 28, 1996 and September 30, 1995, and the combined results of
its operations and its cash flows for each of the three years in the period
ended September 28, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young, LLP
San Francisco, California
November 20, 1996,
except for Note 1 and the first
paragraphs of Notes 2 and 7, as to which
the date is June 30, 1997
and Note 16, as to which the date is
September 11, 1997
F-2
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JUNE 28,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents--Note 14.... $ 2,667 $ 8,201 $ 3,622
Trade receivables:
United States Government............. 5,072 5,175 2,118
Commercial customers, less allowance
for doubtful accounts (1997-$621;
1996-$607; 1995-$395) .............. 11,087 11,537 14,445
------- ------- -------
16,159 16,712 16,563
Inventories--Note 3................... 16,972 19,201 22,304
Refundable income taxes............... 518 388 --
Deferred income taxes--Note 6......... 3,667 2,564 4,387
Current assets of discontinued
operations--Note 2................... 9,764 6,508 743
Other current assets.................. 2,005 1,925 1,399
------- ------- -------
Total current assets............... 51,752 55,499 49,018
PROPERTY, PLANT AND EQUIPMENT--NOTE 5
Land.................................. 4,093 4,093 4,093
Structures............................ 7,216 7,409 8,796
Equipment............................. 32,796 35,947 40,624
Leasehold improvements................ 1,301 1,284 1,034
------- ------- -------
45,406 48,733 54,547
Less allowances for depreciation and
amortization......................... 22,627 26,542 29,440
------- ------- -------
22,779 22,191 25,107
OTHER ASSETS
Tradenames, patents and related
assets, less amortization (1997-
$2,474; 1996-$2,335; 1995-$2,149).... 2,125 1,939 1,800
Technology acquired under license
agreements, less amortization (1997-
$3,990; 1996-$3,269; 1995-$2,342).... 8,125 6,939 6,218
Goodwill, less amortization (1997-
$379; 1996-$340; 1995-$288).......... 759 707 668
Non-current assets of discontinued
operations-Note 2.................... 3,836 1,962 1,687
Other................................. 3,042 2,934 2,170
------- ------- -------
17,887 14,481 12,543
------- ------- -------
$92,418 $92,171 $86,668
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Trade accounts payable................ $ 3,963 $ 5,025 $ 5,574
Accrued expenses and other
liabilities--Note 4.................. 14,295 12,602 9,218
Current portion of long-term debt--
Note 5............................... 72 5,625 5,627
Current liabilities of discontinued
operations--Note 2................... 3,648 4,472 1,888
------- ------- -------
Total current liabilities.......... 21,978 27,724 22,307
Long-term debt, less current portion--
Notes 5 and 14....................... 29,765 24,137 18,516
Payable to BEI Electronics, Inc.--
(Note 15)............................ 10,404 6,062 3,896
Deferred income taxes--Note 6......... 1,140 712 --
Other liabilities..................... 268 290 286
Commitments and contingencies--Notes
2, 10 and 11......................... -- -- --
STOCKHOLDERS' EQUITY--NOTES 7 AND 8
Preferred stock....................... -- -- --
Common stock.......................... -- -- --
Retained earnings..................... 29,593 34,164 42,949
------- ------- -------
29,593 34,164 42,949
Less: Unearned restricted stock--Note
8.................................... (730) (918) (1,286)
------- ------- -------
Total stockholders' equity......... 28,863 33,246 41,663
------- ------- -------
$92,418 $92,171 $86,668
======= ======= =======
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
-------------------------------------- ----------------
JUNE JUNE
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, 29, 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales--Note 12 and
13..................... $82,361 $90,475 $96,746 $71,398 $74,437
Cost of sales--Note 13.. 49,081 56,841 60,494 44,390 48,383
------- ------- ------- ------- -------
33,280 33,634 36,252 27,008 26,054
------- ------- ------- ------- -------
Selling, general and
administrative
expenses............... 24,426 25,641 26,157 18,500 19,014
Provision for royalty
and related expenses... -- 3,500 -- -- --
Research, development
and related expenses... 6,117 3,964 3,608 2,682 3,159
------- ------- ------- ------- -------
30,543 33,105 29,765 21,182 22,173
------- ------- ------- ------- -------
Operating Income........ 2,737 529 6,487 5,826 3,881
Other income............ 98 210 242 166 246
Interest expense........ (2,190) (2,303) (2,444) (1,879) (1,392)
------- ------- ------- ------- -------
Income (loss) before
income taxes........... 645 (1,564) 4,285 4,113 2,735
Income taxes--Note 6.... 324 (600) 1,412 1,407 941
------- ------- ------- ------- -------
Income (loss) from
continuing operations.. 321 (964) 2,873 2,706 1,794
Income (loss) from
discontinued
operations, net of
income taxes--Note 2... 392 (1,077) 1,698 1,139 1,389
------- ------- ------- ------- -------
Net income (loss)....... $ 713 $(2,041) $ 4,571 $ 3,845 $ 3,183
======= ======= ======= ======= =======
Pro forma earnings from
continuing operations
per common and common
equivalent share....... $ 0.40 $ 0.25
Pro forma earnings from
discontinued operations
per common and common
equivalent share....... 0.24 0.20
------- -------
Pro forma earnings per
common and common
equivalent share--Notes
7 and 8................ $ 0.64 $ 0.45
======= =======
Shares used in computing
pro forma earnings per
common and common
equivalent shares--
Notes 1, 7 and 8....... 7,108 7,131
======= =======
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
-------------------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 713 $(2,041) $4,571 $3,845 $ 3,183
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED (USED) BY
OPERATING ACTIVITIES:
Depreciation............ 4,384 4,456 4,204 3,131 3,094
Amortization............ 1,218 1,457 1,711 1,202 1,202
Provision for losses on
trade receivables...... 50 119 282 173 46
(Gain) Loss on sale of
assets................. 41 79 174 5 29
Deferred income taxes... (558) (2,630) 675 370 (1,765)
Other................... 258 (681) (577) 32 (595)
CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Trade receivables....... (1,945) (2,541) (835) (21) 103
Inventories............. (2,204) (882) (2,229) (1,700) (3,103)
Other current assets.... (501) 175 80 (531) 526
Trade accounts payable,
accrued expenses and
other liabilities ..... 1,637 3,401 (609) (1,736) (3,478)
Refundable income taxes. (2,399) 1,043 130 878 966
Assets and liabilities
of discontinued
operations............. 4,210 7,617 5,954 2,243 2,730
------- ------- ------ ------ -------
Net cash provided (used)
by operating
activities............. 4,904 9,572 13,531 7,891 2,940
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property,
plant and equipment.... (8,469) (2,573) (3,624) (3,106) (6,032)
Other................... (900) 35 44 144 698
------- ------- ------ ------ -------
Net cash used by
investing activities... (9,369) (2,538) (3,580) (2,872) (5,334)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on
long-term debt......... (121) (138) (75) (70) (19)
Increase (decrease) in
payable to BEI
Electronics, Inc....... 7,413 (7,323) (4,342) (3,604) (2,166)
------- ------- ------ ------ -------
Net cash provided (used)
by financing
activities............. 7,292 (7,461) (4,417) (3,674) (2,185)
------- ------- ------ ------ -------
Net increase (decrease)
in cash and cash
equivalents............ 2,827 (427) 5,534 1,345 (4,579)
Cash and cash
equivalents at
beginning of period.... 267 3,094 2,667 2,667 8,201
------- ------- ------ ------ -------
Cash and cash
equivalents at end of
period................. $ 3,094 $ 2,667 $8,201 $4,012 $ 3,622
======= ======= ====== ====== =======
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Increase (decrease) in
long-term debt of BEI
Electronics, Inc. to be
assumed by BEI
Technologies, Inc. .... $11,200 $ -- $ -- $ -- $(5,600)
======= ======= ====== ====== =======
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
BEI TECHNOLOGIES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON RETAINED RESTRICTED
STOCK EARNINGS STOCK TOTAL
------ -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCES AT OCTOBER 2, 1993............. $ 42,121 $ (803) $ 41,318
Net income for 1994..................... -- 713 -- 713
Restricted Stock Plan--Note 8........... -- -- 97 97
Increase in long-term debt of BEI
Electronics, Inc. to be assumed by BEI
Technologies, Inc...................... -- (11,200) -- (11,200)
--- -------- ------- --------
BALANCES AT OCTOBER 1, 1994............. -- 31,634 (706) 30,928
Net loss for 1995....................... -- (2,041) -- (2,041)
Restricted Stock Plan--Note 8........... -- -- (24) (24)
--- -------- ------- --------
BALANCES AT SEPTEMBER 30, 1995.......... -- 29,593 (730) 28,863
Net income for 1996..................... -- 4,571 -- 4,571
Restricted Stock Plan--Note 8........... -- -- (188) (188)
--- -------- ------- --------
BALANCES AT SEPTEMBER 28, 1996.......... -- 34,164 (918) 33,246
Net income (unaudited).................. -- 3,183 -- 3,183
Restricted Stock Plan--Note 8
(unaudited)............................ -- -- (366) (366)
Decrease in long-term debt of BEI
Electronics, Inc. to be assumed by BEI
Technologies, Inc. (unaudited)......... -- 5,600 -- 5,600
--- -------- ------- --------
BALANCES AT JUNE 28, 1997 (UNAUDITED)... -- $ 42,947 $(1,284) $ 41,663
=== ======== ======= ========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for the nine months ended June 28, 1997 and June 29, 1996, is
unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: On June 30, 1997, the Board of Directors of BEI
Electronics, Inc. (Electronics) approved a plan of distribution to holders of
Electronics common stock of one share of common stock of BEI Technologies,
Inc. (Technologies or the Company), a newly formed subsidiary, for each share
of Electronics common stock held (the Distribution). In connection with the
Distribution, Electronics will transfer to Technologies all of the assets,
liabilities and operations of its Sensors & Systems and Defense Systems
business segments. As further described in Note 2, on June 30, 1997, the Board
of Directors of Electronics also approved a formal plan to discontinue the
operations of its Defense Systems segment.
The accompanying combined financial statements of Technologies present the
combined financial position and results of operations of BEI Sensors & Systems
Company, Inc. and Defense Systems Company, Inc., wholly-owned subsidiaries of
Electronics, which are predecessor entities to the Company. All intercompany
accounts and transactions have been eliminated. The financial position and
results of operations of the Sensors & Systems business segment are presented
as continuing operations and those of the Defense Systems business segment are
presented as discontinued operations. Intercompany accounts and transactions
between Technologies and Electronics are summarized in Note 15. Long-term debt
of Electronics that will be assumed by Technologies in connection with the
Distribution has been included in the accompanying combined balance sheets as
described in Note 5.
The Sensors & Systems business provides sensors, engineered subsystems and
associated components which are used for controlled precision machinery and
equipment in industrial, medical, automotive, aerospace and military
applications.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest
September 30. Fiscal years 1996, 1995 and 1994 each contained 52 weeks.
Interim Financial Information: The combined financial statements for the
nine months ended June 28, 1997 and June 29, 1996 are unaudited but include
all adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its financial position and
results of operations. Operating results for the nine months ended June 28,
1997 are not necessarily indicative of the results that may be expected for
any future periods.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Concentration of Credit Risk: The Company's products are primarily sold to
commercial customers throughout the United States and in various foreign
countries and to the United States government. Substantially all foreign sales
are denominated in U.S. dollars. The Company performs ongoing credit
evaluations of its commercial customers and generally does not require
collateral. The Company maintains reserves for potential credit losses.
Historically, such losses have been within the expectations of management.
Revenue Recognition: Revenue is recognized under fixed price contracts using
the percentage of completion method, with percentage of completion determined
primarily by units delivered. Units are considered delivered
F-7
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
when accepted by the customer. Revenue for products not sold under fixed price
contracts is recognized as units are shipped. Sales under cost reimbursement
contracts are recognized as costs are incurred and include a proportion of the
fees expected to be realized on the contracts. Amounts related to billed
retainages, amounts not billed and amounts of uncertain claims are immaterial.
Inventories: Inventories consist of costs incurred under fixed price
contracts in process less anticipated losses, if any, on the contracts. Other
inventories are carried principally at the lower of cost (first-in, first-out
method) or fair value. Provisions for contract costs in excess of inventory
are reflected as accrued contract costs in current liabilities.
Depreciation and Amortization: Property, plant and equipment are recorded at
cost. Depreciation and amortization are provided in amounts sufficient to
amortize the cost of such assets over their estimated useful lives, which
range from 3 to 30 years, using the straight-line method for structures and
the accelerated or straight-line methods for equipment.
Leasehold improvements are amortized over the shorter of the lease term or
their estimated useful life.
Long Lived Assets: The Company accounts for its long-lived assets using
Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No. 121 ("FAS No. 121") "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of". The Company adopted FAS
No. 121 on October 1, 1995. The Company recognizes impairment losses on long-
lived assets, including property, plant and equipment and other assets, when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amounts of the
assets.
Tradenames, patents and related assets are being amortized over their
remaining lives at the date of acquisition up to a period of seventeen years.
Technology acquired under license agreements consists primarily of the cost
of exclusive rights to make, use and sell products utilizing quartz rate
sensing technology. Technology acquired is being amortized over thirteen
years, which approximates its estimated useful life from the date of
acquisition.
Goodwill consists of the excess of cost over fair value of net tangible
assets acquired in purchase acquisitions. Goodwill is amortized by the
straight-line method over 20 years.
Research and Development: Costs to develop the Company's products are
expensed as incurred in accordance with Statement of Financial Accounting
Standards No. 2 "Accounting for Research and Development Costs", which
establishes accounting and reporting standards for research and development.
Stock-Based Compensation: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-Based Compensation," which established a
fair-value based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies who elect not to adopt the
new method of accounting. The Company will be required to adopt FAS 123 in
fiscal year 1997. The Company's intention is to continue to account for
employee stock awards in accordance with APB Opinion No. 25 and to adopt the
disclosure-only alternative described in FAS 123.
Pro Forma Net Income Per Share: Pro forma net income per share is based on
the pro forma weighted average number of shares of outstanding Technologies
common stock and dilutive common equivalent shares from stock options, giving
effect to the planned Distribution of one share of Technologies common stock
for each share of Electronics common stock as if it had occurred at the
beginning of each period presented. Pro
F-8
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
forma common equivalent shares from outstanding stock options of Electronics
held by employees of the Sensors and Systems and Defense Systems business who
will become employees of Technologies are computed using the treasury stock
method assuming that upon exercise the holder would receive one share of
Technologies common stock for each share of Electronics common stock acquired
through the exercise of such options.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share",
which is required to be adopted for the quarter ending December 27, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate earnings (loss) per share for all
prior periods. Had the Statement been implemented for the nine months ended
June 28, 1997 and the year ended September 28, 1996, the impact on the
calculation of pro forma earnings per share would not have been material.
NOTE 2--DISCONTINUED OPERATIONS
In June 30, 1997, the Board of Directors of Electronics announced a formal
plan to discontinue the operations of the Defense Systems segment.
Accordingly, the results of operations of the segment have been presented as
discontinued operations for all periods presented and the assets and
liabilities of the segment have been segregated in the combined balance
sheets. The remaining assets are stated at cost, which management believes
approximates net realizable value and management does not expect any material
loss from the on-going operations or abandonment of the Defense Systems
segment. Previously, in September 1995, Electronics had reached a decision to
exit the HYDRA 70 (H 70) rocket manufacturing line of business which made up a
substantial portion of the Defense Systems segment. Additional products of the
segment included weapons management systems and sales under a cost-plus fee
advanced rocket development contract.
As result of the decision to exit the rocket line of business, the Company
has incurred and will incur costs relating to employee severance and the
closure and withdrawal from the leased facility in Camden, Arkansas and
similar costs related to its owned facility in Euless, Texas. The Company
recorded costs of sales of $1,250,000 as exit costs at September 30, 1995
consisting of employee severance of $750,000, leasehold abandonment of
$250,000 and owned facility costs of $250,000. During fiscal 1996, the Company
incurred $726,000 of costs for employee severance and leasehold and facility
costs of $350,000. Additional amounts were accrued during fiscal 1996 for
severance costs of $350,000 and facility costs of $350,000. During fiscal
1996, the Company recorded net losses of $640,000 on disposal of assets of the
rocket business. At September 28, 1996, an additional charge of $313,000 was
recorded to reflect management's estimate of the fair value of the Euless
facility based on current market conditions. At the end of fiscal year 1996,
the balance in the reserve account consisted of $374,000 and $500,000 for
employee severance and facility closure costs, respectively. During the first
nine months of fiscal 1997, the Company accrued an additional $33,000 for
employee severance costs. Costs incurred during the period for severance and
facilities closure of $302,000 and $357,000, respectively, were charged
against the reserve. The balance in the reserve at the end of the third
quarter of fiscal 1997 consisted of $105,000 for employee severance and
$143,000 for facilities closure costs. Management believes at this time the
reserve appears adequate to cover future shutdown costs. At September 28,
1996, substantially all inventory and equipment assets of the rocket business
had been written off or disposed of except the remaining assets at the Euless
facility which management expects to dispose of in fiscal 1997.
F-9
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Net sales of the Defense Systems segment were as follows for the fiscal
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
-------------------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
---------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--HYDRA 70......... $ 38,292 $38,517 $37,927 $28,189 $1,947
Other................... 9,327 7,064 4,708 3,311 4,663
-------- ------- ------- ------- ------
$ 47,619 $45,581 $42,635 $31,500 $6,610
======== ======= ======= ======= ======
</TABLE>
NOTE 3--INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JUNE 28,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Finished products...................... $ 554 $ 289 $ 1,281
Work in process........................ 5,906 6,621 7,361
Materials.............................. 9,468 10,873 12,635
Costs incurred under long-term
contracts, including U.S. Government
contracts............................. 26,269 3,840 1,823
Unliquidated progress payments......... (17,621) (451) (138)
-------- ------- -------
24,576 21,172 22,962
Less inventories included in current
assets of discontinued operations, net
of progress payments of (1997--$138;
1996--$451; 1995--$17,621)............ 7,604 1,971 658
-------- ------- -------
Net inventories........................ $ 16,972 $19,201 $22,304
======== ======= =======
</TABLE>
NOTE 4--ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Royalties and related costs........................ $ 3,961 $ 3,951
Vacation........................................... 2,095 1,739
Employee compensation.............................. 1,630 1,661
Insurance.......................................... 332 1,107
Interest........................................... 863 1,105
Contract costs..................................... 1,348 830
Commissions........................................ 519 484
Other.............................................. 5,756 2,898
------- -------
16,929 14,286
Less accrued expenses included in current
liabilities of discontinued operations--Note 2.... 2,634 1,684
------- -------
Accrued Expenses and Other Liabilities............. $14,295 $12,602
======= =======
</TABLE>
F-10
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
6.73% Series A Senior Notes; due in annual
installments of $3,360 from October 1, 1996
through October 1, 2000........................... $16,800 $16,800
6.73% Series B Senior Notes; due in annual
installments of $2,240 from November 15, 1996
through November 15, 2000......................... 11,200 11,200
Mortgage note payable with interest at 7.96%; due
in monthly installments of principal and interest
of $14 until 1998 when the remaining balance of
approximately $1,700 is due; collateralized by
property with a book value of approximately $2,047
at September 28, 1996............................. 1,785 1,762
Capitalized equipment lease obligations............ 71 --
------- -------
29,856 29,762
Less portion included in non-current liabilities of
discontinued operations........................... 19 --
------- -------
29,837 29,762
Less current portion............................... 72 5,625
------- -------
$29,765 $24,137
======= =======
</TABLE>
The Senior Notes, which are obligations of Electronics, have been recorded
in the combined balance sheets of Technologies as the debt was issued to
provide financing for certain acquisitions by Technologies and will be assumed
by Technologies in connection with the Distribution. The interest expense
associated with the Senior Notes has also been allocated to Technologies and
is included in the combined results of operations. The Senior Note Agreement
contains covenants concerning certain financial ratios, dividend payments and
minimum balances of net worth. At September 28, 1996, Electronics was in
compliance with all financial covenants.
Maturities of long-term debt are as follows: fiscal 1997--$5,625,000; 1998--
$8,989,000; 1999--$7,308,000; 2000--$5,600,000; 2001--$2,240,000; thereafter--
none.
Interest of approximately $2,202,000, $2,308,000 and $2,180,000 was paid
during fiscal years 1996, 1995 and 1994, respectively.
NOTE 6--INCOME TAXES
Technologies has been included in the consolidated federal income tax return
of Electronics in accordance with the tax allocation arrangement between the
Companies. Income taxes are allocated generally as if the companies had filed
separate U.S. and state income tax returns. After the Distribution,
Technologies will no longer be included in the Electronics consolidated group
and will instead file a separate federal income tax return.
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and the tax basis of assets and liabilities and
are measured using the enacted tax rates and laws known at this time that will
be in effect when the differences are expected to reverse.
F-11
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's net deferred tax assets as of are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
DEFERRED TAX ASSETS 1995 1996
------------------- ------------- -------------
<S> <C> <C>
Accrued expenses.................................... $2,535 $3,675
Inventory valuation................................. 1,168 80
Contract reserves................................... 564 420
State net operating loss carryovers................. 143 94
Other............................................... 1,665 964
------ ------
Total deferred tax assets......................... 6,075 5,233
Valuation allowance for deferred tax assets....... (143) (94)
------ ------
Total deferred tax assets........................... 5,932 5,139
------ ------
Deferred tax liabilities
Depreciation and property basis difference.......... $2,415 2,309
Prepaid expenses.................................... 311 131
Accrued expenses.................................... 405 252
Other............................................... 274 595
------ ------
Total deferred tax liabilities.................... 3,405 3,287
------ ------
Net deferred tax assets........................... $2,527 $1,852
====== ======
</TABLE>
The provision for income tax expense consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Current
Federal............................... 338 1,306 1,716
State................................. 744 46 47
------ ------- ------
Total Current....................... 1,082 1,352 1,763
Deferred
Federal............................... 48 (2,303) 408
State................................. (606) (327) 267
------ ------- ------
Total Deferred...................... (558) (2,630) 675
------ ------- ------
Total income tax provision (benefit).... $ 524 $(1,278) $2,438
====== ======= ======
Income tax expense (benefit)
attributable to continuing operations.. 324 (600) 1,412
Income tax expense (benefit)
attributable to discontinued
operations............................. 200 (678) 1,026
------ ------- ------
Total income tax provision (benefit).... $ 524 $(1,278) $2,438
====== ======= ======
</TABLE>
F-12
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the income tax determined by
applying the applicable U.S. statutory federal income tax rate as a result of
the following differences (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Income tax (credit) at the statutory
rate of 34%............................ $421 $(1,128) $2,383
Federal income tax effect of state
income taxes........................... (46) 96 (106)
Goodwill amortization................... 10 18 19
Research and development and related
credits................................ -- -- (246)
Other................................... 1 17 74
---- ------- ------
Federal income taxes (credit)......... 386 (997) 2,124
State income taxes (credit)........... 138 (281) 314
---- ------- ------
Provision (credit) for income taxes..... $524 $(1,278) $2,438
==== ======= ======
</TABLE>
Pursuant to the tax sharing agreement with Electronics, the Company's income
taxes have been paid by Electronics and credited to payable to BEI
Electronics, Inc. (see Note 15).
The Internal Revenue Services (IRS) audited Electronics' income tax returns
for the fiscal years 1993 through 1995. In the third quarter of fiscal year
1997, Electronics reached a settlement with the IRS for all issues raised for
these years, resulting in the payment of $1.7 million in additional taxes for
those years, of which approximately $1.0 million relates to Technologies. The
settlement related primarily to the timing of deductions resulting from
acquisitions made by subsidiaries of the Company. The payment of these
additional taxes resulted in an increase in deferred tax assets and did not
affect the provision for income taxes in the third quarter of fiscal year
1997.
NOTE 7--STOCKHOLDERS' EQUITY
The authorized capital stock of BEI Technologies, Inc. consists of 2,000,000
shares of Preferred Stock ($.001 par value) and 20,000,000 shares of Common
Stock ($.001 par value).
The authorized, issued and outstanding capital stock of BEI Sensors &
Systems Company, Inc. and Defense Systems Company, Inc., all of which is held
by Electronics, consists of the following for all periods presented:
<TABLE>
<CAPTION>
SHARES
PAR SHARES ISSUED AND
VALUE AUTHORIZED OUTSTANDING
----- ---------- -----------
<S> <C> <C> <C>
Preferred Stock:
BEI Sensors & Systems Company, Inc............... $.001 200,000 --
Common Stock:
BEI Sensors & Systems Company, Inc............... $.001 300,000 100
BEI Defense Systems Company, Inc................. $1.00 1,000 100
</TABLE>
NOTE 8--STOCK OPTION AND RESTRICTED STOCK PLAN
Under the plan of Distribution, holders of vested stock options to purchase
Electronics common stock will be entitled to exercise such options and receive
an equivalent number of shares of Technologies common stock in connection with
the Distribution. Vested options that are not exercised and unvested
Electronics stock options will be converted to options to purchase
Technologies common stock based on a conversion formula that will provide that
the intrinsic value of the options will not increase as a result of the
conversion, the ratio of the exercise price per option to the market value per
share of common stock will not be reduced, and the new option will not give
the holder any additional benefits.
F-13
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The 1982 Stock Plan of Electronics provided for the granting of options with
exercise prices equal to the fair market value of the stock on the date the
option was granted. The 1982 Stock Plan terminated December 15, 1991; no
further shares can be granted and the options outstanding at June 28, 1997
will expire if not exercised by 1998.
Option activity of the 1982 Stock Plan of Electronics related to employees
of the Sensors & Systems and Defense Systems businesses who will become
employees of Technologies, is summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF
COMMON PRICE PER
SHARES SHARE
------ -----------
<S> <C> <C>
Options outstanding at October 2, 1993.................. 36,000 $3.13-$3.75
Exercised............................................. (8000) $3.13
------ -----------
Options outstanding at October 1, 1994.................. 28,000 $3.75
Exercised............................................. --
------
Options outstanding at September 30, 1995............... 28,000 $3.75
Exercised............................................. (4,000) $3.75
------ -----------
Options outstanding at September 28, 1996............... 24,000 $3.75
Exercised (unaudited)................................. (4,000) $3.75
------ -----------
Options Outstanding at June 28, 1997 (unaudited)........ 20,000 $3.75
====== ===========
</TABLE>
The 1987 Stock Plan of Electronics provides for the granting of options with
exercise prices equal to the fair market value of the stock on the date the
options were granted. The 1987 Supplemental Stock Option Plan which was
combined into the 1987 Stock Plan in January 1997, required that the exercise
price of each option not be less than 50% of the fair market value on the date
the option was granted. Under both plans the options are exercisable in
approximately three equal installments commencing one year from the date of
grant with accumulation privileges.
F-14
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Option activity under the 1987 Stock Plan of Electronics related to
employees of the Sensors & Systems and Defense businesses who will become
employees of Technologies, is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMMON PRICE PER
SHARES SHARE
--------- -----------
<S> <C> <C>
Options outstanding at October 2, 1993............... 820,327 $2.88-$9.13
Granted............................................ 3,000 $6.13
Exercised.......................................... (26,121) $2.88-$7.25
Terminated......................................... (129,741) $3.75-$9.13
-------- -----------
Options outstanding at October 1, 1994............... 667,465 $2.88-$9.13
Granted............................................ 31,000 $5.00
Exercised.......................................... (16,814) $2.88-$4.38
Terminated......................................... (71,256) $4.38-$9.13
-------- -----------
Options outstanding at September 30, 1995............ 610,395 $2.88-$9.13
Granted............................................ 11,000 $6.00-$7.13
Exercised.......................................... (115,922) $2.88-$9.13
Terminated......................................... (48,511) $5.00-$9.13
-------- -----------
Options outstanding at September 28, 1996............ 456,962 $2.88-$9.13
Exercised (unaudited).............................. (65,800) $3.75-$8.50
Terminated......................................... (2,000) $9.13
-------- -----------
Options outstanding at June 28, 1997 (unaudited)..... 389,162 $2.88-$9.13
======== ===========
</TABLE>
As of June 28, 1997, options for 381,484 shares were vested and exercisable.
Under the 1992 Restricted Stock Plan of Electronics, 700,000 shares of
Electronics common stock were authorized to be issued to certain key
individuals subject to forfeiture if employment terminated prior to the end of
prescribed periods. The market value at the date of grant of shares is
recorded as unearned restricted stock. The market value of shares granted is
amortized to compensation expense over the vesting periods. As of June 28,
1997, 399,926 shares had been granted to individuals who will become employees
of Technologies of which 334,250 shares are outstanding, and 125,301 shares
have fully vested. Compensation expense of $406,000, $236,000 and $196,000 was
recorded in fiscal years 1996, 1995 and 1994, respectively.
NOTE 9--EMPLOYEE BENEFIT PLAN
Electronics has a defined contribution retirement plan for the benefit of
all eligible employees. Contributions to the plan by Technologies for the
benefit of its employees for fiscal years 1996, 1995 and 1994 were
approximately $622,000, $684,000, and $726,000 respectively.
F-15
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEASE COMMITMENTS
Operating leases consist principally of leases for structures and land.
Certain of the operating leases contain various options for renewal and/or
purchase of the related assets for amounts approximating their fair market
value at the date of exercise of the option. The future minimum payments for
operating leases consisted of the following at September 28, 1996:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
1997........................................................... $1,335
1998........................................................... 1,207
1999........................................................... 731
2000........................................................... 37
2001........................................................... --
Thereafter..................................................... --
------
Total minimum lease payments................................. $3,310
======
</TABLE>
Total rental expense attributable to property, plant and equipment amounted
to approximately $1,530,000, $2,238,000, and $2,779,000 fiscal years 1996,
1995 and 1994, respectively.
NOTE 11--CONTINGENCIES AND LITIGATION
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In January 1997, BEI Systron Donner Company, a division of the Company, and
the former shareholders of General Precision Industries, Inc. (GPI) reached a
confidential settlement of the last remaining issues of the dispute that had
been in arbitration since 1992. Following the November 1996 ruling by the
arbitration panel that GPI may be due costs and expenses, the parties agreed
in their January 1997 settlement on a final payment to fully resolve the
dispute. The impact of the settlement and related legal expenses in the first
quarter of 1997 was an after tax charge of approximately $1.1 million. The
settlement and all remaining amounts accrued for GPI under prior rulings by
the panel, including royalties for 1993 through 1996, were paid in the second
quarter of fiscal 1997.
Claim against U.S. Government
In August, 1995, Defense Systems filed a claim against the U.S. Government
relative to the fuze technical data problems experienced on previous
contracts. The amount of the claim was approximately $5 million. This claim
was settled with the Government in September 1996 for $3.6 million. The
settlement was effected through a contract modification to increase the
selling price of the related rockets by $3.6 million and was recorded as
additional sales in September 1996. Defense Systems also believes it has
rights for additional claims against the Government arising out of the H 70
contract and a substantial claim was filed in 1996. Due to the uncertainties
inherent in the formal claims process, the Company has not recorded any
recoveries for unresolved claims in the accompanying financial statements.
Other
The Company has pending various legal actions arising in the normal course
of business. Management believes that none of these legal actions will have a
material impact on the Company's financial condition or operating results.
F-16
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--SALES
Net sales to customers in foreign countries amounted to $10,938,000,
$9,680,000 and $7,902,000 in fiscal years 1996, 1995 and 1994, respectively.
In fiscal years 1996, 1995 and 1994, foreign sales did not exceed 10% of
consolidated net sales in any individual geographic area.
Net sales to the U.S. Government for the Sensors and Systems segment's
products amounted to $25,986,000, $28,930,000 and $32,718,000 in fiscal years
1996, 1995 and 1994, respectively. Net sales to the U.S. Government for the
discontinued Defense Systems segment were $41,219,000, $44,012,00 and
$46,043,000 for fiscal years 1996, 1995 and 1994, respectively.
NOTE 13--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for
fiscal years 1996 and 1995:
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
THREE MONTHS ENDED
---------------------------------------------
DECEMBER 30, MARCH 30, JUNE 29, SEPTEMBER 28,
1995 1996 1996 1996
------------ --------- -------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales....................... $22,354 $24,708 $24,336 $25,348
Gross profit.................... 8,183 9,405 9,420 9,244
Income from continuing
operations..................... 649 767 1,019 438
Pro forma earnings from
continuing operations per
common and common equivalent
share.......................... $ 0.09 $ 0.11 $ 0.14 $ 0.06
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1, JULY 1, SEPTEMBER 30,
1994 1995 1995 1995
------------ -------- ------- -------------
<S> <C> <C> <C> <C>
Net sales......................... $20,840 $21,677 $23,809 $24,149
Gross profit...................... 7,888 7,355 9,088 9,303
Income(loss) from continuing
operations....................... 106 (145) 662 (1,587)(1)
</TABLE>
- --------
(1) Loss from continuing operations for the fourth quarter of fiscal 1995
includes after tax charges of $2.1 million related to the GPI
arbitration--(see Note 11).
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
THREE MONTHS ENDED
---------------------------------------------
DECEMBER 30, MARCH 30, JUNE 29, SEPTEMBER 28,
1995 1996 1996 1996
------------ --------- -------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $10,159 $12,841 $8,500 $11,135
Gross profit..................... 1,175 899 1,572 2,875
Income from discontinued
operations...................... 239 335 574 550
Pro forma earnings from
discontinued operations per
common and common equivalent
share........................... $ 0.03 $ 0.05 $ 0.08 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1, JULY 1, SEPTEMBER 30,
1994 1995 1995 1995
------------ -------- ------- -------------
<S> <C> <C> <C> <C>
Net sales.......................... $13,523 $12,646 $10,602 $8,810
Gross profit....................... 1,022 391 926 (2,177)
Income(loss) from discontinued
operations........................ 177 219 240 (1,713)(2)
</TABLE>
- --------
(2) Loss from discontinued operations for the fourth quarter of fiscal 1995
includes $750,000 related to the Company's decision to exit the rocket
manufacturing line of business and $910,000 related to an adjustment for
the estimated cost to complete the H 70 contract (see Note 2).
F-17
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("Statement 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Whenever possible, quoted market prices were used to develop fair
values. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets, and, in many cases, could not be realized in immediate settlement of
the instrument. Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company. The following methods and assumptions were used by the Company
in estimate its fair value disclosures for financial instruments as of
September 28, 1996, and as of September 30, 1995.
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Long-Term Debt: The fair value of these liabilities has been estimated based
upon the discounted future cash flows. The discount rate used included a risk
free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position. The fair value of
Electronics' long-term debt which has been allocated to the Company is
approximately $23,409,000 and $28,806,000 compared with the carrying amounts
of $24,137,000 and $29,765,000 at September 28, 1996 and September 30, 1995,
respectively.
NOTE 15--INTERCOMPANY TRANSACTIONS
Amounts payable to Electronics included in the combined balance sheets
represents net balances as the result of various transactions between
Electronics and Technologies. There are no terms of settlement associated with
the account balance. The balance results primarily from of the Company's
participation in Electronics' central cash management program, wherein the
Company's cash receipts are remitted to Electronics and cash disbursements are
funded by Electronics. Other transactions include the Company's share of the
current portion of Electronics consolidated federal and state income tax
liabilities, administrative and other expenses incurred by Electronics on
behalf of Technologies, and interest charges on a portion of the outstanding
balances.
Intercompany transactions are summarized follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance payable to Electronics at
beginning of year...................... $ 10,314 $ 17,727 $ 10,404
Net cash remitted to Electronics........ (13,404) (26,277) (22,537)
Net transfers of assets and liabilities. 2,976 (2,086) 1,648
Allocations of Electronics' current
federal and state tax liabilities...... (264) 2,161 1,891
Administrative and other expenses....... 18,105 18,879 14,656
-------- -------- --------
Balance payable to Electronics at end of
year................................... $ 17,727 $ 10,404 $ 6,062
======== ======== ========
Average balance during year............. $ 16,449 $ 14,418 $ 9,897
======== ======== ========
</TABLE>
F-18
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--SUBSEQUENT EVENT
On September 11, 1997, Technologies adopted the 1997 Equity Incentive Plan
which provides for the grant of stock options, restricted stock awards and
stock bonus awards. Technologies reserved 1,600,000 shares of its common stock
for issuance under the Plan, including 800,000 shares specifically reserved
for substitute options to be granted to option holders of Electronics.
F-19
<PAGE>
SCHEDULE II
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ------------------------- ---------- ----------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ----------- ---------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 28,
1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $395 $282 $ -- $70(A) $607
Valuation allowance
for deferred tax
assets............... 143 (49) -- 94
---- ---- ----- --- ----
Total............... $538 $282 $ (49) $70 $701
==== ==== ===== === ====
YEAR ENDED SEPTEMBER 30,
1995:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $315 $119 $ -- $39(A) $395
Valuation allowance
for deferred tax
assets............... -- 143 -- -- 143
---- ---- ----- --- ----
Total............... $315 $262 -- $39 $538
==== ==== ===== === ====
YEAR ENDED OCTOBER 1,
1994:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $314 $ 50 $ -- $49(A) $315
Valuation allowance
for deferred tax
assets............... -- -- -- -- --
---- ---- ----- --- ----
Total............... $314 $ 50 $ -- $49 $315
==== ==== ===== === ====
</TABLE>
- --------
(A) Miscellaneous adjustments to the allowance
(B) Adjustment based on evaluation of uncertainties in the realization of state
net operating loss carryovers
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Stockholders
BEI Electronics, Inc.
We have audited the combined financial statements of BEI Technologies, Inc.
as of September 28, 1996 and September 30, 1995, and for each of the three
years in the period ended September 28, 1996, and have issued our report
thereon dated November 20, 1996 except for Note 1 and first paragraphs of
Notes 2 and 7, as to which this date is June 30, 1997, and Note 16, as to
which the date is September 11, 1997. Our audits also included the financial
statement schedule listed in the Index to combined Financial Statements and
Schedule of this Form 10 Information Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic combined financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
Ernst & Young LLP
San Francisco, California
November 20, 1996
S-2
<PAGE>
ANNEX A
[LETTERHEAD HERE]
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.
SBC Warburg Dillon Read, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
For its services, SBC Warburg Dillon Read will receive a fee, part of which is
contingent upon the consummation of the Spin-Off.
In arriving at our opinion, we have: (i) conducted discussions with members
of the senior management of Electronics and with the senior management of
Technologies with regard to the business and prospects of each company; (ii)
analyzed certain historical business and financial information related to
Electronics and Technologies provided to us by Electronics management; (iii)
reviewed certain financial projections for Electronics and Technologies
provided to us by Electronics management; (iv) reviewed public information
relating to Electronics, including Electronics' Annual Report and Form 10-K
for the five fiscal years ended September 28, 1996; (v) reviewed public
information with respect to certain other companies engaged in businesses
which we believed to be generally comparable to certain of the businesses
conducted by Electronics and Technologies; (vi) reviewed the draft of the
Technologies Form 10 dated September 10, 1997 describing the Spin-Off; and
(vii) conducted such other studies, analyses and investigations and reviewed
such other economic and market data as we deemed necessary or appropriate.
We have, with your consent, assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by us
for the purposes of this opinion. With respect to the financial budgets and
forecasts, we have, at your direction, assumed that they have been reasonably
prepared on the bases reflecting the best currently available estimates and
judgments of the future financial performance of Electronics and Technologies.
We have not made any independent valuation or appraisal of the assets or
liabilities, contingent or otherwise, of Electronics or Technologies, nor have
we been furnished with any such evaluation or appraisal. Further, our opinion
is based on economic, monetary and market conditions existing on the date
hereof.
We have noted that Electronics, as a condition to the Distribution, expects
to receive an opinion from Davis, Polk & Wardwell to the effect that 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.
<PAGE>
In rendering our opinion we are not opining as to the price at which the
common stock of Electronics or Technologies will trade after the Spin-Off is
effected or as to the valuation or long-term viability of Electronics or
Technologies as independent public companies following the Spin-Off. This
opinion does not constitute a recommendation to any current or prospective
shareholder of either Electronics or Technologies as to any action or
investment decision such party or person may take.
Based upon and subject to the foregoing and recognizing that the proposed
Distribution is pro-rata to holders of Electronics shares, we are of the
opinion as of the date hereof that the proposed Spin-Off is fair, from a
financial point of view, to the holders of Electronics common stock.
Very truly yours,
SBC Warburg Dillon Read
By: _________________________________
Mr. Robert Moulton-Ely
