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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 3, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-22799
BEI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
(415) 956-4477
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of November 27, 1998 was $72,983,150(A). As
of November 27, 1998, 7,396,556 shares of Registrant's Common Stock were
outstanding.
(A) Based upon the closing sale price of the Common Stock on November 27, 1998
as reported on the NASDAQ National Market System. Excludes 1,557,904 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 27, 1998.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of Registrant, or that such person is
controlled by or under common control with Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement with respect to its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Items 10., 11., 12. and 13. of this
report.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business..............................................
Item 2. Properties...........................................
Item 3. Legal Proceedings....................................
Item 4. Submission of Matters to a Vote of Security Holders..
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters..........................
Item 6. Selected Financial Data..............................
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........
Item 8. Financial Statements and Supplementary Data..........
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure...............
PART III
Item 10. Directors and Executive Officers
of the Registrant....................................
Item 11. Executive Compensation...............................
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................
Item 13. Certain Relationships and Related Transactions.......
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..............................
Signatures .....................................................
<PAGE>
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 here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in Item 1, "Business" as well as Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PART I
ITEM 1. BUSINESS
Introduction
BEI Technologies ("Technologies" or the "Company") was incorporated in
Delaware in June 1997 and became publicly held on September 27, 1997 as a result
of the tax-free distribution of all of the outstanding common stock of
Technologies to the holders of record of BEI Electronics, Inc. (now named BEI
Medical Systems Company, Inc.) ("Electronics") common stock on September 24,
1997, on a basis of one share of Technologies common stock for every one share
of Electronics common stock outstanding on that date (the "Distribution".) For
further information including copies of the agreements governing ongoing
relationships between Technologies and Electronics, see the Form 10.
The principal business and continuing operations of Technologies are carried
out by its 100% owned subsidiary, BEI Sensors & Systems Company, Inc. ("Sensors
& Systems") which 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 information that is essential to logical, safe and efficient
operation of sophisticated machinery. Technologies' discontinued operations
consist of the operations of its wholly owned subsidiary, Defense Systems
Company ("Defense Systems").
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, and manufacture and sell
these with certain complimentary products. Finally, the Company will target
proprietary, high margin niche markets for subsystems and end products in which
its traditional sensors, micromachined 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 other 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' products 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 illustrative 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(R) quartz rate sensor. It might also provide motor-encoders and
actuators to drive the compensating action of such a system.
(4) Some luxury automobiles now have computer-controlled stability
enhancement systems to assist drivers in maintaining control of the vehicle in
slippery conditions. In some of these systems one of the Company's sensors tells
the computer system the present direction and angle of the steering wheels,
while another of the Company's sensors instantly measures and reports the
presence of "yaw" forces which--if not corrected--could cause the vehicle to
spin out or "fishtail". The automation system in this case relies on sensors to
compare the driver's indicated directions and the actual result. The system can
then take corrective action automatically. Here the Company provides special
GyroChip quartz sensors as well as encoder and potentiometer combinations.
(5) Advanced engine control systems in tractors, trucks, and materials
handling and construction equipment need to know throttle position data in order
to assure efficient and clean combustion and safe and reliable gear changes and
other automated functions. The Company's potentiometers provide the necessary
throttle position data.
(6) Semiconductor production equipment requires extremely fast yet accurate
control of start-move-stop action on x-y positioners and tools. The Company's
magnetic actuators provide the energizing force for such tasks and its linear
encoders can measure travel and location.
(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 products 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 applications.
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 8,200 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 more than 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 22%
of the Company's sales in fiscal 1997, 27% in fiscal 1996 and 32% in fiscal
1995. No commercial customer accounted for more than 10% of sales in fiscal year
1997, 1996 or 1995. The Company sold approximately 12% of its products in
international markets. The Company has initiated actions which it believes will
increase its penetration of international markets in fiscal year 1997.
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 proprietary 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. Traditional sensors and complementary products,
2. Micromachined sensors, and
3. Engineered Subsystems (such as inertial measurement units, electronic
servo control systems, cryocoolers, scanner assemblies and trackballs)
A more detailed description of the products and systems designed,
manufactured and sold by the Company follows below:
Traditional Sensors and Complementary Products:
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.
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 respiration
therapy equipment where the risk of dust from a brush motor could be troublesome
or where electrical noise could disrupt computers or computer-controlled
equipment.
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.
Magnetic Actuators. Magnetic actuators are used in place of cams 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.
Accelerometers. Accelerometers and rate sensors using traditional
mechanical 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.
Linear Encoders. Linear encoders give very high accuracy, scale-based
optical measurement of linear travel over distances ranging from a few
millimeters to tens of meters. The Company has recently commenced exclusive
marketing in North America of linear encoders developed by the well known German
optical company, Carl Zeiss.
Micromachined Sensors:
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. 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 to accommodate the need for reliable and high
precision yet economical gyros, have found use in such varied requirements as
navigation of autonomous (robotic) guided vehicles, ocean buoy and sea-state
monitoring, and stabilization of pointing systems for antennas and optical
systems. The most frequent use of GyroChip units is as yaw sensors in stability
control or spin-out prevention systems for automobiles. GyroChip sensors provide
performance suitable for commercial applications while offering ruggedness,
longer life and smaller size at a lower cost than military versions of quartz
rates sensors.
Pressure Sensors. Pressure sensors measure absolute or differential
pressure from vacuum to 10,000 psi. Various sensing technologies are used
including silicon micromachined structures used for commercial and industrial
markets. The Company provides standard products as well as application specific
solutions to pressure measurement requirements.
Micro-Electromechanical Structures (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 the
Company's MEMS research and development programs to lead to new devices for
sensing motion, pressure and other physical parameters.
Engineered Subsystems:
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 sells.
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.
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
noting a desired rate of movement or position (usually input from computers or
keyboards), monitoring the actual position or rate of movement (using an
appropriate encoder or other sensor) and constantly providing feedback that
indicates whether further action is required to achieve or maintain the desired
performance has been achieved.
Trackballs. BEI's trackballs have flexible and rugged designs that allow
them to be an integral part of a keyboard as well as stand-alone cursor
positioners. They are used in ultra-sound scanning machines, factory automation
and defense applications. The flexibility is provided by the interface
electronics design that accommodates various standard and customized interfaces
and rugged performance is provided by a proprietary ball sealing technique that
allows operation in harsh environments.
Backlog
Backlog of the Company's continuing business, Sensors & Systems, at
September 27, 1997 and at September 28, 1996, was $46,696,000 and $39,832,000,
respectively.
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.
Backlog includes aggregate contract revenues remaining to be earned by the
Company principally over the next twelve months of scheduled deliveries under
existing contracts. Some contracts undertaken by Sensors & Systems extend beyond
one year. Accordingly, portions of certain contracts are carried forward from
one year to the next as part of backlog. Approximately 88% of the backlog as of
September 27, 1997 is scheduled for shipment during fiscal 1998; all of the
remainder of the backlog is scheduled for shipment during fiscal 1999.
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., Honeywell, Litton and Panasonic. There are
smaller or product-specific companies, some of whose products compete include
Axsys Technologies, CTS Corp., Dynamics Research Corp., Heidenhain, Kollmorgen,
Kulite Semiconductor, Pacific Scientific, and Servo Magnetics Corp.
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.
The Company's production of automotive yaw sensors requires scaling-up its
normal production to the quantities required by the automobile market. The
Company has initiated production engineering measures to support the
fabrication, assembly, and testing of new sensors in the appropriate quantities.
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 and utilizing the Company's various complimentary products to
create the capability to electronically stabilize platforms.
The Company has also produced prototypes of future products incorporating
silicon micro-electromechanical structures (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
Management of the Company believes that its future success will depend in
part on its ability to continue to enhance its existing products, and to develop
and introduce new products that maintain technological leadership, meet a wider
range of customer needs and achieve market acceptance. Accordingly, the
Company's internally funded research, development and related engineering
expenditures were approximately $4.9 million, $3.6 million and $4.0 million in
fiscal 1997, 1996, and 1995, respectively. In addition, customer funded research
and development expenditures charged to cost of sales were $1.1 million, $3.0
million and $6.3 million, respectively, for the same periods. Development of the
quartz rate sensor comprised most of prior years' customer funded research and
development expenditures. As these sensors have gone from development to
production, there has been a corresponding decrease in customer funded research
and development expenditures.
Employees
As of September 27, 1997, the units comprising Technologies had 977
employees, including 122 in research, development and engineering, 77 in
administration, 72 in marketing and sales, and 706 in operations. The Company
believes that its continued success depends on its ability to attract and retain
highly qualified personnel. The Company's employees are not covered by
collective bargaining agreements. The Company has not experienced any work
stoppages and considers its relationship with its employees to be good.
Intellectual Property
The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive position. In addition the Company and its subsidiaries
own 79 U.S. patents and 45 foreign patents with expiration dates ranging from
December 1997 to October 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.
Government Regulation
The Company is subject to significant regulation by the U.S. Government
with respect to a variety of matters affecting its business, including the
matters set forth below and as discussed in the "Risk Factors--Contracting with
the U.S. Government" below.
Facility Security Clearance
The Company has several facility security clearances from the U.S.
Government. A portion of the Company's net sales in fiscal 1997, 1996 and 1995
was derived from work for which this clearance was required. Continuation of
this clearance requires that the Company remain free from foreign ownership,
control or influence (FOCI). In addition, the Company is required to comply with
the regulations promulgated by the Defense Investigative Service (DIS), which
relate, in large part, to the Company's control of classified documents and
other information. Management does not believe that there is presently any
substantial risk of FOCI or DIS noncompliance that would cause any of its
security clearances to be revoked.
Regulation of Foreign Sales
Certain of Sensors and Systems' exports are subject to restrictions
contained in the U.S. Department of State's International Traffic in Arms
Regulations and require export licenses in order to be sold abroad. Non-defense
related foreign sales are generally governed by the Bureau of Export
Administration of the U.S. Commerce Department which also frequently requires
export licenses. The Company's net sales from continuing operations to foreign
customers constituted approximately 11.8%, 11.3% and 11.0% of revenues for
fiscal 1997, 1996 and 1995, respectively. To date, the Company has not
experienced any significant difficulties in obtaining the requisite licenses. In
addition, the Company is subject to the Foreign Corrupt Practices Act, which
prohibits payments or offers of payments to foreign officials for the purpose of
influencing an act or decision by a foreign government, politician or political
party in order to assist in obtaining, retaining or directing business to any
person.
RISK FACTORS
Competition
Competitors for various products offered by Technologies are noted above
under "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.
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 "Business--Employees" and "Business--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 or provided to
Technologies' specifications. Such components include quartz, supplied by Sawyer
Research Products, Inc.; scanner motors, supplied by Litton Industries, Inc.;
three types of ASIC's, supplied by National Semiconductor Corporation, Honeywell
Inc. and Semtech Corp.; and two types of LED's, supplied by Optek Technology,
Inc. and Opto Diode Corp. While the Company currently relies on single suppliers
for these components, in each instance, the Company is aware of alternative
suppliers and believes the components could be manufactured by these alternative
suppliers with minimal supply reduction should the need arise to change vendors.
To date, the Company has not experienced any significant interruptions in the
supply of these components, but there can be no assurance that there will not be
a significant disruption in the supply of such components in the future, or in
the event of such disruption, that the Company will be able to locate
alternative suppliers of the components with the same quality at an acceptable
price. An interruption in the supply of components used in the manufacture of
the Company's products, particularly as the Company scales up its manufacturing
activities in support of commercial sales, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Contracting with the U.S. Government
Approximately 22%, 27% and 32% of the net sales of units comprising the
continuing operations of Technologies in fiscal 1997, 1996 and 1995,
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 3% of the Company's
net sales from continuing operations in fiscal 1997. For fixed price contracts,
the Company bears the 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.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of
December 1, 1998 are as follows:
Name Age Position
- ----------------------------------- ------ ----------------------------------
Charles Crocker................. 59 President, Chief Executive Officer
and Chairman of the Board of
Directors
Gary D. Wrench.................. 65 Senior Vice President, Chief
Financial Officer and Director
Dr. Asad Madni.................. 51 Vice President and Director
Richard M. Brooks(1)(2)......... 70 Director
George S. Brown(2).............. 77 Director
C. Joseph Giroir, Jr.(1)(2)..... 59 Director
Dr. William G. Howard, Jr.(1)... 57 Director
Dr. Robert Mehrabian(1)......... 57 Director
Dr. Lawrence A. Wan............. 60 Vice President, Chief Technical
Officer
Robert R. Corr.................. 52 Secretary, Treasurer & Controller
- ---------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Directors
Mr. Crocker began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He was a founder of Electronics and has served as
Chairman of the Board of Directors of Electronics since October 1974 and
Chairman of the Board of Directors of Technologies since October 1997.
Mr. Crocker assumed the positions of President and Chief Executive Officer
of Technologies, effective October 1, 1997, after resigning as President
and CEO of Electronics as a result of 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 a M.B.A. from the University of
California, Berkeley.
Mr. Wrench began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He was Senior Vice President and Chief Financial Officer
of Electronics from July 1993 until his resignation as a result of the
Distribution. He currently holds these same positions with Technologies.
He served as a Director of Electronics since February 1986, and continues
to serve as a director of both Electronics (now named BEI Medical Systems
Company, Inc.) and Technologies. 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. Mr. Wrench holds a
B.A. from Pomona College and a M.B.A. from the University of California,
Los Angeles.
Dr. Madni began serving as a Director and as a Vice President of the
Company in June 1997 prior to the Distribution and resulting spin-off of
the Company from Electronics in September 1997. 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 had been 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. He is also a graduate of the Program for Senior Executives
from the Massachusetts Institute of Technology, Sloan School of
Management. He is a fellow of the Institute of Electrical and Electronics
Engineers.
Mr. Brooks is currently an independent financial consultant. He began
serving as a Director in June 1997 prior to the Distribution and resulting
spin-off of the Company from Electronics in September 1997. From 1987
until his resignation as a result of the Distribution, he served as a
director of Electronics. 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 a M.B.A. from the University of California,
Berkeley.
Mr. Brown began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He served as a director of Electronics from October 1974
until his resignation as a result of the Distribution. Mr. Brown served
as President and Chief Executive Officer of Electronics from October 1974
until July 1990. 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. Giroir began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He was a director of Electronics from 1978 until his
resignation as a result of the Distribution. He served as Secretary of
Electronics from 1974 to early 1995. He is currently of counsel of the
law firm of Giroir, Gregory, Holmes & Hoover, PLC. Mr. Giroir is also
President of Arkansas International Development Corporation II, LLC. 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. Howard began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He was a director of Electronics from December 1992 until
his resignation as a result of the Distribution. He is currently an
independent consulting engineer in microelectronics and technology-based
business planning. From 1987 to 1990, Dr. Howard served as Senior Fellow
of the National Academy of Engineering and, prior to that time, held
various technical and management positions with Motorola, Inc., most
recently as Senior Vice President and Director of Research and
Development. He currently serves as Chairman of RAMTRON International
Corp. and as a director of Credence Systems, Inc., VLSI Technologies,
Inc., and Xilinx, Inc. Dr. Howard holds a B.E.E. and a M.S. from Cornell
University and a Ph.D. in electrical engineering and computer sciences
from the University of California, Berkeley.
Dr. Mehrabian began serving as a Director in June 1997 prior to the
Distribution and resulting spin-off of the Company from Electronics in
September 1997. He was a director of Electronics from June 1997 until his
resignation as a result of the Distribution. He is Executive Vice
President and Executive in charge of the Aeronautics, Electronic and
Industrial segments of Allegheny Teledyne, Inc. From 1990 through June
1997, he was president of Carnegie Mellon University. He is an
internationally recognized materials scientist, with numerous awards
including membership in the National Academy of Engineering. He serves on
the boards of directors of Allegheny Teledyne, Inc., Mellon Bank
Corporation, Mellon Bank, N.A., and PPG Industries. Dr. Mehrabian holds
B.S. and Sc.D. degrees from Massachusetts Institute of Technology (MIT).
Staggered Board of Directors
The Company has a staggered 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 Class II directors to expire at the 1999 annual meeting of
stockholders, and the term of office of the Class III directors to expire
at the 2000 annual meeting of stockholders and the term of office of the
Class I directors to expire at the 2001 annual meeting of stockholders.
Class II consists of Mr. Giroir, Dr. Madni and Mr. Wrench; Class III
consists of Mr. Brooks, Dr. Howard and Dr. Mehrabian and Class I consists
of Mr. Brown and Mr. Crocker. 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 between any of
the officers and directors.
Executive Officers
In addition to Messrs. Crocker and Wrench and Dr. Madni, whose
positions with Technologies, experience and educational background are
described under Directors above, the following persons are also
Executive Officers of Technologies:
Dr. Wan is Vice President of Engineering for Sensors & Systems and is
President of Sensors & Systems subsidiary, SiTek Inc. Dr. Wan served as
Vice President, Corporate Technology for Electronics from April 1991 until
the Distribution in September 1997. Dr. Wan resigned from his current
position with Electronics immediately prior to the Distribution and is now
Vice President, and Chief Technical Officer for Technologies and a
director of Electronics (now named BEI Medical Systems Company, Inc.).
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 B.S., M.S. and Ph.D. degrees in Engineering and Applied Sciences
from Yale University.
Mr. Corr became Secretary, Treasurer and Controller of Technologies in
September 1997 and held these same positions with Electronics prior to the
Distribution in September 1997. Mr. Corr resigned from his positions
with Electronics immediately prior to the Distribution. Mr. Corr was
named Secretary of Electronics in February 1995 and served as Controller
from November 1989 and as Treasurer from November 1987 until 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 LLP. Mr. Corr
received a B.B.A. from Loyola University and is a Certified Public
Accountant in the State of California.
<PAGE>
ITEM 2. PROPERTIES
The Company's 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 ten other facilities that 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. In addition
to its executive offices, the Company's principal facilities are as follows:
Location Description of Facility
- --------------------------- ----------------------------------------------
Maumelle, Arkansas Owned 50,000 square foot manufacturing,
engineering, administrative and research and
development facility.
Concord, California Owned 101,000 square foot manufacturing,
engineering and administrative facilities.
Sylmar, California Subleased 83,000 square foot manufacturing,
engineering and administrative facility.
Tustin, California Leased 80,000 square foot manufacturing,
engineering and administrative facility.
San Marcos, California Leased 35,000 square foot manufacturing,
engineering and administrative facilities.
Goleta, California Owned 22,000 square foot manufacturing,
engineering and administrative facility.
Campbell, California Subleased 5,000 square foot manufacturing,
administrative and research and development
facility.
Hayward, California Leased 2,330 square foot engineering facility.
engineering and administrative facilities.
Euless, Texas Owned 72,000 square foot manufacturing,
engineering and administrative facility and
subleased 2,000 square foot warehouse, used
primarily for record storage.
Strasbourg, France Leased and subleased 20,000 square foot
manufacturing, engineering and administrative
facility.
<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On September 26, 1997, Technologies issued and sold 7,114,803 shares of
common stock to Electronics in exchange for those assets of Electronics
which were not related to Electronics' medical device business, and on
September 27, 1997, pursuant to Division of Corporation Finance Staff
Legal Bulletin No. 4 dated September 16, 1997, all of the outstanding
common stock of Technologies was distributed by Electronics to its
stockholders, on the basis of one share of Technologies common stock
received for each share of Electronics common stock held on that date.
For further discussion of this transaction see the Form 10.
The Company's common stock commenced regular way trading on the NASDAQ
National Market System under the symbol "BEIQ" on October 8, 1997. Set
forth below are the high and low closing sale prices on the National
Market System for the periods indicated. Such quotations do not reflect
retail mark-ups, markdowns or commissions.
<TABLE>
<CAPTION>
1998 Fiscal year Cash Dividend
(ended 10/03/98) High Low Declared
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fourth Quarter $14.88 $6.00 $0.02
Third Quarter $19.63 $14.25 $0.02
Second Quarter $18.31 $11.88 $0.02
First Quarter $13.75 $11.63 $0.02
</TABLE>
As of November 27, 1998, there were approximately 1,200 holders of record
of the Company's common stock. The Board of Directors has declared and
the Company has paid three cash dividends of $0.02 per share of common
stock in fiscal 1998. The Board of directors has declared a dividend of
$.02 per share of common stock payable to stockholders of record at
December 4, 1998, on December 22, 1998. Payment of dividends is within
the discretion of the Company's Board of Directors, will be subject to
periodic review and will depend, among other factors, upon the earnings,
capital requirements, operating results and financial condition of the
Company from time to time. There are no restrictions on the Company's
ability to pay dividends provided the covenants set forth in its bank
credit agreement and Senior Note Agreement are met (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- - Liquidity and Capital Resources" and Note 5 to the Consolidated
Financial Statements). The covenants primarily concern certain operating
ratios and minimum balances of tangible net worth.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five fiscal years presented below is derived
from the audited Consolidated Financial Statements of the Company. The data
should be read in conjunction with the Consolidated Financial Statements and
their related Notes, and the other financial information included therein.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended
-----------------------------------------------------------------------
October 3, September 27, September 28, September 30, October 1,
1998 1997 1996 1995 1994
- -------------------------------- ------------ ------------- ------------- ------------- ------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales....................... $124,264 $101,539 $96,746 $90,475 $82,361
Net income(loss) from
continuing operations....... 2,515 2,997 2,873 (964) 321
Dilute earnings(loss) from
continuing operations....... 0.35 0.42 0.40 (0.14) 0.05
Weighted average shares used in
computing diluted earnings
per share................... 7,274 7,067 6,978 6,759 6,807
Balance Sheet Data:
Working capital................. $36,124 $26,967 $27,775 $29,774 $39,179
Total assets.................... 109,515 94,855 92,171 92,418 97,852
Long-term debt (excluding
current portion)............ 37,157 27,508 24,137 29,765 29,860
Stockholders' equity............ 40,194 36,617 33,246 28,863 30,928
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 7. 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, but
are not limited to, those discussed in this section and "Business."
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items in the Company's
Consolidated Statements of Operations. The table and the accompanying
analysis covers periods in which the businesses now carried on by
Technologies were operated by Electronics. However, the table and
analysis have been prepared as if the Company and its businesses were a
separate entity for all periods discussed.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 3, September 27, September 28,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0%
Cost of sales....................... 68.9% 64.3% 62.5%
------------ ------------ ------------
Gross profit........................ 31.1% 35.7% 37.5%
Operating expenses:
Selling, general and
administrative expenses......... 20.5% 24.6% 27.0%
Research, development and
related expenses................ 5.1% 4.8% 3.7%
------------ ------------ ------------
Income from operations.............. 5.5% 6.3% 6.8%
Other income........................ 0.4% 0.3% 0.2%
Interest expense.................... -2.4% -1.9% -2.4%
------------ ------------ ------------
Income (loss) before income taxes... 3.5% 4.7% 4.5%
Income taxes (benefit).............. 1.5% 1.9% 1.5%
------------ ------------ ------------
Income (loss) from continuing
operations........................ 2.0% 2.9% 3.0%
Income (loss) from discontinued
operations, net of income
taxes............................. 0.1% 1.6% 1.7%
------------ ------------ ------------
Net income (loss)................... 2.1% 4.5% 4.7%
============ ============ ============
</TABLE>
Continuing Operations
Net Sales
In fiscal 1998, net sales from continuing operations increased 22.4%
to $124.3 million from $101.5 million in fiscal 1997, reflecting increases
in sales of automotive quartz rate sensors ("AQRS"), and traditional
motion control products, primarily potentiometers and actuators.
In fiscal 1997, net sales from continuing operations increased 5.0% to
$101.5 million from $96.7 million in fiscal 1996. This increase reflects
the continued growth in sales to commercial customers, including those for
industrial, automotive and medical markets offset by decreased sales for
government programs.
The Company's sales to international customers were approximately
14.0%, 11.8%, and 11.3% of the Company's net sales from continuing
operations for fiscal 1998, 1997 and 1996, respectively. A significant
portion of shipments of automotive quartz rate sensors for Continental
Teves, which began volume deliveries in the fourth quarter of fiscal 1998,
are international shipments and are expected to have a significant impact
on net sales in fiscal 1999.
Cost of Sales and Gross Profit
In fiscal 1998, cost of sales as a percentage of net sales increased
4.6 percentage points due primarily to start up costs associated with
increased production needs for AQRS. Based upon projections of future
demand for the AQRS product provided by customers, the Company incurred
significant hiring, training, test production and qualification costs in
the second half of fiscal 1998 associated with increasing the Company's
AQRS manufacturing capacity in the fourth quarter of fiscal 1998. In
addition, the shut down and start up of AQRS production caused by the
General Motors strike and a resultant decrease in deliveries for six weeks
of the fourth quarter 1998 had a negative impact on the quarter.
Fiscal 1997 cost of sales as a percentage of net sales increased 1.8%
compared with fiscal 1996 due primarily to costs associated with the start
up of production for new automotive sensors and cryocoolers, as well as
unfavorable changes in product mix.
Downward pressure on gross profit margins continues for both commercial
and government contracts. Management continues to implement 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 20.5%, 24.6%, and 27.0% in fiscal
1998, 1997 and 1996, respectively.
Fiscal 1998 selling, general and administrative expenses increased $0.5
million from $25.0 million in fiscal 1997 to $25.5 million in fiscal 1998
due primarily to spending to support all growing product areas, primarily
AQRS and precision potentiometers.
Fiscal 1997 selling, general and administrative expenses decreased $1.2
million from $26.2 million in fiscal 1996 to $25.0 million due primarily
to increased efforts to control corporate costs.
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
5.1%, 4.8% and 3.7% for fiscal 1998, 1997 and 1996, respectively.
Research and development expenses in fiscal 1998 increased 31.7%
reflecting primarily additional funding for micro-electromechanical
systems (MEMS) product development for a variety of markets.
Research and development expenses increased 34.9% in fiscal 1997 from
fiscal 1996 reflecting the Company's continued emphasis on developing new
products for commercial markets. Product programs included work on
silicon MEMS, stabilized platforms, and sensors for stability control
systems.
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 expenses associated with such efforts 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 $2.9 million, $1.9 million and $2.4 million in
fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, interest
expense primarily related to the Company's line of credit. In fiscal 1997
and 1996, interest expense primarily related to the Senior Note debt
assumed by Technologies from Electronics in the Distribution.
Other income in fiscal 1998, 1997 and 1996 was comprised of royalty
income and interest income earned on highly liquid investments. Other
income as a percentage of sales was approximately 0.4% in fiscal 1998 and
has remained flat since fiscal 1995.
Income Taxes
The Company's effective tax rate was 41.8%, 37.4% and 33.0% for fiscal
1998, 1997 and 1996, respectively. The effective tax rate primarily
reflects the statutory federal tax rate and the weighted average tax rate
of the states in which the Company conducts business. The fiscal 1998
rate increased from the fiscal 1997 tax rate primarily due to an increase
in the Company's state taxes subsequent to its spin-off from Electronics.
The fiscal 1996 tax rate reflects the realization of federal and state
tax credits for research and development.
Deferred Income Taxes
At October 3, 1998, the Company had net current deferred income tax
assets of $4.8 million and net non-current deferred income tax assets of
$1.0 million. Realization of the net deferred tax assets is dependent
upon the Company generating sufficient taxable income in future years to
obtain benefit from the reversal of the underlying temporary differences.
Discontinued Operations
Income for Defense Systems was $0.1 million, $1.6 million and $1.7
million in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998
income reflects the wind-down of rocket operations as a result of
discontinuing these activities. The fiscal 1997 income reflects follow-on
orders for electronics products to support customers' requirements. The
fiscal 1996 income reflects the receipt of a $3.6 million pre-tax
settlement for a prior year Hydra 70 rocket manufacturing contract (see
Note 2 to the Consolidated Financial Statements.)
Liquidity and Capital Resources
In connection with the Distribution in fiscal 1997, the Company assumed
existing indebtedness of Electronics consisting of $22.4 million of Senior
Notes. In order to support its initial funding needs, Sensors & Systems
borrowed $9.0 million from a bank on a short-term line of credit which it
transferred to Electronics prior to the Distribution to repay a portion of
amounts payable to Electronics. Subsequent to the Distribution, early in
fiscal 1998, Technologies established a $25.0 million line of credit with
the same bank under which it borrowed $13.0 million to repay the $9.0
million borrowed by Sensors & Systems and make a scheduled payment on the
Senior Notes. Subsequent to fiscal 1998 year end, on December 16, 1998,
the Company established a new $12.0 million, two-year line of credit with
a bank and terminated the borrowings under the $25.0 million line referred
to above (see Note 5 to the Consolidated Financial Statements).
During fiscal 1998, operations provided $3.1 million in cash, including
cash provided by discontinued operations of $1.1 million. Net income of
$2.7 million plus non-cash charges for depreciation and amortization of
$4.5 million and $1.8 million, respectively, and net increases in accounts
payable, accrued expenses and other liabilities of $3.3 million were
partially offset by increases in trade receivables and deferred tax assets
of $4.4 million and $1.2 million, respectively, and inventory purchases of
$5.2 million.
Investing activities in fiscal 1998 consisted primarily of the purchase
of $6.9 million in capital equipment to support new commercial product
production, primarily production of automotive sensors. An additional
$1.6 million in cash partially funded the acquisition of Ideacod, S.A., a
French sensor manufacturer, which expands the Company's European presence.
Fiscal 1998 financing activities included proceeds of $22.0 million
from long-term debt on the line of credit and proceeds of $0.8 million
from common stock issuances. Offsetting these proceeds were repayments of
$9.0 million on the short-term line of credit and $9.1 million of
scheduled principal payments on long-term debt. Dividend payments used an
additional $0.6 million of cash. Subsequent to fiscal year end 1998, on
November 16, 1998, the Company issued new senior notes, paid off the pre-
existing senior notes and paid down the outstanding borrowings on the
Company's long-term line of credit as they matured (see Note 5 to the
Consolidated Financial Statements).
The Company anticipates that its existing capital resources, including
cash provided by operating activities and available bank borrowings, will
be adequate to fund the Company's operations for at least the next twelve
months.
Year 2000 Compliance: Modification of Management Information Systems
The Company is evaluating the potential impact of what is commonly
referred to as the "Year 2000" issue, concerning the possible inability of
certain information systems to properly recognize and process dates
containing Year 2000 and beyond. If not corrected, these systems could
fail or create erroneous results. The Company has completed an assessment
of its products and, at this time, does not believe its products present
any Year 2000 issues.
The Company's management information systems primarily use software
products purchased from commercial sources without significant
modification or customization. Updates to these products are routinely
installed by the Company to upgrade its systems and correct known faults
in the software. All major systems were reviewed during the fourth
quarter of fiscal 1998 for Year 2000 issues by an outside consultant and
a report was issued to the Board. Where necessary, the requirements for
upgraded hardware and software are in the process of implementation by all
operating units and completion is expected by June 1999. One operating
unit is in the process of converting its existing manufacturing and
financial systems, including new hardware, and expects to be finished in
September 1999. Approximately $100,000 was incurred for the study and no
other significant incremental costs were identified with non-routine
updates that specifically addressed only Year 2000 compliance. Based on
currently available information, management does not believe the Year 2000
matters discussed above related to internal systems or products sold to
customers will have a material adverse impact on the Company's financial
condition or operations; however, it is uncertain to what extent the
Company may be affected by such matters. In addition, there can be no
assurance that the failure to ensure Year 2000 capability by a supplier or
another third party would not have a material adverse effect on the
Company.
Effects of Inflation
Management believes that, for the periods presented, inflation has not
had a material effect on the Company's operations.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in the form of changes in
foreign exchange rates and changes in the prices of marketable equity
securities held as part of a deferred compensation plan (a "Rabbi" trust).
The Company has approximately $1,700,000 (translated from French
francs at October 3, 1998) permanently invested in the assets of its
acquisition in Strasbourg, France. The potential loss in fair value
resulting from a hypothetical 10% adverse change in the foreign currency
exchange rate amounts to $170,000, which would not be material to the
consolidated financial statements.
The Rabbi trust assets, consisting of cash equivalents and debt and
equity securities, are offset by an equivalent deferred compensation
liability to the trust participants. The liability fluctuates equally
with changes in the value of the assets. Since the liability completely
offsets the assets of the trust, changes in asset value have no effect on
the Company's results of operations or financial position.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 3, September 27,
dollars in thousands except share amounts 1998 1997
- ------------------------------------------------------ ----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $3,557 $5,034
Investments........................................... 5,419 5,446
Trade receivables:
Commercial customers, less allowance for
doubtful accounts (1998--$509; 1997--$363)...... 18,201 12,917
United States Government........................... 5,274 4,324
----------- ------------
23,475 17,241
Inventories--Note 3................................... 29,623 22,656
Deferred income taxes--Note 6......................... 4,757 4,579
Other current assets.................................. 1,078 1,039
Current assets of discontinued operations--Note 2..... -- 1,418
----------- ------------
Total current assets.................................. 67,909 57,413
----------- ------------
Property, plant and equipment--Notes 5 and 10
Land.................................................. 4,588 4,093
Structures............................................ 13,290 8,936
Equipment............................................. 50,386 41,611
Leasehold improvements................................ 1,316 1,036
----------- ------------
69,580 55,676
Less allowances for depreciation and amortization..... 38,961 30,315
----------- ------------
30,619 25,361
----------- ------------
Other assets
Tradenames, patents and related assets, less
amortization (1998--$2,700; 1997--$2,521)........... 1,583 1,753
Technology acquired under license agreements,
less amortization (1998--$5,192;
1997--$4,231)....................................... 5,015 5,977
Goodwill, less amortization (1998--$458; 1997--$393).. 1,876 654
Deferred income taxes, non-current.................... 993 --
Non-current assets of discontinued operations--Note 2. -- 1,625
Other................................................. 1,520 2,072
----------- ------------
10,987 12,081
----------- ------------
$109,515 $94,855
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
October 3, September 27,
dollars in thousands except share amounts 1998 1997
- ------------------------------------------------------ ----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable................................ $13,014 $6,317
Accrued expenses and other liabilities--Note 4........ 13,125 10,497
Deferred compensation liability....................... 5,419 5,446
Current portion of long-term debt--Note 5............. 227 5,628
Current liabilities of discontinued
operations--Note 2.................................. -- 2,558
----------- ------------
Total current liabilities............................. 31,785 30,446
Long-term debt, less current portion--Note 5.......... 37,157 27,508
Other liabilities..................................... 379 284
Commitments and contingencies--Notes 2, 9, 10 and 11 -- --
Stockholders' equity--Notes 7 and 8
Preferred stock
($.001 par value; authorized 2,000,000 shares;
none issued)..................................... -- --
Common stock
($.001 par value; authorized 20,000,000
shares; issued and outstanding;
1998--7,366,556; 1997--7,114,813).................. 2,132 7
Retained earnings..................................... 40,080 38,003
Accumulated other comprehensive income................ 39 --
----------- ------------
42,251 38,010
Less: Unearned restricted stock--Note 8.............. (2,057) (1,393)
----------- ------------
Total stockholders' equity............................ 40,194 36,617
----------- ------------
$109,515 $94,855
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended
- --------------------------------------------------------------------------------
dollars in thousands except share and per October 3, September 27, September 28,
share amounts 1998 1997 1996
- ---------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net sales -- Note 2................. $124,264 $101,539 $96,746
Cost of sales -- Note 2............. 85,562 65,291 60,494
------------ ------------ ------------
Gross profit........................ 38,702 36,248 36,252
------------ ------------ ------------
Selling, general and
administrative expenses......... 25,491 24,959 26,157
Research, development and
related expenses................ 6,410 4,866 3,608
------------ ------------ ------------
31,901 29,825 29,765
------------ ------------ ------------
Income from operations.............. 6,801 6,423 6,487
Other income........................ 445 304 242
Interest expense.................... (2,924) (1,942) (2,444)
------------ ------------ ------------
Income before income taxes... 4,322 4,785 4,285
Income taxes -- Note 6.... 1,807 1,788 1,412
------------ ------------ ------------
Income from continuing
operations........................ 2,515 2,997 2,873
Income from discontinued
operations, net of income
taxes -- Note 2................... 142 1,586 1,698
------------ ------------ ------------
Net income ......................... $2,657 $4,583 $4,571
============ ============ ============
Basic Earnings Per Share -- Note 15
Income from continuing
operations per common share -- Note 7 $0.36 $0.44 $0.43
Income from discontinued
operations per common share -- Note 7 0.02 0.23 0.25
------------ ------------ ------------
Net income per common share -- Note 7 $0.38 $0.67 $0.68
============ ============ ============
Shares used in computing basic earnings
per share 7,012,250 6,816,286 6,737,083
============ ============ ============
Diluted Earnings Per Share -- Note 15
Income from continuing operations per common
and common equivalent share -- Note 7 $0.35 $0.42 $0.41
Income from discontinued operations per common
and common equivalent share -- Note 7 0.02 0.22 0.24
------------ ------------ ------------
Net income per common and common
equivalent share -- Note 7 $0.37 $0.64 $0.65
============ ============ ============
Shares used in computing diluted earnings
per share -- Note 7 7,274,035 7,066,560 6,977,788
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------
October 3, September 27, September 28,
dollars in thousands 1998 1997 1996
- ---------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................ $2,657 $4,583 $4,571
Adjustments to reconcile net
income to net cash provided
by operating activities:
Discontinued operations................ 1,111 3,513 5,954
Depreciation........................... 4,537 4,304 4,204
Amortization........................... 1,789 1,636 1,711
Deferred income taxes.................. (1,171) (2,727) 675
Other.................................. 84 (672) (121)
Changes in operating assets and
liabilities:
Trade receivables...................... (4,383) (604) (835)
Inventories............................ (5,190) (3,455) (2,229)
Other current assets................... 98 886 80
Trade accounts payable, accrued
expenses and other liabilities..... 3,260 (1,744) (479)
----------- ------------ ------------
Net cash provided by operating
activities......................... 2,792 5,720 13,531
----------- ------------ ------------
Cash flows from investing activities:
Acquisition of a business, net of cash
acquired............................ (1,627) -- --
Purchase of property, plant and
equipment........................... (6,890) (6,761) (3,624)
Other.................................. (128) 28 44
----------- ------------ ------------
Net cash used by investing activities.. (8,645) (6,733) (3,580)
----------- ------------ ------------
Cash flows from financing activities:
Borrowings on short-term debt.......... -- 9,000 --
Principal payments on short-term debt (9,000) -- --
Proceeds from long-term debt 22,017 -- --
Principal payments on long-term debt
and other liabilities.............. (9,093) (26) (75)
Proceeds from issuance of common stock 768 -- --
Tax benefit from exercised stock options 264 -- --
Payment of cash dividends (580) -- --
Decrease in payable to BEI
Electronics, Inc................... -- (11,128) (4,342)
----------- ------------ ------------
Net cash used by financing activities.. 4,376 (2,154) (4,417)
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (1,477) (3,167) 5,534
Cash and cash equivalents at beginning
of year............................ 5,034 8,201 2,667
----------- ------------ ------------
Cash and cash equivalents at end
of year............................ $3,557 $5,034 $8,201
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BEI Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------- ------------ ------------ ---------------------
Accumulated
Other Unearned
Common Retained ComprehensiveComprehensiveRestricted
dollars in thousands Stock Earnings Income Income Stock Total
- ----------------------------------- --------- ----------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 for 1997................. 4,583 4,583
Restricted Stock Plan--Note 8 (475) (475)
Common stock issued in connection
with the Distribution........... 7 (7) --
Net equity transactions with BEI
Electronics, Inc--Note 15....... (737) -- (737)
--------- ----------- ------------ ------------ ----------- ---------
Balances at September 27, 1997...... 7 38,003 -- -- (1,393) 36,617
Comprehensive Income:
Net income for 1998............. 2,657 2,657 2,657
Other comprehensive income......
Foreign currency translation
gain, net of income tax of $27 39 39 39
------------
Comprehensive income $2,696
============
Restricted Stock Plan--Note 8....... 1,093 (664) 429
Stock options exercised -- Note 8 768 768
Tax benefit from exercised stock....
options -- Note 8............... 264 264
Cash dividends (580) (580)
--------- ----------- ------------ ----------- ---------
Balances at October 3, 1998......... $2,132 $40,080 $39 ($2,057) $40,194
========= =========== ============ =========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
BEI Technologies, Inc. and Subsidiaries
October 3, 1998
Note 1--Summary of Significant Accounting Policies
Basis of Presentation: BEI Technologies, Inc. ("Technologies" or the
"Company") was incorporated on June 30, 1997 in the State of Delaware, as
a wholly owned subsidiary of BEI Electronics, Inc. (Electronics). On
September 27, 1997, Electronics distributed to holders of Electronics
common stock one share of common stock of the Company for each share of
Electronics common stock held on September 24, 1997 (the "Distribution").
In connection with the Distribution, Electronics transferred to
Technologies all of the assets, liabilities and operations of its BEI
Sensors & Systems Company, Inc. (Sensors & Systems) and Defense Systems
Company, Inc. (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 remaining operations of Defense Systems were
discontinued as of July 4, 1998.
The accompanying financial statements present the consolidated
financial position and results of operations of the Company and its
wholly-owned subsidiaries. The financial position and results of
operations of Sensors & Systems and Defense Systems, former subsidiaries
of Electronics and predecessor entities to the Company, are presented on
a combined basis for all dates and periods prior to the Distribution. All
intercompany accounts and transactions have been eliminated. The results
of operations of the Sensors & Systems business segment are presented as
continuing operations and those of the Defense Systems business segment
through the end of the third quarter of fiscal 1998 are presented as
discontinued operations.
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 year 1998 contained 53 weeks. Fiscal years 1997 and
1996 each contained 52 weeks.
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 generally as units are
shipped.
Inventories: Inventories are carried principally at the lower of cost
(first-in, first-out method) or fair value and do not exceed net
realizable value.
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.
Other 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.
Long-Lived Assets: The Company accounts for any impairment of its
long-lived assets using Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121 ("FAS 121") Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of. 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.
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.
Recent Accounting Pronouncements: Statement of Financial Accounting
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation,"
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 has
adopted the disclosure-only alternative as described in FAS 123 in fiscal
year 1997. The Company accounts for employee stock awards using the
intrinsic value method in accordance with APB Opinion No. 25.
As of December 27, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("FAS 128"), "Earnings per Share". All prior
earnings per share data have been restated to conform to the provisions of
this statement. Basic earnings per share is computed using the weighted
average number of share outstanding. Diluted earnings per share is
computed using the weighted average number of shares outstanding, adjusted
for the incremental shares attributed to unvested stock and outstanding
options to purchase common stock calculated using the treasury shares
method. The impact on the calculation of earnings per share in prior
periods was not material.
As of October 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive
Income." FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Company's net income or shareholders'
equity. FAS 130 requires disclosure of other comprehensive income which
includes foreign currency translation adjustments, which prior to
adoption, were reported separately in stockholders' equity.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). The Company is required to adopt this Statement
in fiscal year 1999. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of the Statement is expected to
have no impact on the Company's consolidated financial position, results
of operations or cash flows.
The Company has a grantor trust to fund deferred compensation for
certain employees (a "Rabbi Trust".) The
assets in the trust, consisting of cash equivalents and debt and equity
securities, are quoted at current market prices as determined by the
trustee, principally based upon national exchange and over-the-counter
markets, and are available to satisfy claims of the Company's general
creditors in the event of its bankruptcy. Previously, these assets were
not consolidated in the Company's financial statements. During 1998, the
Emerging Issues Task Force of the Financial Accounting Standards Board
issued EITF 97-14, "Accounting for Deferred Compensation Arrangements
Where Amounts Earned Are Held in a Rabbi Trust and Invested." This
pronouncement states that assets held by a Rabbi trust and the related
deferred compensation obligation should be consolidated with those of the
employer. The trust's assets and the corresponding deferred compensation
obligation are included in the accompanying balance sheets at October 3,
1998 and September 27, 1997.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial accounting Standards No. 132, "Employers
Disclosures about Pensions and other Postretirement Benefits" ("FAS 132"),
effective for financial statements for periods beginning after December
15, 1997. FAS 132 revised employers' disclosures about pension and other
postretirement benefit plans but does not change measurement or
recognition of those plans. Also, FAS 132 requires additional information
on changes in the benefit obligations and fair values of plan assets.
Presently, the Company does not offer a postretirement benefit plan. The
Company believes the adoption of FAS 132 will have no effect on the
financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments ("FAS 133"), effective for financial statements for
periods beginning after December 15, 1997. FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair market
value. Under certain circumstances, a portion of the derivative's gain or
loss is initially reported as a component of income when the transaction
affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. Presently, the Company does not use derivative instruments either
in hedging activities or as investments. Accordingly, the company
believes that adoption of FAS 133 will have no impact on its financial
position or results of operations.
Earnings (loss) Per Share: For periods prior to the Distribution,
basic and diluted net income per share is based on the weighted average
number of shares of outstanding Electronics common stock and dilutive
equivalent shares from unvested stock and stock options (using the
treasury stock method) based on the distribution of one share of
Technologies common stock for each share of Electronics common stock.
Acquisition: On August 7, 1998, Sensors & Systems acquired Ideacod,
S.A., a sensor manufacturer located in Strasbourg, France, for $1,627,000
in cash and the assumption of $3,735,000 in liabilities, in a transaction
accounted for as a purchase. The results of Ideacod since the date of
acquisition are included in the accompanying consolidated financial
statements. The impact of the acquisition was not material in relation to
the Company's results of operations, therefore, no pro forma information
is presented.
The financial statements of Ideacod, S.A. have been translated into
U.S. dollars on the acquisition date and at fiscal year-end, using the
exchange rates on those dates for assets and liabilities and the average
exchange rates during the period for income and expenses. The resulting
unrealized translation adjustments are recorded as a separate component of
stockholders' equity and of other comprehensive income.
Reclassification: Certain reclassifications have been made to the
1997 and 1996 consolidated financial statements to conform with current
year presentations.
Note 2--Discontinued Operations
On 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 consolidated
balance sheets. 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 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. 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 fiscal year 1997, the Company accrued an additional
$33,000 for employee severance costs. Costs incurred during the period
for severance and facilities closure of $362,000 and $362,000,
respectively, were charged against the reserve. The balance in the
reserve at the end of fiscal 1997 consisted of $45,000 for employee
severance and $138,000 for facilities closure costs. The remaining
reserves were used during fiscal 1998. At the end of fiscal 1998, all
inventory and equipment assets of the rocket business had been written off
or disposed of and the operations of the Defense Systems segment had been
shut down.
Net sales of the Defense Systems segment were as follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
October 3, September 27, September 28,
1998 1997 1996
----------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Sales--HYDRA 70 ................ $341 $2,160 $37,927
Other .......................... 2,851 6,889 4,708
----------- ------------ ------------
$3,192 $9,049 $42,635
=========== ============ ============
</TABLE>
Note 3--Inventories
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
------------ ------------
<S> <C> <C>
Finished products ................................. $1,460 $557
Work in process ................................... 10,183 7,412
Materials ......................................... 16,051 12,302
Costs incurred under long-term contracts,
including U.S. Government contracts ............ 1,929 2,385
------------ ------------
Inventories ....................................... $29,623 $22,656
============ ============
</TABLE>
Note 4--Accrued Expenses and Other Liabilities
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
------------ ------------
(dollars in thousands)
<S> <C> <C>
Employee compensation .............................. $2,255 $1,923
Vacation ........................................... 2,003 1,648
Accrued taxes ...................................... 1,454 1,166
Contract costs ..................................... 1,153 578
Accrued professional fees .......................... 1,003 784
Insurance .......................................... 954 690
Royalties and related costs ........................ 950 806
Customer advances 893 251
Commissions ........................................ 614 700
Other .............................................. 1,846 1,951
------------ ------------
Accrued Expenses and Other Liabilities ............. $13,125 $10,497
============ ============
</TABLE>
Note 5--Long-Term Debt
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
------------ ------------
(dollars in thousands)
<S> <C> <C>
7.23% Series A Senior Notes; due in annual
installments of $3,360 from October 1, 1996
through October 1, 2000 ......................... $6,720 $13,440
7.23% Series B Senior Notes; due in annual
installments of $2,240 from November 15,
1996 through November 15, 2000 .................. 6,720 8,960
Borrowings under bank line of credit ............... 22,000 9,000
Mortgage note payable with interest at 7.96%;
due in monthly installments of principal
and interest of $14 until 1999 when the
remaining balance of approximately $1,700
is due; collateralized by certain real
property ........................................ 1,708 1,736
Capitalized equipment lease obligations............. 236 --
------------ ------------
37,384 33,136
Less current portion ............................... 227 5,628
------------ ------------
$37,157 $27,508
============ ============
</TABLE>
The Senior Notes, which were obligations of Electronics, were assumed
by Technologies in connection with the Distribution at an interest rate of
7.23% for years subsequent to fiscal year 1997. The interest expense
associated with the Senior Notes from periods prior to the Distribution
was allocated to Technologies in the results of operations for those
periods. The Senior Note Agreement contains covenants concerning certain
financial ratios, dividend payments and minimum balances of net worth. At
October 3, 1998, Technologies was in compliance with these covenants. As
noted below, these Notes were paid in full subsequent to fiscal year end
1998 in an early extinguishment of debt.
On September 28, 1997, Technologies entered into an agreement with a
bank for a $25.0 million unsecured line of credit expiring in September
2000. On September 29, 1997, the Company borrowed $13.0 million under the
line of credit and used the funds to repay the $9.0 million of outstanding
borrowings and accrued interest on the prior Sensors & Systems' line of
credit and to make a scheduled principal payment on the Senior Note
obligations. Accordingly, the borrowings under the bank line of credit at
September 27, 1997 in the amount of $9.0 million were classified as a non-
current liability in the accompanying consolidated financial statements
for fiscal year 1997.
The agreement described in the preceding paragraph also provided that
up to $3.0 million of the line of credit could be used to fund letters of
credit issued on behalf of the Company. At October 3, 1998, the Company
had four letters of credit in the amount of $1.1 million outstanding. The
credit line contained certain financial covenants that require the Company
to meet certain financial ratios and net worth balances. At October 3,
1998, the Company was in compliance with these covenants. As noted below,
a new line of credit was established subsequent to fiscal year end 1998
and terminated the borrowings under the old facility .
On November 16, 1998, the Company sold $35.0 million of senior notes
in a private placement. The notes have an interest rate of 6.7% and
mature in annual installments of $7.0 million beginning November 16, 2001
up to and including November 16, 2005. The new note agreement contains
covenants regarding certain operating ratios, limitations on debt,
dividend payments and minimum net worth. The proceeds from the new senior
notes were used to repay the pre-existing senior notes and pay down
outstanding borrowings on the Company's line of credit as they matured.
Accordingly, the current portion of the existing senior notes has been
reclassified to long-term on the consolidated balance sheet at October 3,
1998 in accordance with the maturity dates of the new note agreement. The
prepayment penalty and the remaining unamortized loan fees of $324,000,
net of the related tax benefit, were charged to the first quarter of
fiscal 1999 as an extraordinary loss on the early extinguishment of the
debt.
On December 13, 1998, the mortgage note payable was refinanced with the
original lender and the due date extended. The mortgage now has an
interest rate of 6.87% and matures December 1, 2003. Principal and
interest payments of $14,000 are due monthly through December 13, 2003
when the remaining balance of unpaid principal is due. Accordingly, the
current portion of the existing mortgage note payable has been
reclassified to long-term on the consolidated balance sheet at October 3,
1998, in accordance with the maturity dates of the new note agreement.
On December 16, 1998, the Company established a new $12.0 million two
year line of credit with a bank and terminated the borrowings under the
$25.0 million facility in place at the end of fiscal 1998.
Maturities of long-term debt, adjusted for the effect of the new senior
notes and the mortgage refinancing and excluding capitalized equipment
lease obligation (see Note 10), are as follows: 1999C$145,000;
2000C$145,000; 2001C$7,585,000; 2002C$7,145,000; 2003C$8,128,000;
thereafter--$14,000,000.
Interest of approximately $2,535,000, $1,942,000, and $2,202,000 was
paid during fiscal years 1998, 1997 and 1996, respectively.
Note 6--Income Taxes
The Company was included in the consolidated federal income tax returns
of Electronics for fiscal years 1997 and prior, in accordance with the tax
allocation arrangement between the companies. Income taxes were accrued
at estimated tax rates by each of the former subsidiaries of Electronics
and settlement of fiscal year 1997 tax liabilities was estimated using
these tax rates. Subsequent to fiscal year 1997, the Company is no longer
part of Electronics' consolidated group.
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 and that will be in effect when the differences are expected to
reverse.
The provision for income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
October 3, September 27, September 28,
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Current
Federal ................... $2,581 $4,688 $1,716
State ..................... 496 799 47
----------- ------------ ------------
Total Current ........ 3,077 5,487 1,763
----------- ------------ ------------
Deferred
Federal ................... (1,038) (2,330) 408
State ..................... (133) (397) 267
----------- ------------ ------------
Total Deferred ....... (1,171) (2,727) 675
----------- ------------ ------------
Total income tax provision $1,906 $2,760 $2,438
=========== ============ ============
Income tax expense
attributable to continuing
operations ................... $1,807 $1,788 $1,412
Income tax expense
attributable to discontinued
operations ................... 99 972 1,026
----------- ------------ ------------
Total income tax provision
(benefit) .................... $1,906 $2,760 $2,438
=========== ============ ============
</TABLE>
Significant components of the Company's net deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets
Accrued expenses ................................... $4,033 $3,930
Inventory valuation ................................ 2,807 1,862
Contract reserves .................................. 455 124
Other .............................................. 390 820
------------ ------------
Total deferred tax assets .................. $7,685 $6,736
------------ ------------
Deferred tax liabilities
Depreciation and property basis difference ......... $1,448 $1,694
Other .............................................. 487 463
------------ ------------
Total deferred tax liabilities ................ 1,935 2,157
------------ ------------
Net deferred tax assets ....................... $5,750 $4,579
============ ============
</TABLE>
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>
Year Ended
--------------------------------------
October 3, September 27, September 28,
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Income tax (credit) at the statutory
rate of 34% ......................... 1551 $2,497 $2,383
Federal income tax effect of state
income taxes ........................ 240 265 208
Goodwill amortization ................. 18 18 19
Research and development and
related credits ..................... -- -- (246)
Other ................................. 97 (20) 74
----------- ------------ ------------
Provision (credit) for income taxes ... 1,906 2,760 2,438
=========== ============ ============
</TABLE>
Pursuant to the tax sharing agreement with Electronics, the Company's
income taxes prior to fiscal year 1998 were paid by Electronics. Cash
paid for income taxes in fiscal year 1998 was $3,613,000.
Realization of the net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years to obtain
benefit from the reversal of the underlying temporary differences.
Note 7--Stockholders' Equity
The authorized capital stock of Technologies consists of 2,000,000
shares of preferred stock ($.001 par value) and 20,000,000 shares of
common stock ($.001 par value). In connection with the Distribution,
7,114,813 shares of Technologies common stock were issued to holders of
Electronics common stock. Prior to the incorporation of Technologies and
the Distribution, all of the capital stock of Sensors & Systems and
Defense Systems was held by Electronics.
Note 8--Equity Incentive Plans
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 granting of incentive stock options to employees and
nonstatutory stock options, restricted stock purchase awards, and stock
bonuses (collectively, "Stock Awards") to consultants, employees and
directors. The Company has reserved 1,139,445 shares of common stock for
issuance under the Incentive Plan, including shares for substitute options
granted to the option holders of Electronics in connection with the
Distribution.
Under the terms of Distribution, holders of vested stock options to
purchase Electronics common stock were entitled to exercise such options
prior to the Distribution and receive an equivalent number of shares of
the Company's common stock in the Distribution. Unexercised vested and
unvested Electronics stock options were converted to options to purchase
the Company's common stock under the Incentive Plan based on a conversion
formula that retained the same intrinsic value of the options and the same
ratio of exercise price per option to market value per share of common
stock as prior to the Distribution, without any additional benefits to the
holders.
Option activity under the Electronics' 1987 Incentive Stock Option Plan
prior to the Distribution and option activity under the Technologies
Incentive Plan subsequent to the Distribution are summarized below:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Common Price
Shares Per Share
------------ ------------
<S> <C> <C>
Electronics options outstanding at September 30, 1995 610,395 $5.71
Granted .............................. 11,000 $6.42
Exercised ............................ (115,922) $6.27
Terminated ........................... (48,511) $7.80
------------ ------------
Electronics options outstanding at September 28, 1996 456,962 $5.36
Exercised ............................ (137,200) $5.33
Terminated ........................... (3,500) $7.95
------------ ------------
Electronics options outstanding at September 27, 1997
prior to the Distribution ....................... 316,262 $5.35
Distribution adjustment ............................. 23,183 --
------------ ------------
Technologies adjusted options outstanding
at September 27,1997............................ 339,445 $4.98
Granted .............................. 2,000 $16.69
Exercised ............................ (168,293) $4.33
------------ ------------
Technologies options outstanding at October 3, 1998 173,152 $5.61
============ ============
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Remaining Exercise
Number Contractual Price
Exercise Prices Outstanding Life (Years) Per Share
- ----------------- ----------- ------------ ------------
<S> <C> <C> <C>
$4.08 ................................. 87,502 0.7 $4.08
$4.66 ................................. 15,381 6.2 $4.66
$5.71 ................................. 1,073 5.5 $5.71
$5.94 ................................. 15,992 4.7 $5.94
$6.75 ................................. 2,147 4.1 $6.75
$7.92 ................................. 39,396 2.7 $7.92
$8.50 ................................. 9,661 3.7 $8.50
$16.69................................. 2,000 9.5 $16.69
----------- ------------ ------------
$4.08 - $16.69 ......................... 173,152 3.3 $5.55
=========== ============ ============
</TABLE>
As of October 3, 1998, options for 171,152 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 who have become employees of Technologies, subject to
forfeiture if employment terminated prior to the end of prescribed vesting
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 October
3, 1998, 511,326 shares had been granted, of which 435,501 shares are
outstanding, and 184,618 shares have fully vested. Compensation expense
of $429,000, $274,000 and $406,000 was recorded in fiscal years 1998, 1997
and 1996, respectively.
The impact on the calculation of proforma results of operations and
earnings (loss) per share required by FAS 123 was determined to be
immaterial for fiscal years 1998, 1997 and 1996.
Note 9--Employee Benefit Plan
The Company has a defined contribution retirement plan for the benefit
of all eligible employees. Matching non-discretionary contributions are
based on a percentage of employee contributions. Contributions to the
plan by the Company for the benefit of its employees for fiscal years
1998, 1997 and 1996 were approximately $780,000, $626,000, and $622,000
respectively.
Note 10--Lease Commitments
Operating leases consist principally of leases for real properties 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. Capital leases were assumed as part of
the acquisition of a business. Assets recorded under capital leases consist
of land, buildings and equipment of $1,121,000, net of accumulated amortization
of $112,000. The future minimum payments for operating and capital leases
consist of the following at October 3, 1998 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
<S> <C> <C>
1999............................ $110 $2,132
2000............................ 91 2,499
2001............................ 82 1,469
2002............................ 20 765
2003............................ -- 601
Thereafter...................... -- 400
----------- ------------
Total minimum lease payments 303 $7,866
Less amounts representing interest 67 ============
-----------
Amounts included in long-term debt $236
===========
</TABLE>
Total rental expense amounted to approximately $1,694,000, $1,616,000 and
$1,530,000 for fiscal years 1998, 1997 and 1996, respectively.
Note 11--Contingencies and Litigation
Claim against U.S. Government
The Company believes that its subsidiary, Defense Systems Company (DSC),
suffered substantial monetary damages due to actions of the U. S.
Government in connection with the parties' H 70 contract in effect during
the 1992-1996 timeframe. As a result, DSC filed a substantial claim
before the Armed Services Board of Contract Appeals. Due to the
uncertainties inherent in the formal claims process, the Company has not
recorded any recovery of these claims in the accompanying financial
statements.
Other
The Company has pending various legal actions arising in the normal
course of business. Management believes that none of these legal actions
will have a material impact on the Company's financial condition or
operating results.
Note 12--Sales
Net sales from continuing operations to customers in foreign countries
amounted to $17,392,000, $11,998,000 and $10,938,000 in fiscal years 1998,
1997 and 1996, respectively. In fiscal years 1998, 1997 and 1996, 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 $21,046,000, $22,479,000 and $25,986,000 in fiscal
years 1998, 1997 and 1996, respectively. Net sales to the U.S. Government
for the discontinued Defense Systems segment were $3,153,000, $8,323,000
and $41,219,000 for fiscal years 1998, 1997 and 1996, respectively.
Note 13--Quarterly Results of Operations (Unaudited)
The tables below present unaudited quarterly financial information for
fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
Continuing Operations
Three months ended
----------------------------------------------------
December 27, April 4, July 4, October 3,
1997 1998 1998 1998
------------ ----------- ----------- ------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales .................................... $28,256 $30,848 $29,897 $35,263
Gross profit ................................. 9,622 9,918 9,403 9,759
Income from continuing operations ............ 878 779 704 154
Income from discontinued operations .......... 81 10 50 --
Net income ................................... 959 789 754 154
Basic Earnings Per Share
Earnings from continuing operations per common
share....................................... $0.13 $0.11 $0.10 $0.02
Earnings from discontinued operations per common
share....................................... $0.01 -- $0.01 --
Earnings per common share..................... $0.14 $0.11 $0.11 $0.02
Diluted Earnings Per Share
Earnings from continuing operations per
common and common equivalent share.......... $0.12 $0.11 $0.10 $0.02
Earnings from discontinued operations per
common and common equivalent share.......... $0.01 -- $0.01 --
Earnings per common and common equivalent shar $0.13 $0.11 $0.11 $0.02
December 28, March 29, June 28, September 27,
1996 1997 1997 1997
------------ ----------- ----------- ------------
Net sales .................................... $22,903 $24,710 $26,824 $27,102
Gross profit ................................. 7,767 8,810 9,477 10,194
Income (loss) from continuing operations ..... (359) 957 1,196 1,202
Income from discontinued operations .......... 394 495 500 198
Net income ................................... 35 1,452 1,696 1,400
Basic Earnings Per Share
Earnings (loss) from continuing operations
per common share............................ ($0.05) $0.14 $0.18 $0.18
Earnings from discontinued operations
per common share............................ $0.06 $0.07 $0.07 $0.03
Earnings per common share..................... $0.01 $0.21 $0.25 $0.21
Diluted Earnings Per Share
Earnings (loss) from continuing operations
per common and common equivalent share...... ($0.05) $0.13 $0.17 $0.17
Earnings from discontinued operations per
common and common equivalent share.......... $0.06 $0.07 $0.07 $0.03
Earnings per common and common equivalent share $0.01 $0.20 $0.24 $0.20
------------ ----------- ----------- ------------
Net income per common and common
equivalent share......................... $0.00 $0.00 $0.00 $0.00
============ =========== =========== ============
</TABLE>
Note 14--Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("FAS 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. FAS 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
estimating its fair value disclosures for financial instruments as of
October 3, 1998 and as of September 27, 1997.
Cash, Cash Equivalents and Investments: The carrying amounts
reported in the balance sheet for cash, cash equivalents and investments
approximate those assets' fair values.
Long-Term Debt: The fair value of long-term debt has been estimated
based upon their 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 long-term debt is approximately $31,001,000 and $27,570,000
compared with the carrying amounts of $31,674,000 and $27,508,000 at
October 3, 1998 and September 27, 1997, respectively.
Note 15--Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
common share from continuing operations:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 3, September 27, September 28,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands except per share amounts)
Numerator
Income from continuing
operations, net of income taxes. $2,515 $2,997 $2,873
============ ============ ============
Denominator
Denominator for basic earnings
per share --
Weighted average shares, net
of nonvested shares
(FY 1998 -- 223 shares;
FY 1997 -- 164 shares;
FY 1996 -- 154 shares)........ 7,012 6,816 6,737
Effect of dilutive securities:
Nonvested shares................ 108 86 86
Employee stock options.......... 154 165 155
------------ ------------ ------------
Denominator for diluted
earnings per share............. 7,274 7,067 6,978
============ ============ ============
Basic earnings per share from
continuing operations.......... $0.36 $0.44 $0.43
Listing of Exhibits
Diluted earnings per share from
continuing operations.......... $0.35 $0.42 $0.41
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
BEI Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BEI
Technologies, Inc. as of October 3, 1998 and September 27, 1997, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended October 3,
1998. 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 financial position of BEI Technologies, Inc.
at October 3, 1998 and September 27, 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the
period ended October 3, 1998 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Francisco, California
November 2, 1998,
except for Note 5 as to which the date is
December 16, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to directors and executive
officers is set forth in Part I of this Report. Additional
information required by this Item is incorporated herein by
reference to the section entitled "Compliance with Section
16(a) of the Securities and Exchange Act of 1934" of the Proxy
Statement related to the Company's 1999 Annual Meeting of
Stockholders to be filed by the Company with the Securities
and Exchange Commission (the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the sections entitled "Executive Compensation"
and "Certain Transactions" of the Company's Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein
by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Company's
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the sections entitled "Certain Transactions"
and "Compensation Committee Interlocks and Insider
Participation" of the Definitive Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K.
(a)(1) Index to Consolidated Financial Statements.
-------------------------------------------
The following Consolidated Financial Statements of BEI
Technologies, Inc. and its subsidiaries are filed as part of
this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets -
October 3, 1998 and September 27, 1997
Consolidated Statements of Operations -
Years ended October 3, 1998, September 27, 1997
and September 28, 1996
Consolidated Statements of Cash Flows -
Years ended October 3, 1998, September 27, 1997
and September 28, 1996
Consolidated Statements of Stockholders' Equity -
Years ended October 3, 1998, September 27, 1997
and September 28, 1996
Notes to Consolidated Financial Statements -
October 3, 1998
(a)(2) Index to Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of BEI
Technologies, Inc. for each of the years in the period ended
October 3, 1998 is filed as part of this Form 10-K:
Schedule II Valuation and Qualifying Accounts
Report of Ernst & Young LLP, Independent Auditors
as to Schedule
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
<PAGE>
(a)(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Numbers Description Footnote
- -------- --------------------------------------------------------- --------
<S> <C> <C>
2.1 Distribution Agreement between BEI Electronics, Inc. i
and BEI Technologies, Inc.
2.2 Corporate Services Agreement between BEI
Technologies, Inc. and BEI Electronics, Inc. i
2.3 Tax Allocation and Indemnity Agreement between BEI
Electronics, Inc. and BEI Technologies, Inc. i
2.4 Assumption of Liabilities and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.5 Technology Transfer and License Agreement by and
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.6 Trademark Assignment and Consent Agreement by and
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.7 Agreement Regarding Certain Representations and
Covenants by and between BEI Electronics, Inc. and
BEI Technologies, Inc. i
3.1 Certificate of Incorporation of BEI Technologies, Inc. i
3.2 Bylaws of BEI Technologies, Inc. i
3.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
4.1 Specimen Common Share Certificate i
4.2 Certificate of Incorporation of BEI Technologies, Inc.
(filed as Exhibit 3.1 hereto) i
4.3 Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
hereto) i
4.4 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
4.5 Form of Rights Certificate (filed as Exhibit 99.4 hereto) i
10.1 * Registrant's 1997 Equity Incentive Plan and forms of
related agreements i
10.2 * Executive Change in Control Benefits Agreement
between BEI Technologies, Inc. and Certain Named
Executive Officers i
10.3 Assumption Agreement--Series A and Series B Senior
Notes dated September 15, 1997 by and between BEI i
Technologies, Inc., Principal Mutual Life Insurance
Company, Berkshire Life Insurance Company and
TMG Life Insurance Company
10.4 Credit Agreement dated as of September 27, 1997 i
among BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc., Defense Systems Company, Inc., CIBC,
Inc., Canadian Imperial Bank of Commerce and CIBC
Wood Gundy Securities Corp.
10.5 Note Purchase Agreement dated November 16, 1998, by
and between BEI Technologies, Inc., BEI Sensors &
Systems Company, Connecticut General Life
Insurance Company and Allstate Life Insurance
Company
10.6 Amendement to Tax Allocation and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies,
Inc.
10.7 Credit Agreement dated December 16, 1998, by and
between BEI Technologies, Inc., BEI Sensors &
Systems Company, Inc. and Wells Fargo Bank,
National Association
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 BEI Technologies, Inc. Information Statement dated
September 24, 1997 i
99.2 Rights Agreement dated as of September 11, 1997
among BEI Technologies, Inc. and ChaseMellon
Shareholder Services, L.L.C. i
99.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock i
99.4 Form of Rights Certificate i
<FN>
(i) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Information Statement on Form 10 (File No. 0-22799) as
filed on September 22, 1997.
i
* Items which are management contracts or compensatory plans or
arrangements required to be filed as an exhibit pursuant to Item 14(c)
of Form 10-K.
</FN>
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter
ended October 3, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BEI TECHNOLOGIES, INC.
By: /S/ Robert R. Corr
-----------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
December 22,1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Crocker and Gary D. Wrench, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Charles Crocker President, Chief Executive December 22, 1998
- --------------------------- Officer and Chairman of the Board of
(Charles Crocker) Directors (Principal Executive Officer)
/s/ Richard M. Brooks Director December 22, 1998
- ---------------------------
(Richard M. Brooks)
/s/ George S. Brown Director December 22, 1998
- ---------------------------
(George S. Brown)
/s/ Robert R. Corr Secretary, Treasurer & Controller December 22, 1998
- --------------------------- (Principal Accounting Officer)
(Robert R. Corr)
/s/ C. Joseph Giroir, Jr. Director December 22, 1998
- ---------------------------
(C. Joseph Giroir, Jr.)
/s/ William G. Howard, Jr. Director December 22, 1998
- ---------------------------
(William G. Howard, Jr.)
/s/ Asad M. Madni Director December 22, 1998
- ---------------------------
(Asad M. Madni)
/s/ Robert Mehrabian Director December 22, 1998
- ---------------------------
(Robert Mehrabian)
/s/ Gary D. Wrench Senior Vice President, Chief December 22, 1998
- --------------------------- Financial Officer and Director
(Gary D. Wrench)
</TABLE>
<PAGE>
SCHEDULE II
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------- ---------- --------------------- --------- ---------
Additions
---------------------
Charged to
Balance at Charged to Other Balance at
Description Beginning Costs and Accounts Deductions End of
of Period Expenses Describe Describe Period
---------- ----------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended October 3, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts ........ $363 $101 $98 (D) $53 (C) $509
========== =========== ========= ========= =========
Year ended September 27, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts ........ $607 $75 $-- $319 (C) $363
Valuation allowance for deferred
tax assets .......................... 94 -- (94)(B) -- --
---------- ----------- --------- --------- ---------
Total ............................. $701 $75 ($94) $319 $363
========== =========== ========= ========= =========
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)(B) -- 94
---------- ----------- --------- --------- ---------
Total .............................. $538 $282 ($49) $70 $701
========== =========== ========= ========= =========
<FN>
(A) Miscellaneous adjustments to the allowance
(B) Adjustment based on the evaluation of uncertainties in the realization of
state net operating loss carryovers
(C) Write-offs of uncollectible accounts
(D) Received from an acquisition
</FN>
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Shareholders
BEI Technologies, Inc.
We have audited the consolidated financial statements of BEI Technologies,
Inc. as of October 3, 1998 and September 27, 1997, and for each of the
three years in the period ended October 3, 1998, and have issued our
report thereon dated November 2, 1998 except for Note 5 as to which the
date is December 16, 1998. Our audits also included the financial
statement schedule listed in Item 14(a) of this Form 10-K. 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 consolidated financial statements
taken as a whole, presents fairly in all material respects, the
information set forth therein.
Ernst & Young LLP
San Francisco, California
November 2, 1998,
except for Note 5, as to which the date is
December 16, 1998
S-2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
10.5 Note Purchase Agreement dated November 16, 1998, by and between
BEI Technologies, Inc., BEI Sensors & Systems Company, Inc.,
Connecticut General Life Insurance Company, Inc. and Allstate
Life Insurance Company
10.6 Amendment to Tax Allocation and Indemnity Agreement between
BEI Electronics, Inc. and BEI Technologies, Inc.
10.7 Credit Agreement dated December 15, 1998, by and between
BEI Technologies, Inc., BEI Sensors & Systems Company, Inc. and
Wells Fargo Bank, National Association
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
BEI TECHNOLOGIES, INC.
BEI SENSORS & SYSTEMS COMPANY, INC.
One Post Street, Suite 2500
San Francisco, California 94104
6.70% Senior Notes due November 16, 2005
November 16, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
BEI Technologies, Inc., a Delaware corporation (the
"Company") and BEI Sensors & Systems Company, Inc., a Delaware
corporation and a Wholly-Owned Restricted Subsidiary of Company
("Sensors & Systems", and together with Company, "the Co-Obligors"),
agree with you as follows:
1. AUTHORIZATION OF NOTES.
The Co-Obligors will authorize the issue and sale of
$35,000,000 aggregate principal amount of their 6.70% Senior Notes due
November 16, 2005 (the "Notes", such term to include any such notes
issued in substitution therefor pursuant to Section 13 of this Agreement
or the Other Agreements (as hereinafter defined)). The Notes shall be
the joint and several obligation of each Co-Obligor and shall be
substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by you and the Co-Obligors.
Certain capitalized terms used in this Agreement are defined in Schedule
B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Co-Obligors will issue and sell to you and you will purchase from the
Co-Obligors, at the Closing provided for in Section 3, Notes in the
principal amount specified opposite your name in Schedule A at the
purchase price of 100% of the principal amount thereof.
Contemporaneously with entering into this Agreement, the Co-Obligors are
entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other
purchasers named in Schedule A (the "Other Purchasers"), providing for
the sale at such Closing to each of the Other Purchasers of Notes in the
principal amount specified opposite its name in Schedule A. Your
obligation hereunder and the obligations of the Other Purchasers under
the Other Agreements are several and not joint obligations and you shall
have no obligation under any Other Agreement and no liability to any
Person for the performance or non-performance by any Other Purchaser
thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you
and the Other Purchasers shall occur at the offices of O'Melveny & Myers
LLP, 400 South Hope Street, Los Angeles, California 90071, at 8:00 a.m.,
Pacific Standard time, at a closing (the "Closing") on November 16,
1998. At the Closing the Co-Obligors will deliver to you the Notes to
be purchased by you in the form of a single Note (or such greater number
of Notes in denominations of at least $1,000,000 as you may request)
dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Co-Obligors or
their order of immediately available funds in the amount of the purchase
price therefor by wire transfer of immediately available funds for the
account of BEI Sensors & Systems Company, Inc. to account number
4518052808 at Wells Fargo Bank, National Association, San Francisco
RCBO, ABA number 121000248. If at the Closing the Co-Obligors shall
fail to tender such Notes to you as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved
of all further obligations under this Agreement, without thereby waiving
any rights you may have by reason of such failure or such
nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:
4.1 Representations and Warranties.
The representations and warranties of each Co-Obligor in
this Agreement shall be correct when made and at the time of the
Closing.
4.2 Performance; No Default.
Each Co-Obligor shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Schedule 5.14) no Default or
Event of Default shall have occurred and be continuing. Neither the
Company nor any Subsidiary shall have entered into any transaction since
the date of the Memorandum that would have been prohibited by Sections
10.1, 10.2, 10.3, 10.4, 10.7, 10.8 or 10.9 hereof had such Sections
applied since such date.
4.3 Compliance Certificates.
(a) Officer's Certificate. Each Co-Obligor shall have
delivered to you an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 4.1, 4.2
and 4.9 have been fulfilled.
(b) Secretary's Certificate. Each Co-Obligor shall have
delivered to you a certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes and the Agreements.
4.4 Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Cooley
Godward LLP, counsel for the Co-Obligors, covering the matters set forth
in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably
request (and each Co-Obligor hereby instructs its counsel to deliver
such opinion to you) and (b) from O'Melveny & Myers LLP, your special
counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(b) and covering such other matters incident to
such transactions as you may reasonably request.
4.5 Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Notes shall
(i) be permitted by the laws and regulations of each jurisdiction to
which you are subject, without recourse to provisions (such as Section
1405(a)(8) of the New York Insurance Law) permitting limited investments
by insurance companies without restriction as to the character of the
particular investment, (ii) not violate any applicable law or regulation
(including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System) and (iii) not subject you to
any tax, penalty or liability under or pursuant to any applicable law or
regulation, which law or regulation was not in effect on the date
hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably
specify to enable you to determine whether such purchase is so
permitted.
4.6 Sale of Other Notes.
Contemporaneously with the Closing the Co-Obligors shall
sell to the Other Purchasers and the Other Purchasers shall purchase the
Notes to be purchased by them at the Closing as specified in Schedule A.
4.7 Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the
extent reflected in a statement of such counsel rendered to the Company
at least one Business Day prior to the Closing.
4.8 Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of
the National Association of Insurance Commissioners) shall have been
obtained for the Notes.
4.9 Changes in Corporate Structure.
Except as specified in Schedule 4.9, neither Co-Obligor
shall have changed its jurisdiction of incorporation or been a party to
any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to
in Schedule 5.5.
4.10 Funding Instructions.
At least three Business Days prior to the date of the
Closing, you shall have received written instructions executed by a
Responsible Officer of each Co-Obligor directing the manner of the
payment of funds and setting forth (a) the name and address of the
transferee bank, (b) such transferee bank's ABA number, (c) the account
name and number into which the proceeds of the purchase price for the
Notes is to be deposited, and (d) the name and telephone number of the
account representative responsible for verifying receipt of such funds.
4.11 Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to you
and your special counsel, and you and your special counsel shall have
received all such counterpart originals or certified or other copies of
such documents as you or they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE CO-OBLIGORS.
Each Co-Obligor, jointly and severally, represents and
warrants to you that:
5.1 Organization; Power and Authority.
Each Co-Obligor is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure
to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Each Co-Obligor has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute
and deliver this Agreement and the Other Agreements and the Notes and to
perform the provisions hereof and thereof.
5.2 Authorization, etc.
This Agreement, the Other Agreements and the Notes have been
duly authorized by all necessary corporate action on the part of each
Co-Obligor, and this Agreement constitutes, and upon execution and
delivery thereof each Note will constitute, a legal, valid and binding
obligation of each Co-Obligor enforceable against each Co-Obligor in
accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
5.3 Disclosure.
The Company, through its agent, Mercer Capital Group, Inc.,
has delivered to you and each Other Purchaser a copy of a Confidential
Memorandum, dated September 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in
all material respects, the general nature of the business and principal
properties of the Company and its Subsidiaries. Except as disclosed in
Schedule 5.3, this Agreement, the Memorandum, the documents,
certificates or other writings delivered to you by or on behalf of each
Co-Obligor in connection with the transactions contemplated hereby and
the financial statements listed in Schedule 5.5, taken as a whole, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Except as
disclosed in the Memorandum or as expressly described in Schedule 5.3,
or in one of the documents, certificates or other writings identified
therein, or in the financial statements listed in Schedule 5.5, since
September 27, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any
Subsidiary except changes that individually or in the aggregate could
not reasonably be expected to have a Material Adverse Effect. There is
no fact known to any Co-Obligor that could reasonably be expected to
have a Material Adverse Effect that has not been set forth herein or in
the Memorandum or in the other documents, certificates and other
writings delivered to you by or on behalf of any Co-Obligor specifically
for use in connection with the transactions contemplated hereby.
5.4 Organization and Ownership of Shares of Subsidiaries;
Affiliates.
(a) Schedule 5.4 contains (except as noted therein)
complete and correct lists (i) of the Company's Subsidiaries, showing,
as to each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary and whether such Subsidiary is a Restricted
Subsidiary or an Unrestricted Subsidiary, (ii) of the Company's
Affiliates, other than Subsidiaries, and (iii) of the Company's
directors and senior officers.
(b) All of the outstanding shares of capital stock or
similar equity interests of each Subsidiary shown in Schedule 5.4 as
being owned by the Company and its Subsidiaries have been validly
issued, are fully paid and nonassessable and are owned by the Company or
another Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, and
is duly qualified as a foreign corporation or other legal entity and is
in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure
to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Each such Subsidiary has the corporate or other power and authority to
own or hold under lease the properties it purports to own or hold under
lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to
any legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions of
profits to the Company or any of its Subsidiaries that owns outstanding
shares of capital stock or similar equity interests of such Subsidiary.
5.5 Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on
Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries
as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance
with GAAP consistently applied throughout the periods involved except as
set forth in the notes thereto (subject, in the case of any interim
financial statements, to normal year-end adjustments and normal limited
footnote disclosure for interim financial statements).
5.6 Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by each Co-Obligor
of this Agreement and the Notes will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of
any Lien in respect of any property of the Company or any Subsidiary
under, any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other agreement
or instrument to which the Company or any Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective
properties may be bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (iii) violate
any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by either Co-
Obligor of this Agreement or the Notes.
5.8 Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in the Disclosure Letter, there
are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary
or any property of the Company or any Subsidiary in any court or before
any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default
under any term of any agreement or instrument to which it is a party or
by which it is bound, or any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including without
limitation Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
5.9 Taxes.
The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other
taxes and assessments levied upon them or their properties, assets,
income or franchises, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except
for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Company
or a Subsidiary, as the case may be, has established adequate reserves
in accordance with GAAP. The Company knows of no basis for any other
tax or assessment that could reasonably be expected to have a Material
Adverse Effect. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of Federal, state or other taxes
for all fiscal periods are adequate. The Federal income tax liabilities
of the Company and its Subsidiaries have been determined by the Internal
Revenue Service and paid for all fiscal years up to and including the
fiscal year ended September 30, 1995.
5.10 Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the
aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in Section 5.5 or
purported to have been acquired by the Company or any Subsidiary after
said date (except as sold or otherwise disposed of in the ordinary
course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are
Material are valid and subsisting and are in full force and effect in
all material respects.
5.11 Licenses, Permits, etc.
Except as disclosed in the Disclosure Letter,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product of
the Company infringes in any material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark,
trade name or other right owned by any other Person; and
(c) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any of
its Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or any
of its Subsidiaries.
5.12 Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans (as defined in Section 3 of
ERISA), and no event, transaction or condition has occurred or exists
that could reasonably be expected to result in the incurrence of any
such liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV
of ERISA or to such penalty or excise tax provisions or to
Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The Company maintains no Plans other than a defined
contribution pension plan which contains a salary deferral arrangement
intended to qualify under Section 401(k) of the Code.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation
(determined as of the last day of the Company's most recently ended
fiscal year in accordance with Financial Accounting Standards Board
Statement No. 106, without regard to liabilities attributable to
continuation coverage mandated by section 4980B of the Code) of the
Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to
section 4975(c)(1)(A)-(D) of the Code. The representation by the
Company in the first sentence of this Section 5.12(e) is made in
reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds used to pay the purchase
price of the Notes to be purchased by you.
5.13 Private Offering by the Co-Obligors.
Neither Co-Obligor nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited
any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any person other than you, the Other
Purchasers and not more than 48 other Institutional Investors, each of
which has been offered the Notes at a private sale for investment.
Neither Co-Obligor nor anyone acting on its behalf has taken, or will
take, any action that would subject the issuance or sale of the Notes to
the registration requirements of Section 5 of the Securities Act.
5.14 Use of Proceeds; Margin Regulations.
The Co-Obligors will apply the proceeds of the sale of the
Notes as set forth in Schedule 5.14. No part of the proceeds from the
sale of the Notes hereunder will be used, directly or indirectly, for
the purpose of buying or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System (12
CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a
violation of Regulation X of said Board (12 CFR 224) or to involve any
broker or dealer in a violation of Regulation T of said Board (12 CFR
220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company
does not have any present intention that margin stock will constitute
more than 5% of the value of such assets. As used in this Section, the
terms "margin stock" and "purpose of buying or carrying" shall have
the meanings assigned to them in said Regulation U.
5.15 Existing Indebtedness; Future Liens.
(a) Except as described therein, the Disclosure Letter
sets forth a complete and correct list of all outstanding Indebtedness
of each of the Company, Sensors & Systems, and the other Subsidiaries of
the Company as of October 3, 1998, since which date there has been no
Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Indebtedness of the Company or
its Subsidiaries. Neither the Company nor any Subsidiary is in default
and no waiver of default is currently in effect, in the payment of any
principal or interest on any Indebtedness of the Company or such
Subsidiary and no event or condition exists with respect to any
Indebtedness of the Company or any Subsidiary that would permit (or that
with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in the Disclosure Letter, neither
the Company nor any Subsidiary has agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise)
any of its property, whether now owned or hereafter acquired, to be
subject to a Lien not permitted by Section 10.8.
5.16 Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Co-Obligors hereunder
nor their use of the proceeds thereof will violate the Trading with the
Enemy Act, as amended, or any of the foreign assets control regulations
of the United States Treasury Department (31 CFR, Subtitle B, Chapter V,
as amended) or any enabling legislation or executive order relating
thereto.
5.17 Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the
Public Utility Holding Company Act of 1935, as amended, the Interstate
Commerce Act, as amended, or the Federal Power Act, as amended.
5.18 Environmental Matters.
Neither the Company nor any Subsidiary has knowledge of any
claim or has received any notice of any claim, and no proceeding has
been instituted raising any claim against the Company or any of its
Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any
damage to the environment or violation of any Environmental Laws,
except, in each case, such as could not reasonably be expected to result
in a Material Adverse Effect. Except as otherwise disclosed to you in
writing,
(a) neither the Company nor any Subsidiary has knowledge
of any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them in a manner contrary to any
Environmental Laws and has not disposed of any Hazardous Materials in a
manner contrary to any Environmental Laws in each case in any manner
that could reasonably be expected to result in a Material Adverse
Effect; and
(c) all buildings on all real properties now owned, leased
or operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply could
not reasonably be expected to result in a Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1 Purchase for Investment.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for
the account of one or more pension or trust funds and not with a view to
the distribution thereof, provided that the disposition of your or their
property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities
Act and may be resold only if registered pursuant to the provisions of
the Securities Act or if an exemption from registration is available,
except under circumstances where neither such registration nor such an
exemption is required by law, and that neither Co-Obligor is required to
register the Notes.
6.2 Source of Funds.
You represent that at least one of the following statements
is an accurate representation as to each source of funds (a "Source")
to be used by you to pay the purchase price of the Notes to be purchased
by you hereunder:
(a) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any interest,
other than a separate account that is maintained solely in connection
with your fixed contractual obligations under which the amounts payable,
or credited, to such plan and to any participant or beneficiary of such
plan (including any annuitant) are not affected in any manner by the
investment performance of the separate account; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction Exemption
("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective
investment fund, within the meaning of the PTE 91-38 (issued July 12,
1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of
plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment
fund" (within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment fund
have been disclosed to the Company in writing pursuant to this paragraph
(c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in writing
pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account"
within the meaning of PTE 95-60 (issued July 12, 1995) and there is no
employee benefit plan, treating as a single plan, all plans maintained
by the same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all contracts
held by or on behalf of such plan, exceed ten percent (10%) of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account"
shall have the respective meanings assigned to such terms in Section 3
of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements - within 60 days after the end
of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Restricted Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year
ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the
Company's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of
this Section 7.1(a);
(b) Annual Statements - within 120 days after the end of
each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Restricted Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by:
(A) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon and
their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination
of such accountants in connection with such financial
statements has been made in accordance with generally
accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating
that they have reviewed this Agreement and stating further
whether, in making their audit, they have become aware of
any condition or event that then constitutes a Default or an
Event of Default, and, if they are aware that any such
condition or event then exists, specifying the nature and
period of the existence thereof (it being understood that
such accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of any
Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in
accordance with generally accepted auditing standards or did
not make such an audit),
provided that the delivery within the time period specified above
of the Company's Annual Report on Form 10-K for such fiscal year
(together with the Company's annual report to shareholders, if
any, prepared pursuant to Rule 14a-3 under the Exchange Act)
prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission, together with the
accountant's certificate described in clause (B) above, shall be
deemed to satisfy the requirements of this Section 7.1(b);
(c) SEC and Other Reports - promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments
thereto filed by the Company or any Subsidiary with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Company or any Subsidiary to the public
concerning developments that are Material;
(d) Notice of Default or Event of Default - promptly, and
in any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
Section 11(f), a written notice specifying the nature and period of
existence thereof and what action the Company is taking or proposes to
take with respect thereto;
(e) ERISA Matters - promptly, and in any event within
five days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived pursuant
to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt
by the Company or any ERISA Affiliate of a notice from a
Multiemployer Plan that such action has been taken by the PBGC
with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty
or excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, could reasonably be
expected to have a Material Adverse Effect;
(f) Notices from Governmental Authority - promptly, and
in any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect;
(g) Additional Reporting Requirement - if at any time the
Company has any Unrestricted Subsidiaries, then each set of financial
information delivered pursuant to Sections 7.1(a) and (b) shall be
accompanied by unaudited financial statements for all Unrestricted
Subsidiaries of the Company taken as a group, together with
consolidating statements reflecting eliminations or adjustments required
to reconcile such group statements to the consolidated financial
statements of the Company and its Subsidiaries; and
(h) Requested Information - with reasonable promptness,
such other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or any
of its Subsidiaries or relating to the ability of any Co-Obligor to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes, including,
without limitation, such information as is required by Rule 144A under
the Securities Act to be delivered to a prospective transferee of the
Notes.
7.2 Officer's Certificate.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1 hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance - the information (including
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Sections 10.1 through
10.7, 10.8(k), 10.9, 10.10 and 10.11 hereof, inclusive, during the
quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then in
existence); and
(b) Event of Default - a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature
and period of existence thereof and what action the Company shall have
taken or proposes to take with respect thereto.
7.3 Inspection.
The Company shall permit the representatives of each holder
of Notes that is an Institutional Investor:
(a) No Default - if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing;
and
(b) Default - if a Default or Event of Default then
exists, at the expense of the Company to visit and inspect any of the
offices or properties of the Company or any Subsidiary, to examine all
their respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and as
often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1 Required Prepayments.
On November 16, 2001 and on each November 16 thereafter to
and including November 16, 2004 the Co-Obligors jointly and severally
agree to prepay $7,000,000 principal amount (or such lesser principal
amount as shall then be outstanding) of the Notes at par and without
payment of the Make-Whole Amount or any premium, provided that upon any
partial prepayment of the Notes pursuant to Section 8.2 or purchase of
the Notes permitted by Section 8.5 the principal amount of each required
prepayment of the Notes becoming due under this Section 8.1 on and after
the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the Notes is
reduced as a result of such prepayment or purchase.
8.2 Optional Prepayments with Make-Whole Amount.
Each Co-Obligor may, at its option, upon notice as provided
below, prepay at any time all, or from time to time any part of, the
Notes, in an amount not less than 5% of the aggregate principal amount
of the Notes then outstanding in the case of a partial prepayment, at
100% of the principal amount so prepaid, plus accrued interest thereon
and the Make-Whole Amount determined for the prepayment date with
respect to such principal amount; provided that in respect of
prepayments made as a result of a sale of assets and pursuant to Section
10.9, no Make-Whole Amount will be payable with respect thereto. The
Co-Obligors will give each holder of Notes written notice of each
optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each
such notice shall specify such date, the aggregate principal amount of
the Notes to be prepaid on such date, the principal amount of each Note
held by such holder to be prepaid (determined in accordance with Section
8.3), and the interest to be paid on the prepayment date with respect to
such principal amount being prepaid, and shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date
of such notice were the date of the prepayment), setting forth the
details of such computation. Two Business Days prior to such
prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of
such Make-Whole Amount as of the specified prepayment date.
8.3 Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all
of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
8.4 Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature
and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and
the applicable Make-Whole Amount, if any. From and after such date,
unless the Co-Obligors shall fail to pay such principal amount when so
due and payable, together with the interest and Make-Whole Amount, if
any, as aforesaid, interest on such principal amount shall cease to
accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
8.5 Purchase of Notes.
The Co-Obligors will not and will not permit any Affiliate
to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement
and the Notes. The Co-Obligors will promptly cancel all Notes acquired
by either of them or any Affiliate pursuant to any payment, prepayment
or purchase of Notes pursuant to any provision of this Agreement and no
Notes may be issued in substitution or exchange for any such Notes.
8.6 Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any
Note, an amount equal to the excess, if any, of the Discounted Value of
the Remaining Scheduled Payments with respect to the Called Principal of
such Note over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes
of determining the Make-Whole Amount, the following terms have the
following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context
requires.
"Discounted Value" means, with respect to the Called
Principal of any Note, the amount obtained by discounting
all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that
on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New
York City time) on the second Business Day preceding the
Settlement Date with respect to such Called Principal, on
the display designated as "Page PXI" of the Bloomberg
Financial Markets Services Screen (or such other display as
may replace Page PX1 on the Bloomberg Financial Markets
Services Screen) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or
(ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of
the second Business Day preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by
(a) converting U.S. Treasury bill quotations to bond-
equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the maturity
closest to and greater than the Remaining Average Life and
(2) the actively traded U.S. Treasury security with the
maturity closest to and less than the Remaining Average
Life.
"Remaining Average Life" means, with respect to any
Called Principal, the number of years (calculated to the
nearest one-twelfth year) obtained by dividing (i) such
Called Principal into (ii) the sum of the products obtained
by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by
(b) the number of years (calculated to the nearest one-
twelfth year) that will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called
Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is
not a date on which interest payments are due to be made
under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to
Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called
Principal of any Note, the date on which such Called
Principal is to be prepaid pursuant to Section 8.2 or has
become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1 Compliance with Law.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to
which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the
conduct of their respective businesses, in each case to the extent
necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in
effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.2 Insurance.
The Company will and will cause each of its Restricted
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms
and in such amounts (including deductibles, co-insurance and self-
insurance, if adequate reserves are maintained with respect thereto) as
is customary in the case of entities of established reputations engaged
in the same or a similar business and similarly situated.
9.3 Maintenance of Properties.
The Company will and will cause each of its Restricted
Subsidiaries to maintain and keep, or cause to be maintained and kept,
their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times, provided
that this Section shall not prevent the Company or any Restricted
Subsidiary from discontinuing the operation and the maintenance of any
of its properties if such discontinuance is desirable in the conduct of
its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
9.4 Payment of Taxes and Claims.
The Company will and will cause each of its Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay
and discharge all taxes shown to be due and payable on such returns and
all other taxes, assessments, governmental charges, or levies imposed on
them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets
of the Company or any Subsidiary, provided that neither the Company nor
any Subsidiary need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Subsidiary has established adequate
reserves therefor in accordance with GAAP on the books of the Company or
such Subsidiary or (ii) the nonpayment of all such taxes and assessments
in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
9.5 Corporate Existence, etc.
Each Co-Obligor will at all times preserve and keep in full
force and effect its corporate existence. Subject to Sections 10.2 and
10.9, the Company will at all times preserve and keep in full force and
effect the corporate existence of each of its Restricted Subsidiaries
(unless merged into the Company or a Restricted Subsidiary) and all
rights and franchises of the Company and its Restricted Subsidiaries
unless, in the good faith judgment of the Company, the termination of or
failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect.
9.6 Execution of Subsidiary Guaranty; Release of Subsidiary
Guarantors.
(a) In the event that on or prior to December 31, 1998,
the Company has not taken all action necessary to unconditionally and
absolutely release each Subsidiary Guarantor as a guarantor of and
obligor with respect to any and all Indebtedness and other obligations
under the Credit Agreement, the Company will promptly notify the holders
of the Notes of that fact and as soon as practicable thereafter the
Company shall cause each such Subsidiary Guarantor to execute a
counterpart of the Subsidiary Guaranty. The Company will deliver such
executed counterpart of the Subsidiary Guaranty to the holders of the
Notes, together with (i) certified copies of such Subsidiary Guarantor's
Articles or Certificate of Incorporation, together with a good standing
certificate from the Secretary of State of the jurisdiction of its
incorporation, each to be dated a recent date prior to their delivery to
the holders of the Notes, (ii) a copy of such Subsidiary Guarantor's
Bylaws, certified by its corporate secretary or an assistant corporate
secretary as of a recent date prior to their delivery to the holders of
the Notes, (iii) a certificate executed by the secretary or an assistant
secretary of such Subsidiary Guarantor as to (a) the incumbency and
signatures of the officers of such Subsidiary Guarantor executing the
counterpart of the Subsidiary Guaranty and (b) the fact that the
attached resolutions of the Board of Directors of such Subsidiary
Guarantor authorizing the execution, delivery and performance of the
counterpart of the Subsidiary Guaranty are in full force and effect and
have not been modified or rescinded, and (iv) a favorable opinion of
counsel to the Co-Obligors and such Subsidiary Guarantor, in form and
substance reasonably satisfactory to the holders of the Notes and their
counsel, as to (a) the due organization and good standing of such
Subsidiary Guarantor, (b) the due authorization, execution and delivery
by such Subsidiary Guarantor of the counterpart of the Subsidiary
Guaranty, (c) the enforceability of the counterpart of the Subsidiary
Guaranty, and (d) such other matters as the holders of the Notes may
reasonably request, all of the foregoing to be reasonably satisfactory
in form and substance to the holders of the Notes and their counsel.
(b) If (i) a Subsidiary Guarantor (a "Released
Guarantor") shall have been unconditionally and absolutely released as
a guarantor of and obligor with respect to any and all Indebtedness and
other obligations under the Credit Agreement after December 31, 1998,
and (ii) no Default or Event of Default shall have occurred and be
continuing, the Company shall deliver to each holder of the Notes an
Officer's Certificate to such effect and from and after the date such
Officer's Certificate is delivered to the holders of the Notes, such
Released Guarantor shall, subject to Section 9.6(a) if such Released
Guarantor shall again become a Subsidiary Guarantor, be unconditionally
and absolutely released from its obligations under the Subsidiary
Guaranty.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1 Transactions with Affiliates.
Each Co-Obligor will not and the Company will not permit any
Restricted Subsidiary to enter into directly or indirectly any Material
transaction or Material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than the
Company or another Restricted Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not
an Affiliate.
10.2 Merger, Consolidation, etc..
Neither Co-Obligor shall consolidate with or merge with any
other corporation or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to any Person
unless:
(a) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance,
transfer or lease substantially all of the assets of the Company as an
entirety, as the case may be (the "surviving corporation"), shall be a
solvent corporation organized and existing under the laws of the United
States or any State thereof (including the District of Columbia), and,
if such Co-Obligor is not the surviving corporation, (i) the surviving
corporation shall have executed and delivered to each holder of any
Notes its assumption of the due and punctual performance and observance
of each covenant and condition of this Agreement, the Other Agreements
and the Notes and (ii) shall have caused to be delivered to each holder
of any Notes an opinion of nationally recognized independent counsel, or
other independent counsel reasonably satisfactory to the Required
Holders, to the effect that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and comply
with the terms hereof;
(b) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing and
the surviving corporation would be able to incur at least $1.00 of
Indebtedness under Section 10.3.
No such conveyance, transfer or lease of substantially all of the assets
of such Co-Obligor shall have the effect of releasing such Co-Obligor or
any successor corporation that shall theretofore have become such in the
manner prescribed in this Section 10.2 from its liability under this
Agreement or the Notes.
10.3 Ratio of Total Debt to Consolidated EBITDA.
(a) From the date hereof through October 3, 1999, the
Company will not, and will not permit any of its Restricted
Subsidiaries, to incur additional Indebtedness unless, after giving
effect to the Indebtedness incurred and the application of the proceeds
from the additional Indebtedness incurred, the ratio of (A) Total Debt
to (B) Consolidated EBITDA for the immediately preceding four fiscal
quarters of the Company, is less than 3.50 to 1.00.
(b) From and after October 4, 1999 the Company will not at
any time permit the ratio of (i) Total Debt to (ii) Consolidated EBITDA
for the immediately preceding four fiscal quarters of the Company, to
exceed 3.50 to 1.00.
10.4 Priority Debt Limit.
The Company will not permit at any time Priority Debt to
exceed an aggregate amount equal to 15% of Tangible Net Worth as of the
then most recently ended fiscal quarter of the Company.
10.5 Maintenance of Fixed Charge Coverage Ratio.
The Company will not permit at any time the ratio of
Earnings Available for Fixed Charges to Fixed Charges for the period
comprised of the immediately preceding four fiscal quarters of the
Company to be less than 1.50 to 1.00.
10.6 Maintenance of Tangible Net Worth.
The Company will not permit at any time Tangible Net Worth
to be less than (i) the sum of (A) the Tangible Net Worth as of the end
of the fiscal year of the Company ended October 3, 1998, plus (B) an
aggregate amount equal to 50% of Consolidated Net Income (but only if a
positive number) for the period beginning October 4, 1998 and ending at
the end of the most recently completed fiscal quarter of the Company,
less (ii) $3,000,000.
10.7 Restricted Payments.
The Company will not, and will not permit any of its
Restricted Subsidiaries, at any time, to declare or make, or incur any
liability to declare or make, any Restricted Payment, unless after
giving effect to such action, on a cumulative basis, (i) the aggregate
amount of Restricted Payments of the Company and its Restricted
Subsidiaries declared or made at any time after October 3, 1998 is less
than the sum of (A) an aggregate amount equal to 50% of the Consolidated
Net Income for the period beginning October 4, 1998 and ending at the
end of the most recently completed fiscal quarter of the Company, plus
(B) $5,000,000 plus (C) the aggregate amount of Net Proceeds of Capital
Stock for such period; (ii) no Default or Event of Default would exist;
and (iii) from the date hereof through October 3, 1999 the Co-Obligors
could incur at least $1.00 of additional Indebtedness under Section
10.3.
10.8 Mortgages and Liens.
The Company will not, and will not permit any of its
Restricted Subsidiaries, to directly or indirectly create, incur, assume
or permit to exist (upon the happening of a contingency or otherwise)
any Lien on or with respect to any property or asset (including, without
limitation, any document or instrument in respect of goods or accounts
receivable) of the Company or any such Restricted Subsidiary, whether
now owned or held or hereafter acquired, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or
profits, except:
(a) Liens for taxes, assessments or other governmental
charges which are not yet due and payable or the payment of which is not
at the time required by Section 9.4;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each
case, incurred in the ordinary course of business for sums not yet due
and payable or the payment of which is not at the time required by
Section 9.4;
(c) any attachment or judgment Lien, unless the judgment
it secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not have
been discharged within 60 days after the expiration of any such stay;
(d) Liens on property or assets of the Company or any of
its Restricted Subsidiaries securing Indebtedness owing to the Company
or to another Wholly-Owned Restricted Subsidiary;
(e) Liens existing on the date of this Agreement and
securing the Indebtedness of the Company and its Restricted Subsidiaries
referred to in the Disclosure Letter;
(f) any Lien created to secure all or any part of the
purchase price, or to secure Indebtedness incurred or assumed to pay all
or any part of the purchase price or cost of construction, of tangible
property (or any improvement thereon) acquired or constructed by the
Company or a Restricted Subsidiary after the date of the Closing,
provided that
(i) any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the instrument
originally creating such Lien, other property (or improvement
thereon) which is an improvement to or is acquired for specific
use in connection with such acquired or constructed property (or
improvement thereof) or which is real property being improved by
such acquired or constructed property (or improvement thereon),
(ii) the principal amount of the Indebtedness secured
by any such Lien shall at no time exceed an amount equal to the
lesser of (A) the cost to the Company or such Restricted
Subsidiary of the property (or improvement thereon) so acquired or
constructed and (B) the Fair Market Value (as determined in good
faith by the board of directors of the Company) of such property
(or improvement thereon) at the time of such acquisition or
construction, and
(iii) any such Lien shall be created contemporaneously
with, or within 180 days after, the acquisition or construction of
such property;
(g) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business (i) in connection
with workers' compensation, unemployment insurance and other types of
social security or retirement benefits, or (ii) to secure (or to obtain
letters of credit that secure) the performance of tenders, statutory
obligations, surety bonds, appeal bonds, bids, leases (other than
Capital Leases), performance bonds, purchase, construction or sales
contracts and other similar obligations, in each case not incurred or
made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of
property;
(h) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances,
in each case incidental to, and not interfering with, the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries, provided that such Liens do not, in the aggregate,
materially detract from the value of such property;
(i) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or a
Restricted Subsidiary or its becoming a Restricted Subsidiary, or any
Lien existing on any property acquired by the Company or any Restricted
Subsidiary at the time such property is so acquired (whether or not the
Indebtedness secured thereby shall have been assumed), provided that (i)
no such Lien shall have been created or assumed in contemplation of such
consolidation or merger or such Person's becoming a Restricted
Subsidiary or such acquisition of property, (ii) each such Lien shall
extend solely to the item or items of property so acquired and, if
required by the terms of the instrument originally creating such Lien,
other property which is an improvement to or is acquired for specific
use in connection with such acquired property and (iii) the principal
amount of the Indebtedness secured by any such Lien shall at no time
exceed an amount equal to the Fair Market Value (as determined in good
faith by the board of directors of the Company) of such property (or
improvement thereon) at the time of such consolidation, merger or
acquisition;
(j) any Lien renewing, extending or refunding any Lien
permitted by paragraphs (d), (e), (f) or (i) of this Section 10.8,
provided that (i) the principal amount of Indebtedness secured by such
Lien immediately prior to such extension, renewal or refunding is not
increased or the maturity thereof reduced, (ii) such Lien is not
extended to any other property, and (iii) immediately after such
extension, renewal or refunding no Default or Event of Default would
exist;
(k) other Liens securing Indebtedness not otherwise
permitted by paragraphs (a) through (j) of this Section 10.8, provided
that the sum of such Indebtedness and (without duplication) other
Priority Debt does not exceed an amount equal to 15% of Tangible Net
Worth as of the then most recently ended fiscal quarter of the Company.
10.9 Sale of Assets.
Except as permitted under Section 10.2, the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition, unless:
(a) in the good faith opinion of the Company, the Asset
Disposition is in exchange for consideration having a Fair
Market Value at least equal to that of the property
exchanged and is in the best interest of the Company or such
Restricted Subsidiary;
(b) immediately after giving effect to the Asset
Disposition, no Default or Event of Default would exist; and
(c) immediately after giving effect to the Transfer, the
Net Proceeds Amount of all property that was the subject of
any Asset Disposition occurring in the then current fiscal
year of the Company would not exceed 10% of Consolidated
Assets as of the end of the most recently ended fiscal year
of the Company;
If the Net Proceeds Amount for any Transfer is applied within one year
following receipt of such Net Proceeds Amount to (i) a prepayment of the
Notes which prepayment shall be made without payment of the Make-Whole
Amount or any premium, or (ii) acquire property other than current
assets used in the normal course of operations of the Company and its
Restricted Subsidiaries, then such Transfer, for the purpose of
determining compliance with paragraphs (a) through (c), inclusive, above
as of any date, shall be deemed not to be an Asset Disposition.
10.10 Investments.
The Company will not, and will not permit any of its
Restricted Subsidiaries, to make Investments in or (without duplication)
Guaranty the obligations of any Person, except the following (which are
collectively referred to as "Permitted Investments"):
(a) Investments in property to be used in the ordinary
course of business of the Company and its Restricted Subsidiaries;
(b) Investments in current assets arising from the sale of
goods and services in the ordinary course of business of the Company and
its Restricted Subsidiaries;
(c) Investments in any direct obligation of, or
obligations guaranteed by, the United States of America or any agency
thereof, provided that such obligations mature within 365 days from the
date of acquisition thereof;
(d) Investments in commercial paper given one of the two
highest ratings by a credit rating agency of recognized national
standing and maturing not more than 270 days from the date of creation
thereof;
(e) Investments in certificates of deposit, repurchase
agreements, or similar obligations with a maturity or term of less than
twelve months, issued by a U.S. commercial bank with capital and surplus
of not less than the equivalent of $250,000,000 and which is rated
single A, A2 or equivalent rating or better by a credit rating agency of
recognized national standing;
(f) Investments in or advances to one or more Restricted
Subsidiaries or any Person which concurrently with such Investment
becomes a Restricted Subsidiary;
(g) Advances to employees for expenses incurred in the
ordinary course of business of the Company and its Restricted
Subsidiaries;
(h) Notes and accounts receivable arising from
transactions with customers in the ordinary course of business of the
Company and its Restricted Subsidiaries;
(i) Investments consisting of Guaranties of the
obligations of Unrestricted Subsidiaries provided that such Guaranties
would be permitted as Indebtedness under Section 10.3;
(j) Investments existing on the date of this Agreement and
described in the Disclosure Letter; and
(k) other Investments not otherwise permitted by
paragraphs (a) through (j) of this Section 10.10, provided that the
aggregate amount of all such Investments at any time does not exceed an
amount equal to 5% of Tangible Net Worth as of the then most recently
ended fiscal quarter of the Company.
10.11 Lines of Business.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage to any substantial extent in any
business other than the businesses in which the Company and its
Restricted Subsidiaries are engaged on the date of this Agreement as
described in the Memorandum and businesses reasonably related thereto or
in furtherance thereof.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) any Co-Obligor defaults in the payment of any
principal or Make-Whole Amount, if any, on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) any Co-Obligor defaults in the payment of any interest
on any Note for more than five Business Days after the same becomes due
and payable; or
(c) any Co-Obligor defaults in the performance of or
compliance with any term contained in Sections 9.6 or 10; or
(d) any Co-Obligor defaults in the performance of or
compliance with any term contained herein (other than those referred to
in paragraphs (a), (b) and (c) of this Section 11) and such default is
not remedied within 30 days after the earlier of (i) a Responsible
Officer obtaining actual knowledge of such default and (ii) any Co-
Obligor receiving written notice of such default from any holder of a
Note (any such written notice to be identified as a "notice of default"
and to refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or
on behalf of any Co-Obligor or by any officer of any Co-Obligor in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $2,500,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Subsidiary is in default in the
performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$2,500,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (iii) as a consequence of the occurrence
or continuation of any event or condition (other than the passage of
time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), the Company or any Subsidiary has
become obligated to purchase or repay Indebtedness before its regular
maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $2,500,000, or
(g) the Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage
of any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for the
benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or (vi) takes
corporate action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any of its Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition
in bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its Subsidiaries, or
any such petition shall be filed against the Company or any of its
Subsidiaries and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $2,500,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within 45
days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 45 days after the expiration of such stay;
or
(j) if (i) any Plan shall fail to satisfy the minimum
funding standards of ERISA or the Code for any plan year or part thereof
or a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent
to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under
ERISA section 4042 to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified the Company or any ERISA Affiliate
that a Plan may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the meaning
of section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $10,000,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee
benefit plans, (v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment
welfare benefits in a manner that would increase the liability of the
Company or any Subsidiary thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be
expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and
"employee welfare benefit plan" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1 Acceleration.
(a) If an Event of Default with respect to any Co-Obligor
described in paragraph (g) or (h) of Section 11 (other than an Event of
Default described in clause (i) of paragraph (g) or described in clause
(vi) of paragraph (g) by virtue of the fact that such clause encompasses
clause (i) of paragraph (g)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 40% in principal amount
of the Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Co-Obligors, declare all the Notes
then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or
(b) of Section 11 has occurred and is continuing, any holder or holders
of Notes at the time outstanding affected by such Event of Default may
at any time, at its or their option, by notice or notices to the Co-
Obligors, declare all the Notes held by it or them to be immediately due
and payable.
Upon any Notes becoming due and payable under this
Section 12.1, whether automatically or by declaration, such Notes will
forthwith mature and the entire unpaid principal amount of such Notes,
plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole
Amount determined in respect of such principal amount (to the full
extent permitted by applicable law), shall all be immediately due and
payable, in each and every case without presentment, demand, protest or
further notice, all of which are hereby waived. Each Co-Obligor
acknowledges, and the parties hereto agree, that each holder of a Note
has the right to maintain its investment in the Notes free from
repayment by the Co-Obligors (except as herein specifically provided
for) and that the provision for payment of a Make-Whole Amount by the
Co-Obligors in the event that the Notes are prepaid or are accelerated
as a result of an Event of Default, is intended to provide compensation
for the deprivation of such right under such circumstances.
12.2 Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have
been declared immediately due and payable under Section 12.1, the holder
of any Note at the time outstanding may proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or in any Note, or for an injunction against
a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or otherwise.
12.3 Rescission.
At any time after any Notes have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the holders of
not less than 60% in principal amount of the Notes then outstanding, by
written notice to the Co-Obligors, may rescind and annul any such
declaration and its consequences if (a) the Co-Obligors have paid all
overdue interest on the Notes, all principal of and Make-Whole Amount,
if any, on any Notes that are due and payable and are unpaid other than
by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the
Default Rate, (b) all Events of Default and Defaults, other than non-
payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17,
and (c) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of
Default or Default or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder
of any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this Agreement or by
any Note upon any holder thereof shall be exclusive of any other right,
power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting
the obligations of the Co-Obligors under Section 15, the Co-Obligors
will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder
incurred in any enforcement or collection under this Section 12,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1 Registration of Notes.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes.
The name and address of each holder of one or more Notes, each transfer
thereof and the name and address of each transferee of one or more Notes
shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Co-Obligors shall not be affected by
any notice or knowledge to the contrary. The Company shall give to any
holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2 Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case
of a surrender for registration of transfer, duly endorsed or
accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in
writing and accompanied by the address for notices of each transferee of
such Note or part thereof), the Co-Obligors shall execute and deliver,
at the Co-Obligors' expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as
such holder may request and shall be substantially in the form of
Exhibit 1. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or
dated the date of the surrendered Note if no interest shall have been
paid thereon. The Co-Obligors may require payment of a sum sufficient
to cover any stamp tax or governmental charge imposed in respect of any
such transfer of Notes. Notes shall not be transferred in denominations
of less than $1,000,000, provided that if necessary to enable the
registration of transfer by a holder of its entire holding of Notes, one
Note may be in a denomination of less than $1,000,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in
Section 6.2.
13.3 Replacement of Notes.
Upon receipt by each Co-Obligor of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (provided that if the holder of
such Note is, or is a nominee for, an original Purchaser or another
holder of a Note with a minimum net worth of at least $100,000,000, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof, each Co-Obligor at its own expense shall execute
and deliver, in lieu thereof, a new Note, dated and bearing interest
from the date to which interest shall have been paid on such lost,
stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.1 Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall
be made in San Francisco, California at the principal office of the
Company in such jurisdiction. The Co-Obligors may at any time, by
notice to each holder of a Note, change the place of payment of the
Notes so long as such place of payment shall be either the principal
office of the Company in such jurisdiction or the principal office of a
bank or trust company in such jurisdiction.
14.2 Home Office Payment.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such
Note to the contrary, the Co-Obligors will pay all sums becoming due on
such Note for principal, Make-Whole Amount, if any, and interest by the
method and at the address specified for such purpose below your name in
Schedule A, or by such other method or at such other address as you
shall have from time to time specified to the Company in writing for
such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company
at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to
any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid
thereon or surrender such Note to the Company in exchange for a new Note
or Notes pursuant to Section 13.2. The Co-Obligors will afford the
benefits of this Section 14.2 to any Institutional Investor that is the
direct or indirect transferee of any Note purchased by you under this
Agreement and that has made the same agreement relating to such Note as
you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1 Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Co-Obligors, jointly and severally, agree to pay all
costs and expenses (including reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by
you and each Other Purchaser or holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents
under or in respect of this Agreement or the Notes (whether or not such
amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any
rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the Notes, or by reason of being a
holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy
of the Company or any Subsidiary or in connection with any work-out or
restructuring of the transactions contemplated hereby and by the Notes.
The Co-Obligors will pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses
if any, of brokers and finders (other than those retained by you).
15.2 Survival.
The obligations of the Co-Obligors under this Section 15
will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the Notes, and
the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the
purchase or transfer by you of any Note or portion thereof or interest
therein and the payment of any Note, and may be relied upon by any
subsequent holder of a Note, regardless of any investigation made at any
time by or on behalf of you or any other holder of a Note. All
statements contained in any certificate or other instrument delivered by
or on behalf of any Co-Obligor pursuant to this Agreement shall be
deemed representations and warranties of the Co-Obligors under this
Agreement. Subject to the preceding sentence, this Agreement and the
Notes embody the entire agreement and understanding between you and the
Co-Obligors and supersede all prior agreements and understandings
relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1 Requirements.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written
consent of the Co-Obligors and the Required Holders, except that no such
amendment or waiver may, without the written consent of the holder of
each Note at the time outstanding affected thereby, (i) subject to the
provisions of Section 12 relating to acceleration or rescission, change
the amount or time of any prepayment or payment of principal of, or
reduce the rate or change the time of payment or method of computation
of interest or of the Make-Whole Amount on, the Notes, (ii) change the
percentage of the principal amount of the Notes the holders of which are
required to consent to any such amendment or waiver, (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20, or (iv) grant any preference
between the holders of the Notes and any other creditors of the Co-
Obligors.
17.2 Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of
the Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of this
Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent
or approval of, the requisite holders of Notes.
(b) Payment. The Co-Obligors will not directly or
indirectly pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for or as an
inducement to the entering into by any holder of Notes or any waiver or
amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted,
on the same terms, ratably to each holder of Notes then outstanding even
if such holder did not consent to such waiver or amendment.
17.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon
them and upon each future holder of any Note and upon the Co-Obligors
without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or
affect any obligation, covenant, agreement, Default or Event of Default
not expressly amended or waived or impair any right consequent thereon.
No course of dealing between any Co-Obligor and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As used
herein, the term "this Agreement" and references thereto shall mean
this Agreement as it may from time to time be amended or supplemented.
17.4 Notes held by Co-Obligor, etc.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to
be given under this Agreement or the Notes, or have directed the taking
of any action provided herein or in the Notes to be taken upon the
direction of the holders of a specified percentage of the aggregate
principal amount of Notes then outstanding, Notes directly or indirectly
owned by any Co-Obligor or any of its Affiliates shall be deemed not to
be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall
be in writing and sent (a) by telecopy if the sender on the same day
sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid), or (c) by a
recognized overnight delivery service (with charges prepaid). Any such
notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at
such other address as you or it shall have specified to the
Company in writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have specified
to the Company in writing, or
(iii) if to the Co-Obligors, to the Company at its
address set forth at the beginning hereof to the attention of
Treasurer, BEI Technologies, Inc. or at such other address as the
Company shall have specified to the holder of each Note in
writing.
Notices under this Section 18 will be deemed given only when actually
received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers and modifications
that may hereafter be executed, (b) documents received by you at the
Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to
you, may be reproduced by you by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process
and you may destroy any original document so reproduced. Each Co-Obligor
agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made
by you in the regular course of business) and any enlargement, facsimile
or further reproduction of such reproduction shall likewise be
admissible in evidence. This Section 19 shall not prohibit any Co-
Obligor or any other holder of Notes from contesting any such
reproduction to the same extent that it could contest the original, or
from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential
Information" means information delivered to you by or on behalf of the
Company or any Subsidiary in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or
otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided
that such term does not include information that (a) was publicly known
or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by
you or any person acting on your behalf, (c) otherwise becomes known to
you other than through disclosure by the Company or any Subsidiary or
(d) constitutes financial statements delivered to you under Section 7.1
that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may
deliver or disclose Confidential Information to (i) your directors,
officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the
investment represented by your Notes), (ii) your financial advisors and
other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of
this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or
any part thereof or any participation therein (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (v) any Person from which
you offer to purchase any security of any Co-Obligor (if such Person has
agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20), (vi) any federal or
state regulatory authority having jurisdiction over you, (vii) the
National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires
access to information about your investment portfolio or (viii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (w) to effect compliance with any law, rule, regulation or
order applicable to you, (x) in response to any subpoena or other legal
process, (y) in connection with any litigation to which you are a party
or (z) if an Event of Default has occurred and is continuing, to the
extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the
rights and remedies under your Notes and this Agreement. Each holder of
a Note, by its acceptance of a Note, will be deemed to have agreed to be
bound by and to be entitled to the benefits of this Section 20 as though
it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information
required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this
Agreement or its nominee), such holder will enter into an agreement with
the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to
purchase hereunder, by written notice to the Co-Obligors, which notice
shall be signed by both you and such Affiliate, shall contain such
Affiliate's agreement to be bound by this Agreement and shall contain a
confirmation by such Affiliate of the accuracy with respect to it of the
representations set forth in Section 6. Upon receipt of such notice,
wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall be deemed to refer to such Affiliate in
lieu of you. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to you all
of the Notes then held by such Affiliate, upon receipt by the Co-
Obligors of notice of such transfer, wherever the word "you" is used in
this Agreement (other than in this Section 21), such word shall no
longer be deemed to refer to such Affiliate, but shall refer to you, and
you shall have all the rights of an original holder of the Notes under
this Agreement.
22. GUARANTEE
22.1 Guarantee.
Each of the Co-Obligors hereby acknowledges and agrees that
it is a primary obligor with respect to all obligations under this
Agreement and the Notes, jointly and severally liable with the other Co-
Obligor. If, notwithstanding the foregoing a court should find that
either Co-Obligor is a guarantor or surety with respect to the
obligations of the other Co-Obligor under this Agreement and the Notes,
each Co-Obligor hereby guarantees to the holders of the Notes the prompt
payment in full when due (whether at stated maturity, by acceleration,
by optional prepayment or otherwise) of the principal of and interest on
the Notes and all other amounts from time to time owing by the other Co-
Obligor to the holders of the Notes under this Agreement and under the
Notes, in each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed
Obligations"). Each Co-Obligor hereby further agrees that if the other
Co-Obligor shall fail to pay in full when due (whether at stated
maturity, by acceleration, by optional prepayment or otherwise) any of
the Guaranteed Obligations, it will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of
time of payment or renewal of any of the Guaranteed Obligations, the
same will be promptly paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.
22.2 Obligations Unconditional.
(a) The obligations of each Co-Obligor hereunder are
unconditional irrespective of (i) the value, genuineness, validity,
regularity or enforceability of any of the Guaranteed Obligations, (ii)
any modification, amendment or variation in or addition to the terms of
any of the Guaranteed Obligations or any covenants in respect thereof or
any security therefor, (iii) any extension of time for performance or
waiver of performance of any covenant of any Co-Obligor or any failure
or omission to enforce any right with regard to any of the Guaranteed
Obligations , (iv) any exchange, surrender, release of any other
guaranty of or security for any of the Guaranteed Obligations, or (v)
any other circumstance with regard to any of the Guaranteed Obligations
which may or might in any manner constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent
hereof that the obligations of each Co-Obligor hereunder shall be
absolute and unconditional under any and all circumstances.
(b) Each Co-Obligor hereby expressly waives diligence,
presentment, demand, protest, and all notices whatsoever with regard to
any of the Guaranteed Obligations and any requirement that any holder of
a Note exhaust any right, power or remedy or proceed against any Co-
Obligor hereunder or under any Note or any other guarantor of or any
security for any of the Guaranteed Obligations.
22.3 Reinstatement.
The guarantee in this Section 22 shall be automatically
reinstated if and to the extent that for any reason any payment by or on
behalf of any Co-Obligor in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder(s) of any of the
Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise.
22.4 Subrogation.
Until the payment in full of the principal of and interest
on the Notes and all other amounts payable to the holders of the Notes
hereunder, each Co-Obligor hereby irrevocably waives all rights of
subrogation or contribution, whether arising by operation of law
(including, without limitation, any such right arising under the Federal
Bankruptcy Code) or otherwise, by reason of any payment by it pursuant
to the provisions of this Section 22.
23. MISCELLANEOUS.
23.1 Successors and Assigns.
All covenants and other agreements contained in this
Agreement by or on behalf of any of the parties hereto bind and inure to
the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Note) whether so
expressed or not.
23.2 Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or
interest on any Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on
such next succeeding Business Day.
23.3 Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such
provision in any other jurisdiction.
23.4 Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person.
23.5 Counterparts.
This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist
of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
23.6 Governing Law.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction
other than such State.
* * * *
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and
return it to the Company, whereupon the foregoing shall become a binding
agreement between you and the Co-Obligors.
Very truly yours,
BEI TECHNOLOGIES, INC.
By_________________________________
Name: Charles Crocker
Title: Chairman of the Board,
President and Chief Executive Officer
By_________________________________
Name: Robert R. Corr
Title: Secretary and Treasurer
BEI SENSORS & SYSTEMS COMPANY, INC.
By_________________________________
Name: Charles Crocker
Title: Chairman of the Board
By_________________________________
Name: Robert R. Corr
Title: Secretary and Treasurer
The foregoing is hereby
agreed to as of the
date thereof.
ALLSTATE LIFE INSURANCE COMPANY
By:________________________________
Name:
By:________________________________
Name:
Authorized Signatories
The foregoing is hereby
agreed to as of the
date thereof.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
By CIGNA Investments, Inc.
By:________________________________
Name:
Title:
The foregoing is hereby
agreed to as of the
date thereof.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
on behalf of one or more separate accounts
By CIGNA Investments, Inc.
By:________________________________
Name:
Title:
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
Connecticut General Life Insurance Company
$10,000,000.00
$4,000,000.00
$3,000,000.00
(1) All payments by federal wire trans-
fer of immediately available
funds to:
Chase NYC/CTR/
BNF = CICGN Private Placements/AC = 9009001802
ABA# 021000021
including:
OBI = [Name of Company', description of the security; the
interest rate; maturity date; PPN; due date and application
(as to whether principal, premium and interest of the
payment is being made; contact name and phone.]
with any additional information
necessary to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
FAX: 212-552-3107/1005
(3) All other communications:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
Connecticut General Life Insurance Company,
$3,000,000.00
on behalf of one or more separate accounts
(1) All payments by federal wire trans-
fer of immediately available
funds to:
Chase NYC/CTR/
BNF = CICGN Private Placements/AC = 9009001802
ABA# 021000021
including:
OBI = [Name of Company', description of the security; the
interest rate; maturity date; PPN; due date and application
(as to whether principal, premium and interest of the
payment is being made; contact name and phone.]
with any additional information
necessary to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
FAX: 212-552-3107/1005
(3) All other communications:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
Allstate Life Insurance Company
$15,000,000.00
(1) All payments by wire trans-
fer of immediately available
funds, identifying the Issuer,
the Private Placement Number preceded by
"DPP" and the payment as principal,
interest or premium in the format that follows:
BBK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-117-0
ORG = BEI Technologies, Inc.
OBI = DPP - (Private Placement Number)
Payment Due Date (MM/DD/YY) - P_ (enter "P" and
amount of principal being remitted, for example,
P5000000.00)
- I_ (enter "I" and amount of interest being
remitted, for example I225000.00)
with any additional
information necessary
to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Allstate Insurance Company
Investment Operations - Private Placements
3075 Sanders Road, STE G4A
Northbrook, IL 60062-7127
Telephone: (847) 402-2769
Telecopy: (847) 326-5040
(3) Securities to be delivered to:
Citibank, Federal Savings Bank
U.S. Custody & Employee Benefit Trust
500 W. Madison Street, Floor 6, Zone 4
Chicago, Illinois 60661-2591
Attention: Ellen Lorden
For Allstate Life Insurance Company/Safekeeping Account No.
846627
(4) All other communications:
Allstate Life Insurance Company
Private Placements Department
3075 Sanders Road, STE G3A
Northbrook, Illinois 60062-7127
Telephone: (847) 402-4394
Telecopy: (847) 402-3092
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following
such term:
"Affiliate" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or indirectly
through one or more intermediaries Controls, or is Controlled by, or is
under common Control with, such first Person, and (b) any Person
beneficially owning or holding, directly or indirectly, 10% or more of
any class of voting or equity interests of the Company or any Subsidiary
or any corporation of which the Company and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10%
or more of any class of voting or equity interests. As used in this
definition, "Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise
clearly requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company.
"Asset Disposition" means any Transfer, including, without
limitation, a Sale-and-Leaseback Transaction, except:
(a) any Transfer
(i) from a Restricted Subsidiary to the Company or a
Wholly-Owned Restricted Subsidiary
(ii) from the Company to a Wholly-Owned Restricted
Subsidiary;
(iii) from the Company to a Restricted Subsidiary
(other than a Wholly-Owned Restricted Subsidiary) or from a
Restricted Subsidiary to another Restricted Subsidiary
(other than a Wholly-Owned Restricted Subsidiary), which in
either case is for Fair Market Value, so long as immediately
before and immediately after the consummation of any such
Transfer and after giving effect thereto, no Default or
Event of Default exists; and
(iv) of receivables at face value and without
recourse; and
(b) any Transfer made in the ordinary course of business
and involving only property that is either (i) inventory held for sale
or (ii) equipment, fixtures, supplies or materials no longer required in
the operation of the business of the Company or any of its Restricted
Subsidiaries or that is obsolete.
"Attributable Debt" means, as to any lease relating to a
Sale-and-Leaseback Transaction, the present value of all Long Term Lease
Rentals required to be paid by the Company or any Restricted Subsidiary
under such lease during the remaining term thereof (determined in
accordance with generally accepted financial practice using a discount
factor equal to the interest rate implicit in such lease if known or, if
not known, of 8% per annum).
"Business Day" means (a) for the purposes of Section 8.6
only, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City are required or authorized to be
closed, and (b) for the purposes of any other provision of this
Agreement, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York, Chicago or San Francisco are required or
authorized to be closed.
"Capital Lease" means, at any time, a lease with respect
to which the lessee is required concurrently to recognize the
acquisition of an asset and the incurrence of a liability in accordance
with GAAP.
"Capital Lease Obligation" means, with respect to any
Person and a Capital Lease, the amount of the obligation of such Person
as the lessee under such Capital Lease which would, in accordance with
GAAP, appear as a liability on a balance sheet of such Person.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder
from time to time.
"Company" means BEI Technologies, Inc., a Delaware
corporation.
"Confidential Information" is defined in Section 20.
"Consolidated Assets" means, at any time, the total assets
of the Company and its Restricted Subsidiaries which would be shown as
assets on a consolidated balance sheet of the Company and its Restricted
Subsidiaries as of such time prepared in accordance with GAAP, after
eliminating all amounts properly attributable to minority interests, if
any, in the stock and surplus of Restricted Subsidiaries.
"Consolidated EBITDA" means, with reference to any period,
the sum of Consolidated Net Earnings for such period plus all amounts
deducted in the computation thereof on account of (a) taxes imposed on
or measured by income or excess profits, (b) interest expense, (c)
depreciation, and (d) amortization.
"Consolidated Net Earnings" means, with reference to any
period, Consolidated Net Income, but excluding:
(a) the income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary;
(b) the income (or loss) of any Person (other than a
Restricted Subsidiary) in which the Company or any
Restricted Subsidiary has an ownership interest except to
the extent actually received;
(c) the undistributed earnings of any Restricted Subsidiary
to the extent that the declaration or payment of such
dividends is prohibited;
(d) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was
made out of income accrued during such period;
(e) any aggregate net gain (but not any aggregate net loss)
during such period arising from the sale, conversion,
exchange or other disposition of capital assets;
(f) any gains resulting from any write-up of any assets (but
not any loss resulting from any write-down of any assets);
(g) any gains resulting from the collection of the proceeds
of life insurance policies;
(h) any gain arising from the acquisition of any Security or
the extinguishment of any Indebtedness of the Company or any
Restricted Subsidiary;
(i) any net income or gain (but not any net loss) from
changes in accounting principles, prior period adjustments,
or extraordinary items;
(j) any deferred credit representing the excess of equity in
any Restricted Subsidiary at the date of acquisition over
the cost of the investment in such Restricted Subsidiary;
(k) in the case of a successor to either Co-Obligors by
consolidation or merger, any earnings of the successor
corporation prior to such consolidation or merger; and
(l) any portion of such net income that cannot be freely
converted into United States Dollars.
"Consolidated Net Income" means, with reference to any
period, the net income (or loss) of the Company and its Restricted
Subsidiaries for such period (taken as a cumulative whole), as
determined in accordance with GAAP, after eliminating all offsetting
debits and credits between the Company and its Restricted Subsidiaries
and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Restricted Subsidiaries in accordance with GAAP.
"Co-Obligors" means collectively, the Company and Sensors
& Systems.
"Credit Agreement" means that certain Credit Agreement
dated as of September 27, 1997 among the Co-Obligors, the lenders
referred to therein, Defense Systems Company, Inc., as subsidiary
guarantor, Canadian Imperial Bank of Commerce, New York Agency, as
agent, Canadian Imperial Bank of Commerce, as designated issuer, and
CIBC Wood Gundy Securities Corp., as arranger, as amended, supplemented
or otherwise modified from time to time (including any amended and
restated credit agreement), together with any other credit agreement or
loan agreement which replaces such credit agreement.
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice
or both, become an Event of Default.
"Default Rate" means that rate of interest that is the
greater of (i) 2% per annum above the rate of interest stated in clause
(a) of the first paragraph of the Notes or (ii) 2% over the rate of
interest publicly announced by The Chase Manhattan Bank in New York, New
York as its "base" or "prime" rate.
"Disclosure Letter" means the letter dated November 16,
1998 addressed to you and the Other Purchasers from the Company.
"Distribution" means (a) dividends or other distributions
or payments on capital stock or other equity interests of a corporation,
association or other business entity (except distributions in such stock
or other equity interests); and (b) the redemption or acquisition of
such stock or other equity interests or of warrants, rights or other
options to purchase such stock or other equity interests (except when
solely in exchange for such stock or other equity interests) unless
made, contemporaneously, from the net proceeds of a sale of such stock
or other equity interests.
"Earnings Available for Fixed Charges" means, with
reference to any period, the sum of Consolidated Net Earnings for such
period plus all amounts deducted in the computations thereof on account
of (a) taxes imposed on or measured by income or excess profits, and (b)
Fixed Charges.
"Environmental Laws" means any and all Federal, state,
local, and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution
and the protection of the environment or the release of any materials
into the environment, including but not limited to those related to
hazardous substances or wastes, air emissions and discharges to waste or
public systems.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the rules and regulations
promulgated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" means, at any time and with respect to
any property, the sale value of such property that would be realized in
an arm's-length sale at such time between an informed and willing buyer
and an informed and willing seller (neither being under a compulsion to
buy or sell).
"Fixed Charges" means, with respect to any period, the
sum of (a) Interest Charges for such period and (b) Lease Rentals for
such period.
"GAAP" means generally accepted accounting principles as
in effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business,
or which asserts jurisdiction over any properties of
the Company or any Subsidiary, or
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or
pertaining to, any such government.
"Guaranty" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or
other obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through
an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such indebtedness or obligation, or (ii) to
maintain any working capital or other balance sheet
condition or any income statement condition of any other
Person or otherwise to advance or make available funds for
the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of any other
Person to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that
are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"Hazardous Material" means any and all pollutants, toxic
or hazardous wastes or any other substances that might pose a hazard to
health or safety, the removal of which may be required or the
generation, manufacture, refining, production, processing, treatment,
storage, handling, transportation, transfer, use, disposal, release,
discharge, spillage, seepage, or filtration of which is or shall be
restricted, prohibited or penalized by any applicable law (including,
without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).
"holder" means, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by the
Company pursuant to Section 13.1.
"Indebtedness" with respect to any Person means, at any
time, without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred
Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable
arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such
property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether
or not it has assumed or otherwise become liable for such
liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted
for its account by banks and other financial institutions
(whether or not representing obligations for borrowed
money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to
liabilities of a type described in any of clauses (a)
through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (a) through (g) to the extent such
Person remains legally liable in respect thereof notwithstanding that
any such obligation is deemed to be extinguished under GAAP.
"Institutional Investor" means (a) any original purchaser
of a Note, (b) any holder of a Note holding more than 5% of the
aggregate principal amount of the Notes then outstanding, and (c) any
bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance
company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.
"Interest Charges" means, with respect to any period, the
sum (without duplication) of the following (in each case, eliminating
all offsetting debits and credits between the Company and its Restricted
Subsidiaries and all other items required to be eliminated in the course
of the preparation of consolidated financial statements of the Company
and its Restricted Subsidiaries in accordance with GAAP): (a) all
interest in respect of Indebtedness of the Company and its Restricted
Subsidiaries (including imputed interest on Capital Lease Obligations)
deducted in determining Consolidated Net Income for such period, and (b)
all debt discount and expense amortized or required to be amortized in
the determination of Consolidated Net Income for such period.
"Investment" means any investment, made in cash or by
delivery of property, by the Company or any of its Restricted
Subsidiaries (i) in any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, Guaranty,
advance, capital contribution or otherwise, or (ii) in any property.
"Lease Rentals" means, with respect to any period, the sum
of the minimum amount of rental and other obligations required to be
paid during such period by the Company or any Restricted Subsidiary as
lessee under all leases of real or personal property (other than Capital
Leases), excluding any amounts required to be paid by the lessee
(whether or not therein designated as rental or additional rental) (a)
which are on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges, or (b) which are based on
profits, revenues or sales realized by the lessee from the leased
property or otherwise based on the performance of the lessee.
"Lien" means, with respect to any Person, any mortgage,
lien, pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party
to or of such Person under any conditional sale or other title retention
agreement or Capital Lease, upon or with respect to any property or
asset of such Person (including in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"Long Term Lease Rentals" means, with respect to any
period, the sum of the minimum amount of rental and other obligations
required to be paid during such period by the Company or any Restricted
Subsidiary as lessee any leases of real or personal property (other than
Capital Leases) having a term (including terms of renewal or extension
at the option of the lessor or the lessee, whether or not such option
has been exercised) expiring more than three years after the
commencement of the initial term, excluding any amounts required to be
paid by the lessee (whether or not therein designated as rental or
additional rental) (a) which are on account of maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges, or (b)
which are based on profits, revenues or sales realized by the lessee
from the leased property or otherwise based on the performance of the
lessee.
"Make-Whole Amount" is defined in Section 8.6.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or
prospects of the Company and its Restricted Subsidiaries taken as a
whole.
"Material Adverse Effect" means a material adverse effect
on (a) the business, operations, affairs, financial condition, assets or
properties of the Company and its Restricted Subsidiaries taken as a
whole, or (b) the ability of any Co-Obligor to perform its obligations
under this Agreement and the Notes, or (c) the validity or
enforceability of this Agreement or the Notes.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of
ERISA).
"Net Proceeds Amount" means, with respect to any Transfer
of any property by any Person, an amount equal to the difference of:
(a) the aggregate amount of the consideration (valued at
the Fair Market Value of such consideration at the time of
the consummation of such Transfer) received by such Person
in respect of such Transfer, minus
(b) all ordinary and reasonable out-of-pocket costs,
expenses and taxes on any net gain with respect to such
Transfer, in each case actually incurred by such Person in
connection with such Transfer.
"Net Proceeds of Capital Stock" means, with respect to
any period, cash proceeds (net of all costs and out-of-pocket expenses
in connection therewith, including, without limitation, placement,
underwriting and brokerage fees and expenses), received by the Company
and its Restricted Subsidiaries from the sale of all capital stock
(other than Redeemable capital stock) of the Company or its Restricted
Subsidiaries, including in such net proceeds (a) the net amount paid
upon issuance and exercise during such period of any right to acquire
any capital stock, or paid during such period to convert a convertible
debt Security to capital stock (but excluding any amount paid to the
Company or its Restricted Subsidiaries upon issuance of such convertible
debt Security), and (b) any amount paid to the Company and its
Restricted Subsidiaries upon issuance of any convertible debt Security
issued after the date hereof and thereafter converted to capital stock.
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of either Co-Obligor whose
responsibilities extend to the subject matter of such certificate.
"Other Agreements" is defined in Section 2.
"Other Purchasers" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA or any successor thereto.
"Permitted Investments" is defined in Section 10.10.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
"Plan" means an "employee benefit plan" (as defined in
section 3(3) of ERISA) that is or, within the preceding five years, has
been established or maintained, or to which contributions are or, within
the preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or
any ERISA Affiliate may have any liability.
"Preferred Stock" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of
such corporation as to the payment of dividends or the payment of any
amount upon liquidation or dissolution of such corporation.
"Priority Debt" means, without duplication, the sum of
(a) all Indebtedness of either Co-Obligor secured by any Lien with
respect to any property owned by the Company or any of its Restricted
Subsidiaries incurred pursuant to Section 10.8(k), provided that
Priority Debt shall not include the 7.96% mortgage note in the principal
amount of approximately $1,705,000 as of the Closing Date made by BEI
Properties, Inc. in favor of Wells Fargo Bank or any refinancing
thereof, (b) all Indebtedness of Restricted Subsidiaries other than
Sensors & Systems (except Indebtedness held by the Company or a Wholly-
Owned Restricted Subsidiary), provided that subject to compliance with
Section 9.6, Priority Debt shall not include Indebtedness of the
Subsidiary Guarantors in respect of obligations under the Credit
Agreement or under the Subsidiary Guaranty, and (c) all Attributable
Debt of the Company and its Restricted Subsidiaries.
"property" or "properties" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.
"QPAM Exemption" means Prohibited Transaction Class
Exemption 84-14 issued by the United States Department of Labor.
"Redeemable" means, with respect to the capital stock of
any Person, each share of such Person's capital stock that is (a)
redeemable, payable or required to be purchased or otherwise retired or
extinguished, or convertible into Indebtedness of such Person (i) at a
fixed or determinable date, whether by operation of sinking fund or
otherwise, (ii) at the option of any Person other than such Person, or
(iii) upon the occurrence of a condition not solely within the control
of such Person; or (b) convertible into other Redeemable capital stock.
"Required Holders" means, at any time, the holders of at
least 66 2/3% in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by the Company or any of its Affiliates).
"Responsible Officer" means any Senior Financial Officer
and any other officer of any Co-Obligor with responsibility for the
administration of the relevant portion of this agreement.
"Restricted Payment" means (a) any Distribution in respect
of the Company or any Restricted Subsidiary of the Company (other than
on account of capital stock or other equity interests of a Restricted
Subsidiary of the Company owned legally and beneficially by the Company
or another Restricted Subsidiary of the Company), including, without
limitation, any Distribution resulting in the acquisition by the Company
of Securities which would constitute treasury stock, and (b) any
payment, repayment, redemption, retirement, repurchase or other
acquisition, direct or indirect, by the Company or any Restricted
Subsidiary of, on account of, or in respect of, the principal of any
Subordinated Debt (or any instalment thereof) prior to the regularly
scheduled maturity date thereof (as in effect on the date such
Subordinated Debt was originally incurred). For purposes of this
Agreement, the amount of any Restricted Payment made in property shall
be the greater of (x) the Fair Market Value of such property (as
determined in good faith by the board of directors (or equivalent
governing body) of the Person making such Restricted Payment) and (y)
the net book value thereof on the books of such Person, in each case
determined as of the date on which such Restricted Payment is made.
"Restricted Subsidiary" means Sensors & Systems and any
other Subsidiary of the Company of which at least 80% of the equity
interests and voting interests are owned by the Company or one or more
of its Restricted Subsidiaries and which is not designated as an
Unrestricted Subsidiary. The Company may designate in writing to each
of the holders of the Notes any Unrestricted Subsidiary which satisfies
the foregoing requirement as a Restricted Subsidiary and may designate
in writing to each of the holders of the Notes any Restricted Subsidiary
as an Unrestricted Subsidiary; provided that (i) no such designation of
an Unrestricted Subsidiary as a Restricted Subsidiary shall be effective
unless immediately after giving effect thereto such Subsidiary could
incur an additional $1.00 of Indebtedness under Sections 10.3 and 10.4,
(ii) no such designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be effective unless (x) such designation is treated as
a transfer under Sections 10.2 and 10.9 and such designation is
permitted by Sections 10.2 and 10.9 and (y) such Subsidiary does not own
any stock, other equity interest or Indebtedness of the Company or a
Restricted Subsidiary; and (iii) no such designation of a Restricted
Subsidiary as an Unrestricted Subsidiary or of an Unrestricted
Subsidiary as a Restricted Subsidiary shall be effective unless,
immediately after giving effect thereto (A) the Company could incur at
least $1.00 of additional Indebtedness under Section 10.3 and no Default
or Event of Default would exist; provided, further, that no Unrestricted
Subsidiary which was previously a Restricted Subsidiary may be
designated a Restricted Subsidiary.
"Sale-and-Leaseback Transaction" means a transaction or
series of transactions pursuant to which the Company or any Restricted
Subsidiary shall sell or transfer to any Person (other than the Company
or a Wholly-Owned Restricted Subsidiary) any property, whether now owned
or hereafter acquired, and, as part of the same transaction or series of
transactions, the Company or any Restricted Subsidiary shall rent or
lease as lessee (other than pursuant to a Capital Lease), or similarly
acquire the right to possession or use of, such property or one or more
properties which it intends to use for the same purpose or purposes as
such property.
"Securities Act" means the Securities Act of 1933, as
amended from time to time.
"Security" has the meaning set forth in Section 2(l) of
the Securities Act.
"Senior Financial Officer" means the chief financial
officer, principal accounting officer, treasurer or comptroller of the
Company.
"Sensors & Systems" means BEI Sensors & Systems Company,
Inc., a Delaware corporation.
"Subordinated Debt" means any Indebtedness that is in any
manner subordinated in right of payment or security in any respect to
Indebtedness evidenced by the Notes.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more
of its Subsidiaries or such Person and one or more of its Subsidiaries
owns sufficient equity or voting interests to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a majority
of the directors (or Persons performing similar functions) of such
entity, and any partnership or joint venture if more than a 50% interest
in the profits or capital thereof is owned by such Person or one or more
of its Subsidiaries or such Person and one or more of its Subsidiaries
(unless such partnership can and does ordinarily take major business
actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the
Company.
"Subsidiary Guarantor" means each Subsidiary (other than
Sensors & Systems) that is or is required to be a party to a guaranty,
or is a co-obligor with respect to any Indebtedness, pursuant to the
terms of the Credit Agreement but only for so long as such guaranty or
co-obligor status is effective pursuant to the terms of the Credit
Agreement.
"Subsidiary Guaranty" means a subsidiary guaranty
agreement, in form and substance reasonably satisfactory to the holders
of the Notes and their counsel, executed by the Subsidiary Guarantors,
pursuant to which the Subsidiary Guarantors unconditionally guarantee
the obligations of the Co-Obligors under this Agreement and the Notes.
"Swaps" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and
similar obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency. For the purposes
of this Agreement, the amount of the obligation under any Swap shall be
the amount determined in respect thereof as of the end of the then most
recently ended fiscal quarter of such Person, based on the assumption
that such Swap had terminated at the end of such fiscal quarter, and in
making such determination, if any agreement relating to such Swap
provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the
amount of such obligation shall be the net amount so determined.
"Tangible Net Worth" means, at any time, stockholders'
equity as set forth on the consolidated balance sheet of the Company and
its Subsidiaries determined in accordance with GAAP, minus (a) the net
book value of all assets of the Company and its Subsidiaries (after
deducting any reserves applicable thereto) which would be shown as
goodwill, patents or trade names on a consolidated balance sheet of the
Company and its Subsidiaries as of such time prepared in accordance with
GAAP, and (b) the net book value of Investments in Unrestricted
Subsidiaries.
"Total Debt" means, as of any date of determination, the
total of all Indebtedness of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Transfer" means, with respect to any Person, any
transaction in which such Person sells, conveys, transfers or leases (as
lessor) any of its property. For purposes of determining the
application of the Net Proceeds Amount in respect of any Transfer, the
Company may designate any Transfer as one or more separate Transfers
each yielding a separate Net Proceeds Amount.
"Unrestricted Subsidiary" means any Subsidiary which is
designated as an Unrestricted Subsidiary on Schedule 5.4 attached hereto
or is designated as such in writing by the Company to each of the
holders of the Notes pursuant to the definition of "Restricted
Subsidiary".
"Wholly-Owned Restricted Subsidiary" means, at any time,
any Restricted Subsidiary one hundred percent (100%) of all of the
equity interests (except directors' qualifying shares) and voting
interests of which are owned by any one or more of the Company and the
Company's other Wholly-Owned Restricted Subsidiaries at such time.
EXHIBIT 1
[FORM OF NOTE]
BEI TECHNOLOGIES, INC.
BEI SENSORS & SYSTEMS COMPANY, INC.
6.70% SENIOR NOTE DUE November 16, 2005
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, BEI TECHNOLOGIES, INC.,
a corporation organized and existing under the laws of the State of
Delaware, and BEI SENSORS & SYSTEMS COMPANY, INC., a corporation
organized and existing under the laws of the State of Delaware (herein
collectively called the "Co-Obligors") hereby jointly and severally
promise to pay to [ ], or registered assigns, the
principal sum of [ ] DOLLARS on November
16, 2005, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of
6.70% per annum from the date hereof, payable semiannually, on the 16th
day of May and November in each year, commencing with the May or
November next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) to the extent permitted by
law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of
any Make-Whole Amount (as defined in the Note Purchase Agreements
referred to below), payable semiannually as aforesaid (or, at the option
of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.70% or (ii) 2% over the rate
of interest publicly announced by The Chase Manhattan Bank from time to
time in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the
United States of America at the principal office of the Company in San
Francisco, California or at such other place as the Co-Obligors shall
have designated by written notice to the holder of this Note as provided
in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called
the "Notes") issued pursuant to separate Note Purchase Agreements,
dated as of November 16, 1998 (as from time to time amended, the "Note
Purchase Agreements"), between the Co-Obligors, on the one hand, and
the respective Purchasers named therein, on the other hand, and is
entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Section 20 of the Note Purchase
Agreements and (ii) to have made the representation set forth in Section
6.2 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of
transfer duly executed, by the registered holder hereof or such holder's
attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee.
Prior to due presentment for registration of transfer, the Co-Obligors
may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes,
and the Co-Obligors will not be affected by any notice to the contrary.
The Co-Obligors will make required prepayments of principal
on the dates and in the amounts specified in the Note Purchase
Agreements. This Note is also subject to optional prepayment, in whole
or from time to time in part, at the times and on the terms specified in
the Note Purchase Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect
provided in the Note Purchase Agreements.
This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction
other than such State.
BEI TECHNOLOGIES, INC.
By_________________________________
Name: Charles Crocker
Title: Chairman of the Board,
President and Chief Executive Officer
By_________________________________
Name: Robert R. Corr
Title: Secretary and Treasurer
BEI SENSORS & SYSTEMS COMPANY, INC.
By_________________________________
Name: Charles Crocker
Title: Chairman of the Board
By_________________________________
Name: Robert R. Corr
Title: Secretary and Treasurer
EXHIBIT 4.4(a)
FORM OF OPINION OF COUNSEL
TO THE CO-OBLIGORS
[SEE ATTACHED]
EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
[SEE ATTACHED]
TABLE OF CONTENTS
Section Page
1. AUTHORIZATION OF NOTES 1
2. SALE AND PURCHASE OF NOTES 1
3. CLOSING 2
4. CONDITIONS TO CLOSING 2
4.1 Representations and Warranties 2
4.2 Performance; No Default 2
4.3 Compliance Certificates 2
4.4 Opinions of Counsel 3
4.5 Purchase Permitted By Applicable Law, etc. 3
4.6 Sale of Other Notes 3
4.7 Payment of Special Counsel Fees 3
4.8 Private Placement Number 3
4.9 Changes in Corporate Structure 4
4.10 Funding Instructions 4
4.11 Proceedings and Documents 4
5. REPRESENTATIONS AND WARRANTIES OF THE CO-OBLIGORS 4
5.1 Organization; Power and Authority 4
5.2 Authorization, etc. 4
5.3 Disclosure 5
5.4 Organization and Ownership of Shares of Subsidiaries;
Affiliates 5
5.5 Financial Statements 6
5.6 Compliance with Laws, Other Instruments, etc. 6
5.7 Governmental Authorizations, etc. 6
5.8 Litigation; Observance of Agreements, Statutes and
Orders 6
5.9 Taxes 7
5.10 Title to Property; Leases 7
5.11 Licenses, Permits, etc 7
5.12 Compliance with ERISA 8
5.13 Private Offering by the Co-Obligors 9
5.14 Use of Proceeds; Margin Regulations 9
5.15 Existing Indebtedness; Future Liens 9
5.16 Foreign Assets Control Regulations, etc. 9
5.17 Status under Certain Statutes 10
5.18 Environmental Matters 10
6. REPRESENTATIONS OF THE PURCHASER 10
6.1 Purchase for Investment 10
6.2 Source of Funds 11
7. INFORMATION AS TO COMPANY 12
7.1 Financial and Business Information 12
7.2 Officer's Certificate 15
7.3 Inspection 15
8. PREPAYMENT OF THE NOTES 16
8.1 Required Prepayments 16
8.2 Optional Prepayments with Make-Whole Amount 16
8.3 Allocation of Partial Prepayments 16
8.4 Maturity; Surrender, etc. 16
8.5 Purchase of Notes 17
8.6 Make-Whole Amount 17
9. AFFIRMATIVE COVENANTS 18
9.1 Compliance with Law 18
9.2 Insurance 19
9.3 Maintenance of Properties 19
9.4 Payment of Taxes and Claims 19
9.5 Corporate Existence, etc. 19
9.6 Execution of Subsidiary Guaranty; Release of
Subsidiary Guarantors 20
10. NEGATIVE COVENANTS 20
10.1 Transactions with Affiliates 20
10.2 Merger, Consolidation, etc. 21
10.3 Ratio of Total Debt to Consolidated EBITDA 21
10.4 Priority Debt Limit 22
10.5 Maintenance of Fixed Charge Coverage Ratio 22
10.6 Maintenance of Tangible Net Worth 22
10.7 Restricted Payments 22
10.8 Mortgages and Liens 22
10.9 Sale of Assets 24
10.10 Investments 25
10.11 Lines of Business 26
11. EVENTS OF DEFAULT 26
12. REMEDIES ON DEFAULT, ETC. 28
12.1 Acceleration 28
12.2 Other Remedies 28
12.3 Rescission 29
12.4 No Waivers or Election of Remedies, Expenses, etc. 29
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 29
13.1 Registration of Notes 29
13.2 Transfer and Exchange of Notes 29
13.3 Replacement of Notes 30
14. PAYMENTS ON NOTES 30
14.1 Place of Payment 30
14.2 Home Office Payment 31
15. EXPENSES, ETC 31
15.1 Transaction Expenses 31
15.2 Survival 31
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 32
17. AMENDMENT AND WAIVER 32
17.1 Requirements 32
17.2 Solicitation of Holders of Notes 32
17.3 Binding Effect, etc. 33
17.4 Notes held by Co-Obligor, etc. 33
18. NOTICES 33
19. REPRODUCTION OF DOCUMENTS 34
20. CONFIDENTIAL INFORMATION 34
21. SUBSTITUTION OF PURCHASER 35
22. GUARANTEE 35
22.1 Guarantee. 35
22.2 Obligations Unconditional. 36
22.3 Reinstatement. 36
22.4 Subrogation. 36
23. MISCELLANEOUS 36
23.1 Successors and Assigns 36
23.2 Payments Due on Non-Business Days 37
23.3 Severability 37
23.4 Construction 37
23.5 Counterparts 37
23.6 Governing Law 37
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of
Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.14 -- Use of Proceeds
EXHIBIT 1 -- Form of 6.70% Senior Note due November 16, 2005
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Co-Obligors
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the
Purchasers
BEI TECHNOLOGIES, INC.
BEI SENSORS & SYSTEMS COMPANY, INC.
$35,000,000
6.70% Senior Notes due November 16, 2005
NOTE PURCHASE AGREEMENT
Dated November 16, 1998
FIRST AMENDMENT TO
TAX ALLOCATION AND INDEMNITY AGREEMENT
This First Amendment to Tax Allocation and Indemnity Agreement is
entered into this 15th day of December 1998, by and between BEI
Electronics, Inc., a Delaware corporation ("Electronics"), and BEI
Technologies, Inc., a Delaware corporation ("Technologies").
RECITALS
1. Electronics and Technologies entered into a Tax Allocation
and Indemnity Agreement on September 26, 1997, in connection with the
distribution of Technologies stock to Electronics' shareholders (the
"Agreement").
2. In order better to reflect the parties' original intentions,
the parties to the Agreement wish to amend and restate certain
provisions of the Agreement as if they had been originally incorporated
therein.
3. All defined terms used below shall have the same meaning as
defined in the agreement.
AMENDMENTS
A. Article III Section 3.1(a) is hereby amended and restated to
read as follows:
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 consolidated federal
income tax return, the Technologies Subgroup (1) shall be allocated and
Technologies shall be responsible for the payment of 100% of the
Electronics Affiliated Group's federal income tax liability for the year
(including any alternative minimum tax or environment tax, as determined
under this Section 3.1), subject to the Subsequent Adjustments
provisions of Article V of this agreement, and (2) shall be entitled to
the receipt of any federal income tax refunds (including any alternative
minimum tax or environment tax, as determined under this Section 3.1)
received by Electronics for the taxable year.
B. Article III Section 3.2(a) is hereby amended and restated to
read as follows:
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 state income or franchise tax return filed
by the Electronics Unitary Group, the Technologies Subgroup (1) shall be
allocated and Technologies shall be responsible for the payment of all
state income and franchise taxes (including any alternative minimum tax)
per any state income and franchise tax returns in Technologies and/or
any other members of the Technologies Subgroup are included, subject to
Subsequent Adjustments provisions of Article V of this agreement, and
(2) shall be entitled to the receipt of any state income and franchise
tax refunds (including any alternative minimum tax) received by
Electronics for the taxable year in which Technologies and/or any other
members of the Technologies Subgroup are included in any combined state
income or franchise tax return filed by the Electronics Unitary Group.
IIN WITNESS WHEREOF, the parties hereto have caused this Tax
Allocation and Indemnity Agreement to be executed by their duly
authorized representatives.
Electronics
By: _/s/ Thomas W. Fry
Name: Thomas W. Fry
Title: Vice President of Finance and
Adminstration
Technologies
By: /s/ Robert R. Corr
Name: Robert R. Corr
Title: Secretary & Treasurer
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 15,
1998, by and between BEI TECHNOLOGIES, INC., a Delaware
corporation ("BEI"), and BEI SENSORS & SYSTEMS COMPANY,
INC., a Delaware corporation (individually and collectively,
"Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITAL
Borrower has requested from Bank the credit
accommodation described below, and Bank has agreed to
provide said credit accommodation to Borrower on the terms
and conditions contained herein.
Borrower has entered into a Note Purchase Agreement
with certain Purchasers dated as of November 16, 1998
relating to the issuance by Borrower of $35,000,000 6.70%
Senior Notes due November 16, 2005 (the "Note Purchase
Agreement").
NOW, THEREFORE, for valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower hereby agree as follows:
ARTICLE I
DEFINED TERMS
"Bank" has the meaning set forth in the introductory
paragraph.
"Borrower" has the meaning set forth in the introductory
paragraph.
"Consolidated" as used in this Agreement applies to
Borrower and its Restricted Subsidiaries.
"Current Ratio" means the ratio of current assets to
current liabilities, determined in accordance with GAAP.
"EBITDA" has the meaning ascribed to "Consolidated
EBITDA" in the Note Purchase Agreement.
"Fixed Charge Coverage Ratio" has the meaning ascribed to
it in the Note Purchase Agreement.
"Funded Debt" means the outstanding principal balance of
all interest bearing obligations (inclusive of capitalized
lease obligations), determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Investment" has the meaning ascribed to it in the Note
Purchase Agreement.
"Lien" has the meaning ascribed to it in the Note Purchase
Agreement.
"Note Purchase Agreement" has the meaning ascribed to it
in the Recitals.
"Selected Provisions" means Sections 10.6, 10.7, 10.8 and
10.10 of the Note Purchase Agreement.
"Restricted Payments" has the meaning ascribed to it in
the Note Purchase Agreement.
"Restricted Subsidiaries" has the meaning ascribed to it
in the Note Purchase Agreement.
"Tangible Net Worth" has the meaning ascribed to it in the
Note Purchase Agreement.
In the event that, for any reason, the Note Purchase
Agreement terminates prior to the termination of this
Agreement, the Selected Provisions (including the
definitions of all defined terms used therein) and the
definitions of "Investment", "Lien", "Restricted
Payments", "Restricted Payments", "Restricted
Subsidiaries" and "Tangible Net Worth" shall be deemed to
be incorporated into and made part of this Agreement as
though fully set forth herein and shall remaining binding
upon Borrower.
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make
advances to Borrower from time to time up to and including
December 15, 2000, not to exceed at any time the aggregate
principal amount of Thirteen Million Dollars
($13,000,000.00) ("Line of Credit"), the proceeds of which
shall be used to finance working capital requirements,
capital expenditures and other corporate purposes; provided,
however, that availability under the Line of Credit shall be
limited to $12,000,000.00 until such time as Bank has
received and reviewed BEI's FYE 1999 audited financial
statement which reflects a ratio of Funded Debt to EBITDA of
not greater than 3.00 to 1.00 for the fiscal year then
ended, at which time (assuming no Event of Default then
exists) availability under the Line of Credit shall be
increased to $13,000,000.00. Borrower's obligation to repay
advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A
attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.
(b) Letter of Credit Subfeature. As a subfeature
under the Line of Credit, Bank agrees from time to time
during the term thereof to issue commercial or standby
letters of credit for the account of Borrower to finance
working capital requirements, capital expenditures and other
corporate purposes (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that
the form and substance of each Letter of Credit shall be
subject to approval by Bank, in its sole discretion; and
provided further, that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed
Three Million Dollars ($3,000,000.00). Each Letter of
Credit shall be issued for a term not to exceed 365 days, as
designated by Borrower; provided however, that no Letter of
Credit shall have an expiration date subsequent to the
maturity date of the Line of Credit. The undrawn amount of
all Letters of Credit shall be reserved under the Line of
Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional
terms and conditions of the Letter of Credit Agreement and
related documents, if any, required by Bank in connection
with the issuance thereof (each, a "Letter of Credit
Agreement" and collectively, "Letter of Credit Agreements").
Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line of Credit and shall be
repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit
are not available, for any reason, at the time any draft is
paid by Bank, then Borrower shall immediately pay to Bank
the full amount of such draft, together with interest
thereon from the date such amount is paid by Bank to the
date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit.
In such event Borrower agrees that Bank, in its sole
discretion, may debit any demand deposit account maintained
by Borrower with Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time
to time during the term of the Line of Credit borrow,
partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note;
provided however, that the total outstanding borrowings
under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of
the Line of Credit Note shall bear interest at the rate of
interest set forth in the Line of Credit Note.
(b) Letter of Credit Fees. Borrower shall pay to
Bank (i) fees upon the issuance of each standby Letter of
Credit equal to one and one-half percent (1.50%) of the face
amount thereof, and Borrower shall pay to Bank fees upon the
issuance of each commercial Letter of Credit, upon the
payment or negotiation by Bank of each draft under any
Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including
without limitation, the transfer, amendment or cancellation
of any Letter of Credit) determined in accordance with
Bank's standard fees and charges then in effect for such
activity.
(c) Computation and Payment. Interest and fees
(computed on a "per annum" basis) shall be computed on the
basis of a 360-day year, actual days elapsed. Interest
shall be payable at the times and place set forth in the
Line of Credit Note.
(d) Unused Commitment Fee. Borrower shall pay to
Bank a fee equal to twelve hundredths percent (0.12%) per
annum (computed on the basis of a 360-day year, actual days
elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a monthly basis by
Bank and shall be due and payable by Borrower in arrears
within ten (10) days after each billing is sent by Bank.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower
authorizes Bank to collect all interest and fees due under
the Line of Credit by charging Borrower's demand deposit
account number 4435-786082 with Bank, or any other demand
deposit account maintained by Borrower with Bank, for the
full amount thereof. Should there be insufficient funds in
any such demand deposit account to pay all such sums when
due, the full amount of such deficiency shall be immediately
due and payable by Borrower.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and
warranties to Bank, which representations and warranties
shall survive the execution of this Agreement and shall
continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations
of Borrower to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a
corporation, duly organized and existing and in good
standing under the laws of the state of Delaware, and is
qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all
jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so
licensed could, with reasonable likelihood, have a material
adverse effect on BEI and its Restricted Subsidiaries taken
as a whole.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This
Agreement, the Line of Credit Note, and each other document,
contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith
(collectively, the "Loan Documents") have been duly
authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance
with their respective terms, except as such enforceability
may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
the rights of creditors generally, and (ii) general
principles of equity (regardless of whether such
enforceability is considered in equity or at law).
SECTION 2.3. NO VIOLATION. The execution,
delivery and performance by Borrower of each of the Loan
Documents do not violate any provision of any law or
regulation, or contravene any provision of the Certificates
of Incorporation or By-Laws of Borrower, or result in any
breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending,
or to the best of Borrower's knowledge, threatened actions,
claims, investigations, suits or proceedings by or before
any governmental authority, arbitrator, court or
administrative agency which could, with reasonable
likelihood, have a material adverse effect on the financial
condition or operation of BEI and its Restricted
Subsidiaries taken as a whole, other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT.
The financial statement of Borrower dated July 4, 1998, a
true copy of which has been delivered by Borrower to Bank
prior to the date hereof, (a) is complete and correct and
presents fairly the Consolidated financial condition of
Borrower, (b) discloses all liabilities of Borrower that are
required to be reflected or reserved against under GAAP
(subject, in the case of any interim financial statements,
to normal year-end adjustments and normal limited footnote
disclosure for interim financial statements) except as set
forth in the notes thereto, and (c) has been prepared in
accordance with GAAP. Since the date of such financial
statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor
of Bank or as otherwise permitted pursuant to Section 10.8
of the Note Purchase Agreement.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no
knowledge of any pending assessments or adjustments of its
income tax payable with respect to any year including and
prior to the fiscal year ending September 30, 1995.
SECTION 2.7. NO SUBORDINATION. There is no
agreement, indenture, contract or instrument to which
Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of
Borrower's obligations subject to this Agreement to any
other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower
possesses all permits, consents, approvals, franchises and
licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable
it to conduct the business in which it is now engaged in
compliance with applicable law, except those, which if not
possessed, have not resulted and could not be reasonably
expected to result in a material adverse effect on BEI and
its Restricted Subsidiaries taken as a whole.
SECTION 2.9. ERISA. Borrower is in compliance in
all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended
or recodified from time to time ("ERISA") except for such
instances of non-compliance as have not resulted and could
not be reasonably expected to result in a material adverse
effect on BEI and its Restricted Subsidiaries taken as a
whole; Borrower has not violated any provision of any
defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan");
no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan initiated by Borrower;
Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally
accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not
in default on any obligation for borrowed money, any
purchase money obligation or any other material lease,
commitment, contract, instrument or obligation, which
default could be reasonably expected to have a material
adverse effect on BEI and its Restricted Subsidiaries taken
as a whole.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as
disclosed by Borrower to Bank in writing prior to the date
hereof and except as to non-compliance which has not
resulted and could not be reasonably expected to result in a
material adverse effect on BEI and its Restricted
Subsidiaries taken as a whole, Borrower is in compliance in
all material respects with all applicable federal or state
environmental, hazardous waste, health and safety statutes,
and any rules or regulations adopted pursuant thereto, which
govern or affect any of Borrower's operations and/or
properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of
1986, the Federal Resource Conservation and Recovery Act of
1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from
time to time. To the best of Borrower's knowledge, none of
the operations of Borrower is the subject of any federal or
state investigation evaluating whether any remedial action
involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into
the environment. To the best of Borrower's knowledge,
Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF
CREDIT. The obligation of Bank to extend any credit
contemplated by this Agreement is subject to the fulfillment
to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters
incidental to the extension of credit by Bank shall be
satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in
form and substance satisfactory to Bank, each of the
following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Resolution: Borrowing.
(iii) Certificate of Incumbency.
(iv) Certificates of Incorporation.
(v) Note Purchase Agreement.
(vi) Such other documents as Bank may reasonably
require under any other Section of this Agreement.
(c) Financial Condition. There shall have been no
material adverse change, as determined by Bank, in the
Consolidated financial condition or business of BEI and its
Restricted Subsidiaries, nor any material decline, as
determined by Bank, in the market value of a substantial or
material portion of the assets of BEI and its Restricted
Subsidiaries.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF
CREDIT. The obligation of Bank to make each extension of
credit requested by Borrower hereunder shall be subject to
the fulfillment to Bank's satisfaction of each of the
following conditions:
(a) Compliance. The representations and warranties
contained herein and in each of the other Loan Documents
shall be true in all material respects on and as of the date
of the signing of this Agreement; and on the date of each
extension of credit hereunder, no Event of Default as
defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would
constitute such an Event of Default, shall have occurred and
be continuing or shall exist.
(b) Documentation. Bank shall have received all
additional documents which may be reasonably requested in
connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains
committed to extend credit to Borrower pursuant hereto, or
any liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, BEI shall, and
shall cause its Restricted Subsidiaries to, unless Bank
otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay
all principal, interest, fees or other liabilities due under
any of the Loan Documents at the times and place and in the
manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain
adequate books and records in accordance with generally
accepted accounting principles consistently applied
(subject, in the case of any interim financial statements,
to normal year-end adjustments and normal limited footnote
disclosure for interim financial statements), and permit any
representative of Bank, at any reasonable time (and, if no
Event of Default exists, upon reasonable prior notice to
Borrower), to inspect, audit and examine such books and
records, to make copies of the same, and to inspect the
properties of Borrower and the Restricted Subsidiaries.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to
Bank all of the following, in form and detail satisfactory
to Bank:
(a) not later than 120 days after and as of the end
of each fiscal year, an audited unqualified Consolidated
financial statement of BEI, prepared by independent
certified public accountants of recognized national
standing, to include balance sheet, income statement,
statement of cash flows and footnotes;
(b) not later than 60 days after and as of the end
of each fiscal quarter, a Consolidated financial statement
of Borrower, prepared by Borrower, to include balance sheet,
income statement and statement of cash flows;
(c) promptly upon their becoming available, one copy
of all proxy statements, financial statements, reports, and
notices sent or made available generally by BEI to its
security holders or to any holders of its debt and all
regular, periodic and special reports, and all registration
statements filed with the Securities and Exchange Commission
or any governmental authority that may be substituted
therefor, or with any national securities exchange;
(d) contemporaneously with each annual financial
statement of Borrower required hereby, a certificate of the
president, chief financial officer or treasurer of Borrower
that said financial statements fairly present, in all
material respects, the financial position of the companies
being reported on and their results of operations and cash
flows, subject to changes resulting from year end
adjustments, that there exists no Event of Default nor any
condition, act or event which with the giving of notice or
the passage of time or both would constitute an Event of
Default, with such certificate to include calculations
demonstrating compliance with financial covenants herein and
in the Note Purchase Agreement;
(e) from time to time such other information as Bank
may reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain
all licenses, permits, governmental approvals, rights,
privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern
Borrower's and the Restricted Subsidiaries' continued
existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority
applicable to Borrower, the Restricted Subsidiaries and/or
their businesses, in each instance to the extent necessary
to ensure that non-compliance with such laws, rules,
regulations and orders or failure to preserve and keep in
full force and effect such licenses, permits, governmental
approvals, rights, privileges and franchises could not have
a material adverse effect on BEI and its Restricted
Subsidiaries taken as a whole.
SECTION 4.5. INSURANCE. Maintain and keep in
force insurance of the types and in amounts customarily
carried in lines of business similar to that of Borrower and
the Restricted Subsidiaries, including but not limited to
fire, extended coverage, public liability, property damage
and workers' compensation, with all such insurance carried
with companies of generally recognized standing and in
amounts reasonably satisfactory to Bank, and deliver to Bank
from time to time at Bank's request schedules setting forth
all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties
useful or necessary to Borrower's and the Restricted
Subsidiaries' businesses in good repair and condition
(ordinary wear and tear excepted), and from time to time
make necessary repairs, renewals and replacements thereto so
that such properties shall be fully and efficiently
preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay
and discharge when due any and all indebtedness,
obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes
and state and local property taxes and assessments, except
such (a) as Borrower or a Restricted Subsidiary may in good
faith contest or as to which a bona fide dispute may arise,
and for which Borrower or such Restricted Subsidiary has
made provision, to Bank's satisfaction, for eventual payment
thereof in the event Borrower or such Restricted Subsidiary
is obligated to make such payment, or (b) as the nonpayment
of which has not resulted or could not reasonably be
expected to result in a material adverse effect on BEI and
its Restricted Subsidiaries taken as a whole.
SECTION 4.8. LITIGATION. Promptly give notice in
writing to Bank of any litigation pending or threatened
against Borrower or any Restricted Subsidiary with a claim
in excess of $2,500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain BEI's
Consolidated financial condition as follows using generally
accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent
modified by the definitions herein), with compliance
determined commencing with Borrower's financial statements
for the period ending ____________, 1998:
(a) Ratio of Funded Debt to EBITDA not greater than
3.50 to 1.00, determined as of each fiscal quarter end on a
trailing four quarter basis.
(b) Fixed Charge Coverage Ratio not less than 2.00 to
1.00, determined as of each fiscal quarter end on a trailing
four quarter basis.
(c) Current Ratio not less than 1.50 to 1.00,
determined as of each fiscal quarter end.
(d) Tangible Net Worth as required in Section 10.6 of
the Note Purchase Agreement.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no
event more than five (5) days after the occurrence of each
such event or matter) give written notice to Bank in
reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the
giving of notice or the passage of time or both would
constitute an Event of Default; (b) any change in the name
of Borrower or any Restricted Subsidiary; (c) the occurrence
and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding
deficiency with respect to any Plan; or (d) any termination
or cancellation of any insurance policy (if not replaced
within a reasonable period of time) which Borrower or any
Restricted Subsidiary is required to maintain, or any
uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause
affecting Borrower's or such Restricted Subsidiary's
property in excess of an aggregate of $2,500,000.00.
SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all
acts reasonably necessary to ensure that (a) Borrower and
any business in which Borrower holds a substantial interest,
and (b) all customers, suppliers and vendors that are
material to Borrower's and its Restricted Subsidiaries'
businesses, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of Borrower's
systems and adopting a detailed plan, with itemized budget,
for the remediation, monitoring and testing of such systems.
As used herein, "Year 2000 Compliant" shall mean, with
regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the
business operations or financial condition of such entity,
will properly perform date sensitive functions before,
during and after the year 2000. Borrower shall, promptly
upon request, provide to Bank such certifications or other
evidence of compliance with the terms hereof as Bank may
from time to time require.
SECTION 4.12. ERISA. Comply in all material
respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended or
recodified from time to time ("ERISA") except for any non-
compliance which has not resulted or could not reasonably be
expected to result in a material adverse effect on BEI and
its Restricted Subsidiaries taken as a whole; not violate
any provision of any Plan; meet its minimum funding
requirements under ERISA with respect to each Plan; and
cause each Plan to be able to fulfill its benefit
obligations as they come due in accordance with the Plan
documents and under generally accepted accounting
principles.
SECTION 4.13. ENVIRONMENTAL MATTERS. Except for
any non-compliance which has not resulted or could not
reasonably be expected to result in a material adverse
effect on BEI and its Restricted Subsidiaries taken as a
whole, comply in all material respects with all applicable
federal or state environmental, hazardous waste, health and
safety statutes, and any rules or regulations adopted
pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, and the Federal Toxic
Substances Control Act, as any of the same may be amended,
modified or supplemented from time to time.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank
remains committed to extend credit to Borrower pursuant
hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in
full of all obligations of Borrower subject hereto, BEI will
not, and will not Permit its Restricted Subsidiaries to,
without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the
proceeds of any credit extended hereunder except for the
purposes stated in Article I hereof.
SECTION 5.2. NATURE OF BUSINESS. Make any
substantial change in the nature of BEI's and its Restricted
Subsidiary's business, taken as a whole, as conducted as of
the date hereof.
SECTION 5.3. TRANSFER OF ASSETS. Transfer any
assets in violation of Section 10.9 of the Note Purchase
Agreement.
SECTION 5.4. MERGER, CONSOLIDATION. Merge into
or consolidate with any other entity nor acquire (i) all or
substantially all of the assets of any other entity, or (ii)
all or a controlling interest of the ownership interest of
any other entity; unless, in the case of a merger or
consolidation, (w) the surviving entity is solvent and
organized under the laws of the United States or any state
thereof or the District of Columbia, (x) the surviving
entity (if not Borrower) executes an assumption agreement in
form and content acceptable to Bank and causes to be
delivered to Bank a legal opinion of nationally recognized
legal counsel, or other independent counsel reasonably
acceptable to Bank that the assumption agreement is
enforceable in accordance with its terms and complies with
the terms hereof, provided, further, that (y) no single or
affiliated transaction(s) permitted under this Section 5.4
shall exceed an aggregate consideration of $15,000,000.00
(exclusive of consideration consisting of stock in Borrower
or a Restricted Subsidiary) and (z) all such transactions
shall not exceed an aggregate consideration of
$25,000,000.00 (exclusive of consideration consisting of
stock in Borrower or a Restricted Subsidiary) during the
term of the Line of Credit.
SECTION 5.5. GUARANTIES. Guarantee or become
liable in any way as surety, endorser (other than as
endorser of negotiable instruments for deposit or collection
in the ordinary course of business), accommodation endorser
or otherwise for, nor pledge or hypothecate any assets of
Borrower or Restricted Subsidiary as security for, any
liabilities or obligations of any other person or entity,
except any of the foregoing (a) in favor of Bank, (b) which
are existing as of the date hereof and disclosed to Bank in
writing prior to the date hereof, including replacements and
substitutions thereof (but not increases thereof), and (c)
incurred after the date hereof (including increases of items
described in clause (b)) in an aggregate amount not to
exceed $2,500,000.00.
SECTION 5.6. INDEBTEDNESS. Create, incur,
assume or permit to exist any indebtedness or liabilities
resulting from borrowings, loans or advances, whether
secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities
of Borrower under the Note Purchase Agreement, and (b)
additional liabilities (inclusive of liabilities under this
Agreement) not to exceed at any time an aggregate
outstanding principal balance of $12,000,000.00 (increasing
to $13,000,000.00 if and when the availability under the
Line of Credit increases to such amount.
SECTION 5.7. INVESTMENTS. Make any
Investments in violation of Section 10.10 of the Note
Purchase Agreement.
SECTION 5.8. RESTRICTED PAYMENTS. Make any
Restricted Payments in violation of the Section 10.7 of the
Note Purchase Agreement.
SECTION 5.9. LIENS. Create, incur, assume or
permit to exist (upon the happening of a contingency or
otherwise) a Lien in violation of the terms in Section 10.8
of the Note Purchase Agreement.
SECTION 5.10. SELECTED PROVISIONS Amend, or
agree to agree to amend (a) any of the Selected Provisions,
or (b) any of the provisions of the Note Purchase Agreement
if the effect thereof is to, directly or indirectly, amend
or delete the Selected Provisions.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the
following shall constitute an "Event of Default" under this
Agreement:
(a) Borrower shall fail to pay when due any
principal, or, within 5 days after the applicable due date,
any interest, fees or other amounts payable under any of the
Loan Documents.
(b) Any financial statement or certificate furnished
to Bank in connection with, or any representation or
warranty made by Borrower or any other party under this
Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when
furnished or made.
(c) Any default in the performance of or compliance
with any obligation, agreement or other provision contained
herein or in any other Loan Document (other than those
referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be
cured, such default shall continue for a period of thirty
(30) days from the date Borrower first learned (or, using
reasonable due diligence, should have first learned) of such
default.
(d) (i) BEI or any Restricted Subsidiary is in
default (as principal or as guarantor or other surety) in
the payment of any principal of or premium make-whole amount
or interest on any Funded debt that is outstanding in an
aggregate principal amount of at least $2,500,000 beyond any
period of grace provided with respect thereto, or (ii) BEI
or any Restricted Subsidiary is in default in the
performance of or compliance with any term of any evidence
of any Funded Debt in an aggregate outstanding principal
amount of at least $2,500,000 or of any mortgage, indenture
or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition
such Funded Debt has become, or has been declared due and
payable before its stated maturity or before its regularly
scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other
than the passage of time or the right of holder of Funded
Debt to convert such Funded Debt into equity interests), BEI
or any Restricted Subsidiary has become obligated to
purchase or repay Funded Debt before its regular maturity or
before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least
$2,500,000.
(e) The filing of a notice of judgment lien against
Borrower; or the recording of any abstract of judgment
against Borrower in any county in which Borrower has an
interest in real property; or the service of a notice of
levy and/or of a writ of attachment or execution, or other
like process, against the assets of Borrower; or the entry
of a final judgment against Borrower; and, with respect to
any of the foregoing, the amount of such judgement or writ
exceeds $2,500,000.00, and the proceeding in question shall
not have been dismissed or nullified within 60 days after
its filing; provided, however, that Bank shall not be
obligated to make advances during such 60 day period.
(f) Borrower shall become insolvent, or shall suffer
or consent to or apply for the appointment of a receiver,
trustee, custodian or liquidator of itself or any of its
property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the
benefit of creditors; Borrower shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order
to effect a plan or other arrangement with creditors or any
other relief under the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended or recodified from time
to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower
(and such involuntary petition or other proceeding shall not
have been dismissed or nullified within 60 days after its
filing; provided, however, that Bank shall not be obligated
to make advances during such 60 day period), or Borrower
shall file an answer admitting the jurisdiction of the court
and the material allegations of any involuntary petition; or
Borrower shall be adjudicated a bankrupt, or an order for
relief shall be entered against Borrower by any court of
competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) The dissolution or liquidation of Borrower; or
Borrower, or any of its directors, stockholders or members,
shall take action seeking to effect the dissolution or
liquidation of Borrower.
(h) Any change in ownership during the term of this
Agreement of an aggregate of twenty-five percent (25%) or
more of the common stock of Borrower in a single transaction
or in a series of related transactions.
SECTION 6.2. REMEDIES. Upon the occurrence of
any Event of Default: (a) all indebtedness of Borrower
under each of the Loan Documents, any term thereof to the
contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without
presentment, demand, protest or notice of dishonor, all of
which are hereby expressly waived by each Borrower; (b) the
obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to
resort to any or all security for any credit accommodation
from Bank subject hereto and to exercise any or all of the
rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after
the occurrence of an Event of Default, are cumulative and
not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or
discontinuance of Bank in exercising any right, power or
remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor
shall any single or partial exercise of any such right,
power or remedy preclude, waive or otherwise affect any
other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent
or approval of any kind by Bank of any breach of or default
under any of the Loan Documents must be in writing and shall
be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and
demands which any party is required or may desire to give to
any other party under any provision of this Agreement must
be in writing delivered to each party at the following
address:
BORROWER: BEI Technologies, Inc.
1 Post Street, Suite 2500
San Francisco, CA 94104
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
420 Montgomery Street, 9th Floor
San Francisco, CA 94104
or to such other address as any party may designate by
written notice to all other parties. Each such notice,
request and demand shall be deemed given or made as follows:
(a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3)
days after deposit in the U.S. mail, first class and postage
prepaid; and (c) if sent by telecopy, upon receipt of
confirmation of transmission.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES.
Borrower shall pay to Bank immediately upon demand the full
amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's
in-house counsel), expended or incurred by Bank in
connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued
administration hereof and thereof, and the preparation of
any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action
in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or
any other person) relating to any Borrower or any other
person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This
Agreement shall be binding upon and inure to the benefit of
the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest
hereunder without Bank's prior written consent. Bank
reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest
in, Bank's rights and benefits under each of the Loan
Documents; provided, however, that in each such instance
(other than participations), Bank shall provide not less
that 45 days prior written notice to Borrower. In
connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire
relating to any credit extended by Bank to Borrower,
Borrower or its business, or any collateral required
hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This
Agreement and the other Loan Documents constitute the entire
agreement between Borrower and Bank with respect to any
extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and
correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed
by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This
Agreement is made and entered into for the sole protection
and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any
direct or indirect cause of action or claim in connection
with, this Agreement or any other of the Loan Documents to
which it is not a party.
SECTION 7.7. TIME. Time is of the essence of
each and every provision of this Agreement and each other of
the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any
provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such
provision or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which when
executed and delivered shall be deemed to be an original,
and all of which when taken together shall constitute one
and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall
be governed by and construed in accordance with the laws of
the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as
set forth in (e) below) in accordance with the terms of this
Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with,
or in any way pertaining to, any of the Loan Documents, or
any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related
directly or indirectly to any of the Loan Documents,
including without limitation, any of the foregoing arising
in connection with the exercise of any self-help, ancillary
or other remedies pursuant to any of the Loan Documents.
Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful
demand by any other party shall bear all costs and expenses
incurred by such other party in compelling arbitration of
any Dispute.
(b) Governing Rules. Arbitration proceedings shall
be administered by the American Arbitration Association
("AAA") or such other administrator as the parties shall
mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration
shall be resolved in accordance with the Federal Arbitration
Act (Title 9 of the United States Code), notwithstanding any
conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location
in California selected by the AAA or other administrator.
If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein
shall control. All statutes of limitation applicable to any
Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in
any court having jurisdiction; provided however, that
nothing contained herein shall be deemed to be a waiver by
any party that is a bank of the protections afforded to it
under 12 U.S.C. 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of
any party to exercise self-help remedies such as setoff,
foreclosure against or sale of any real or personal property
collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive
relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such
remedy shall not waive the right of any party to compel
arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the California State
Bar or retired judges of the state or federal judiciary of
California, with expertise in the substantive laws
applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary
rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the State
of California, (ii) may grant any remedy or relief that a
court of the State of California could order or grant within
the scope hereof and such ancillary relief as is necessary
to make effective any award, and (iii) shall have the power
to award recovery of all costs and fees, to impose sanctions
and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater
than $5,000,000 (including damages, costs, fees and
expenses). By submission to a single arbitrator, each party
expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy
exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three
arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein
to the contrary, in any arbitration in which the amount in
controversy exceeds $25,000,000, the arbitrators shall be
required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which
is not supported by substantial evidence or which is based
on legal error, (ii) an award shall not be binding upon the
parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not
erroneous under the substantive law of the State of
California, and (iii) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to
judicial review of (A) whether the findings of fact rendered
by the arbitrators are supported by substantial evidence,
and (B) whether the conclusions of law are erroneous under
the substantive law of the State of California. Judgment
confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive
law of the State of California.
(f) Real Property Collateral; Judicial Reference.
Notwithstanding anything herein to the contrary, no Dispute
shall be submitted to arbitration if the Dispute concerns
indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the
mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties
to the arbitration waive any rights or benefits that might
accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable. If
any such Dispute is not submitted to arbitration, the
Dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and
this general reference agreement is intended to be
specifically enforceable in accordance with said Section
638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's
selection procedures. Judgment upon the decision rendered
by a referee shall be entered in the court in which such
proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent
practicable, the AAA, the arbitrators and the parties shall
take all action required to conclude any arbitration
proceeding within 180 days of the filing of the Dispute with
the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party
required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If
more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration
provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This
arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any
relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the day and year first
written above.
WELLS FARGO BANK,
BEI TECHNOLOGIES, INC. NATIONAL ASSOCIATION
By: ______________________ By: _______________________
Yvonne Perez
Title: ___________________ Relationship Manager
BEI SENSORS & SYSTEMS COMPANY, INC.
By: ______________________
Title: ___________________
EXHIBIT 21.1
<TABLE>
<CAPTION>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
Jurisdiction Doing Business As
Name of Subsidiary of Incorporation (If Different)
<S> <C> <C>
BEI Sensors & Systems Delaware BEI Sensors & Systems
Company, Inc. Company, Inc.
BEI International, Inc. Delaware
BEI Export Sales Company, Inc. U.S. Virgin Islands
BEI Properties, Inc. Arkansas
SiTek, Inc., a BEI Company Delaware
Defense Systems Company, Inc. Delaware BEI Defense Systems
Company
BEI Sensors, S.A.S. France
BEI Tactical Defense Systems, Inc. Delaware
Micro Polymer Systems, Inc. Delaware
BEI Ideacod, S.A.S. France
</TABLE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-38643), as amended, pertaining to the 1997 Equity
Incentive Plan of BEI Technologies, Inc., of our reports dated November 2,
1998, except for Note 5, as to which the date is December 16, 1998, with
respect to the consolidated financial statements and schedule of BEI
Technologies, Inc., included in the Annual Report (Form 10-K) for the year
ended October 3, 1998.
Ernst & Young LLP
San Francisco, California
December 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED OCTOBER 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1000
<S> <C>
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> OCT-03-1998
<PERIOD-TYPE> 12-MOS
<CASH> 3,557
<SECURITIES> 0
<RECEIVABLES> 23,838
<ALLOWANCES> 363
<INVENTORY> 29,623
<CURRENT-ASSETS> 67,909
<PP&E> 69,580
<DEPRECIATION> 38,961
<TOTAL-ASSETS> 109,515
<CURRENT-LIABILITIES> 31,785
<BONDS> 0
0
0
<COMMON> 2,132
<OTHER-SE> 38,023
<TOTAL-LIABILITY-AND-EQUITY> 109,515
<SALES> 124,264
<TOTAL-REVENUES> 124,264
<CGS> 85,562
<TOTAL-COSTS> 85,562
<OTHER-EXPENSES> 31,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,924
<INCOME-PRETAX> 4,322
<INCOME-TAX> 1,807
<INCOME-CONTINUING> 2,515
<DISCONTINUED> 142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,657
<EPS-PRIMARY> $0.38
<EPS-DILUTED> $0.37
</TABLE>
