<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BI INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
BI INCORPORATED
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
TO BE HELD NOVEMBER 7, 1996
Boulder, Colorado
The Annual Meeting of Shareholders of BI Incorporated (the "Company") will be
held at the Raintree Plaza Hotel, 1900 Diagonal Highway 119, Longmont, Colorado,
at 10:00 a.m. local time, Thursday, November 7, 1996, for the following
purposes:
1. To elect eight (8) directors to serve until the next Annual Meeting
and until their successors have been duly elected and qualified.
2. To approve the Company's 1996 Stock Option Plan.
3. To ratify the appointment of Price Waterhouse LLP as independent
accountants for the Company for the fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The minutes of the last Annual Meeting and the shareholders' list of their
share eligibility to vote at the 1996 Annual Meeting will be open to inspection
by the shareholders at the Corporate office, 6400 Lookout Road, Boulder,
Colorado 80301.
Shareholders of record at the close of business on September 18, 1996, will
be entitled to vote at the meeting, or any adjournment thereof.
YOUR PROXY
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED POSTPAID ENVELOPE.
SHOULD YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN THOUGH YOU HAVE GIVEN
A PROXY. THE PROMPT RETURN OF YOUR PROXY WILL BE OF GREAT HELP IN PREPARING FOR
THE MEETING.
By Order of the Board of Directors
Mckinley C. Edwards, Jr.
Secretary
Dated: October 1, 1996
<PAGE>
BI INCORPORATED
6400 LOOKOUT ROAD
BOULDER, COLORADO 80301
----------------------
PROXY STATEMENT
----------------------
SOLICITATION, EXERCISE AND REVOCABILITY OF PROXY
The enclosed proxy is solicited by the Board of Directors of BI
Incorporated (the "Company") for use at the Annual Meeting of Shareholders to be
held Thursday, November 7, 1996, or any adjournment thereof. It is anticipated
that this Proxy Statement and the accompanying form of proxy will first be
mailed to the shareholders of the Company on or about October 1, 1996. The
Company's principal executive offices are located at 6400 Lookout Road, Boulder,
Colorado 80301, and its telephone number at those offices is (303) 530-2911.
Proxies are revocable at any time before voted by written notice to the
Company, grant of a subsequent proxy, or voting at the meeting in person.
Unless contrary instructions are indicated on the proxy, all shares represented
by valid proxies received pursuant to the solicitation (and not properly revoked
before they are voted) will be voted (i) for the election of the eight nominees
to the Board of Directors named elsewhere herein; (ii) for approval of the 1996
Stock Option Plan; and (iii) for the ratification of the appointment of Price
Waterhouse LLP as independent accountants for the Company for the fiscal year
ending June 30, 1997. If a shareholder specifies a different choice on his
proxy, his shares will be voted in accordance with the specifications so made.
COST OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. The
Company may reimburse brokers and other custodians, nominees or fiduciaries for
their expenses in forwarding proxy material to principals and obtaining their
proxies.
VOTING
Only shareholders of record at the close of business on September 18, 1996
will be entitled to vote at the meeting. On September 1, 1996, there were
issued and outstanding 7,041,912 shares of Common Stock of the Company, entitled
to one vote per share. Shareholders are not entitled to cumulate their votes in
the election of Directors, which means that the holders of more than half the
shares voting for the election of the Directors can elect all the Directors if
they choose to do so. On all matters, a favorable vote consists of a simple
majority of the votes represented at a meeting at which a quorum is present.
The Board of Directors knows of no shareholder owning more than five
percent (5%) of the outstanding voting securities of the Company, except for
Duncan-Hurst Capital Management, Scudder Stevens & Clark, and Wellington
Management.
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors consists of eight incumbent members, all of whom are
to be elected at the meeting to hold office until the next meeting of
shareholders and until their successors are elected and qualified.
INFORMATION CONCERNING DIRECTORS
William E. Coleman, Mckinley C. Edwards, Jr., Beverly J. Haddon, David J.
Hunter, Perry M. Johnson, Jeremy N. Kendall, Frank L. Randall, Jr., and Byam K.
Stevens, Jr., were elected by the shareholders at the last annual meeting, and
have been nominated by the Board of Directors for re-election. George J.
Pilmanis has resigned from the Board effective November 7, 1996, and will not be
standing for re-election. The Proxies cannot vote a greater number of persons
than the number of nominees named. All nominees have informed the Company that
they are willing to serve, if elected, and management has no reason to believe
that any nominee will be unavailable. If a nominee should become unavailable
for election, the persons named in the proxy will vote for the election of any
other person who may be recommended and nominated by the Board for the office of
director. Information regarding nominees and directors is set forth below.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AS DIRECTORS
Director
Age Since
--- -----
<S> <C> <C>
WILLIAM E. COLEMAN is Chairman of Colorado Venture Management, Inc., a 62 1984
business consulting and venture capital firm, and has been President of Cogen
Technology, Inc., developers of cogeneration projects, since August 1987. He is also
a director of Hauser Chemical Research, Sievers Instruments, and Sienna Imaging, Inc.
Dr. Coleman has been Vice Chairman of the Board since November 1992.
MCKINLEY C. EDWARDS, JR. has been Executive Vice President of Operations 54 1990
since April 1985. He joined the Company in November 1983 as Manufacturing Manager,
was elected Vice President of Manufacturing in November 1984 and was elected as
Treasurer and Secretary in June 1986.
BEVERLY J. HADDON has been Partner at CRL Associates, a business consulting 54 1994
and government lobbying firm, since April 1993. Prior to this date, she held various
positions, her latest being Executive Vice President of Norwest Banks from June 30,
1991 through May 30, 1992.
DAVID J. HUNTER joined the Company in June 1981 and served as Operations 51 1982
Manager and Vice President of Operations from January 1982 to July 1982, Vice
President and Chief Operating Officer from July 1982 to April 1985, and as President
and Chief Executive Officer from April 1985 to the present.
JEREMY N. KENDALL has been Chairman and Chief Executive Officer of STAKE 56 1981
Technology, Ltd., a company which has developed a process for converting biomass
into chemicals and pulp, since June 1983. Mr. Kendall is also Chairman of
JEMTEC, Inc., an independent distributor of certain of the Company's products. He is
director of Brigdon Resources, Inc., Redauram Inc., Eastern Minerals, and
Logicsys, Inc. Mr. Kendall has been Chairman of the Board since November 1992.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PERRY M. JOHNSON has served as a Corrections Consultant since April 1988. 65 1994
He consults in the areas of prison overcrowding, implementation of house arrest
and halfway house programs and development of offender classification systems.
Since January 1982 he has been Adjunct Professor for the School of Criminal
Justice at Michigan State University. Prior to April 1988 Mr. Johnson was
Deputy Director, Bureau of Field Services; Director, Michigan Department of
Corrections; Warden, State Prison of Southern Michigan and Deputy Director,
Bureau of Correctional Facilities.
FRANK L. RANDALL, JR. is a retired Vice-Chairman of North American 78 1983
Philips Corporation. Mr. Randall's career included 27 years in electronics and 23
years as a senior officer of North American Philips. Mr. Randall is also a
director of New England Business Services, Inc., a supplier of business forms.
Mr. Randall was Chairman of the Board from December 1990 to November 1992.
BYAM K. STEVENS, JR. has served as a security analyst and portfolio 66 1989
manager for the stock brokerage firm of H.G. Wellington & Co., Inc. since March
1986. From January 1973 to that time, he served in the same capacities for
Stillman, Maynard & Co. until the two firms merged.
</TABLE>
DIRECTOR COMPENSATION
Each non-employee director was granted, on July 1, 1996, an option pursuant
to the 1991 Plan to purchase 4,500 shares of the Company's common stock at the
closing price on the date prior to the grant date for service in fiscal 1996.
On August 15, 1996, each non-employee director was granted an option to purchase
25,000 shares under the 1996 Stock Option Plan, subject to shareholder approval.
These options vest 20% immediately, and 20% per year over the next four years.
Non-employee directors received $1,000 for each Board of Directors meeting
attended during the fiscal year. Non-employee directors who are members of the
Audit, Nomination and Compensation Committees received $250 for each committee
meeting attended during the fiscal year as stated below. On November 7, 1996,
each re-elected non-employee director will receive $5,000.
COMMITTEES, ATTENDANCE, NOMINATIONS
The Company has standing Audit, Nomination and Compensation Committees.
The Company's Audit Committee during fiscal 1996 was comprised of Messrs.
Coleman, Hunter, Johnson, Pilmanis and Stevens. This Committee recommends
engagement of the Company's independent accountants, approves services performed
by such accountants, and reviews and evaluates the Company's accounting system
of internal controls. The Audit Committee met three times during fiscal year
1996. During fiscal 1996, the Compensation Committee consisted of Messrs.
Randall, Hunter (non-voting member), Kendall, Stevens, and Ms. Haddon. This
Committee approves salaries and other compensation arrangements for the
executive officers of the Company. This Committee also approves option grants
to eligible employees under the Company's stock option plans. The Compensation
Committee met five times during fiscal 1996. The Nomination Committee
consisting of Messrs. Hunter, Coleman, Kendall and Johnson did not meet in
fiscal 1996. This committee was formed to develop the composition and
participation guidelines of the Board of Directors. The Company's Board of
Directors met five times during fiscal 1996. During fiscal 1996, each Director
personally attended over 75% of both the Board of Directors meetings and
meetings of committees of which he or she was a member.
Any shareholder who desires to propose a candidate for Board membership
should send to the attention of the Secretary of the Company a signed letter of
recommendation containing the name and address of the proposing
-3-
<PAGE>
shareholder and the proposed candidate (see "Shareholder Proposals") and setting
forth the complete business, professional and educational background of the
proposed candidate.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, as of August 31, 1996 by (i) persons known to the
Company to own beneficially more than five percent (5%) of the outstanding
Common Stock of the Company, (ii) by each director, (iii) by each named
executive officer, and (iv) by all executive officers and directors as a group.
A person is deemed to be a beneficial owner of Common Stock that can be acquired
by such person within 60 days from August 31, 1996 upon the exercise of warrants
or options.
<TABLE>
<CAPTION>
Name Amount and nature Percent of Class
of beneficial ownership
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Duncan-Hurst Capital Management 511,980 7.2%
4365 Executive Drive
San Diego, CA 92121
Scudder, Stevens & Clark, Inc. 494,100 (1) 7.0%
345 Park Avenue
New York, NY 10154
Wellington Management Co. 399,000 (1) 5.7%
75 State Street
Boston, MA 02109
Jackie A. Chamberlin 44,747 (2) *
William E. Coleman 60,000 (3) *
Mckinley C. Edwards, Jr. 109,063 (4) 1.5%
Beverly J. Haddon 13,500 (5) *
David J. Hunter 210,426 (6) 2.9%
Perry M. Johnson 14,500 (7) *
Jeremy N. Kendall 53,500 (8) *
George J. Pilmanis 69,620 (9) *
Frank L. Randall, Jr. 55,306 (10) *
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Name Amount and nature Percent of Class
of beneficial ownership
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Byam K. Stevens, Jr. 98,000 (11) 1.4%
Richard L. Willmarth (1) 58,289 (12) *
All Officers and Directors as a Group 786,951 (13) 10.3%
(11 persons)
- -----------------------------
</TABLE>
* Represents less than 1%
(1) As of June 30, 1996.
(2) Includes options to purchase 37,130 shares, exercisable within sixty days.
(3) Includes options to purchase 18,500 shares and warrants owned by CVM Equity
Fund I or Colorado Venture Management to purchase 41,500 shares,
exercisable within sixty days. Dr. Coleman is Chairman of Colorado Venture
Management, Inc., which is the general partner of CVM Equity Fund I.
(4) Includes options to purchase 65,924 shares, exercisable within sixty days.
(5) Includes options to purchase 12,500 shares, exercisable within sixty days.
(6) Includes options to purchase 145,735 shares, exercisable within sixty days.
Also includes 8,536 shares owned by Mr. Hunter's two sons, as to which
shares Mr. Hunter disclaims beneficial ownership.
(7) Includes options to purchase 12,500 shares, exercisable within sixty days.
(8) Includes options to purchase 53,500 shares, exercisable within sixty days.
(9) Includes options to purchase 60,000 shares, exercisable within sixty days.
(10) Includes options to purchase 46,000 shares, exercisable within sixty days.
(11) Includes 24,000 shares owned by Mr. Stevens' relatives, as to which shares
he disclaims beneficial ownership. Also includes options to purchase 60,000
shares, exercisable within sixty days.
(12) Includes options to purchase 32,625 shares, exercisable within sixty days.
(13) Includes options or warrants to purchase 585,914 shares, exercisable within
sixty days.
-5-
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Named Executive Officers still employed by the Company (Messrs. Hunter
and Edwards and Ms. Chamberlin) have employment agreements with the Company.
These agreements assure continuity of management in the event of any actual or
threatened change in control as defined in these agreements. The Company agrees
to continue the employ of the executive for one year from the effective date of
the change in control. The executive will receive annual salary and benefits of
not less than his or her current rate, and will be eligible to participate in
bonus and other incentive compensation plans on the same basis he or she was
participating before the change in control. If the executive is terminated as a
result of the change in control (as defined in the agreement) he or she will
receive salary and benefits as if he or she were an employee through the end of
his or her employment contract period.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
With respect to fiscal 1996 executive compensation, the Compensation
Committee (the "Committee") administered: the compensation for the corporate
officers and Board of Directors, the Incentive Stock Option Plan, the 1991 Stock
Option Plan, the Key Employee and Director Non-Qualified Stock Option Plan and
the Employee Non-Qualified Stock Option Plan. The Committee also annually
establishes and reviews the bonus program for corporate officers. The
Committee's policy in administering these plans and programs is to provide a
strong and direct link among shareholder value, company performance and
executive compensation as well as to structure sound compensation programs that
will attract and retain high quality people.
Officer Compensation Policy. As previously reported, the Committee
---------------------------
retained the services of a professional executive compensation consultant to
help establish the corporate officer compensation policy. This consultant
reviewed all aspects of the short- and long-term compensation of corporate
officers. The Committee directed the consultant to research companies with
characteristics similar to those of the Company. Such characteristics included
size, stature, industry similarities, growth and investment patterns, earnings
comparisons and various ratio analyses. Additionally, the Committee's policy is
to assure that the officers are compensated annually at an average to similar
positions at these other companies, and over the long term at an above average
level to assure ample incentive for the growth and viability of the Company over
time. The Board of Directors, after reviewing the recommendations of the
consultant, have chosen to use the recommendations as a guideline when
considering future corporate officer compensation matters. Both the Committee
and the Board regularly review national executive compensation surveys to assure
the parity and appropriateness of BI's officer compensation policy.
The Committee's corporate officer compensation policy is founded on
principles that guide the Company in establishing compensation programs at all
levels of the organization. These compensation programs are designed to treat
all employees fairly and to be cost-effective. To that end, all programs,
including those for corporate officers, have the following characteristics:
Compensation is based on the level of job responsibility, the individual's
level of performance, and Company performance. Corporate officers have a
greater portion of their pay based on Company performance than do other
management employees. Compensation also takes into consideration the value of
the job in the marketplace. To retain its highly skilled work force, the
Company strives to remain competitive with the pay of employers of a similar
stature who compete with the Company for talent.
-6-
<PAGE>
Through its stock option and stock purchase plans, the Company offers the
opportunity for equity ownership to all of its employees. In addition, the
Company provides corporate officers and other key employees the opportunity to
build more substantial equity ownership through its Option Plans.
Reviews are conducted at the first Compensation Committee meeting after the
end of each fiscal year. At these reviews both short- and long-term
compensation matters are considered based upon previous year-end results and the
new plan for the future.
Fiscal 1996's revenue, net income, and cash flow were at record levels.
Revenue was up 31% and net income was up 26% over the levels of fiscal 1995.
The Committee also noted that the Company's performance in fiscal 1996 exceeded
the operating plan targets for revenue and net income. During the period the
Company continued to expand its recurring revenue, effected a number of
infrastructural changes to accommodate the anticipated, continuing growth, and
developed comprehensive five-year strategic and operating plans.
Because of this strong Company performance and management's success in
planning and gearing the Company for growth, the Committee recommended and the
Board approved cash bonuses for the four corporate officers, following the
guidelines set forth in the Fiscal 1996 Officer Bonus Guideline established in
August 1995.
Long-term incentive compensation in the form of stock options is an
important element of the performance-based compensation of executive officers as
well as other managers and employees within the Company. The grant of stock
options continues the Company's long-standing practice of increasing
management's equity ownership in order to ensure that their interests remain
closely aligned with those of the Company's shareholders. Stock options and
equity ownership in the Company provide a direct link between executive
compensation and shareholder value and serve as an incentive because the
exercise price is equal to the fair market value on grant date; thus, executive
officers will receive future gains from these options only to the extent the
price of the Company's stock increases. Stock options, in addition to providing
the Company's key employees an opportunity for increased equity ownership also
create an incentive to remain with the Company for the long term. This is
particularly important to the success of the five year plan discussed above.
Accordingly, in August 1996, the Committee recommended and the Board of
Directors approved option grants to each of the corporate officers. These
options were granted for fiscal 1996 accomplishments and to provide additional
incentive to the officers as they implement the five year strategic plan. These
options were in line with the Committee's policy, stated above, relative to long
term compensation. The Committee based its decision in part using the
guidelines set forth by the compensation consultant, and in part using updated
survey data. These grants were made pursuant to the Company's standard
compensation procedures.
Chief Executive Officer Compensation. The Committee reviews all
------------------------------------
compensation matters relative to the CEO after the close of each fiscal year at
June 30. At the first Compensation Committee meeting of fiscal 1996, the
Committee recommended and the Board approved an annual salary of $170,000 for
Mr. Hunter effective July 1, 1995. This salary was $20,000 more than the
previous year.
In accordance with the Fiscal 1996 Officer Bonus Guideline, the Committee
recommended and the Board approved a bonus of 50% of Mr. Hunter's fiscal 1996
annual salary to be paid after the completion of the independent audit of the
fiscal 1996 financial statements.
The Committee conducted a written and oral evaluation of Mr. Hunter, the
Company's President and Chief Executive Officer, in August 1996. At that time,
Mr. Hunter received an Incentive Stock Option of 100,000 shares for fiscal 1996
accomplishments and incentive to implement the five year strategic plan.
-7-
<PAGE>
The Committee will continue to review all aspects of Mr. Hunter's
compensation annually in July to establish goals for the ensuing fiscal year
against which his performance and adjustments in compensation will be evaluated.
Compensation Committee
Frank L. Randall, Jr., Chairman
Beverly J. Haddon
Jeremy N. Kendall
Byam K. Stevens, Jr.
David J. Hunter (non-voting member)
-8-
<PAGE>
The following table sets forth the compensation paid each of the last three
fiscal years ended June 30, 1996, 1995 and 1994 to the Company's Chief Executive
Officer and each Executive Officer who received compensation in excess of
$100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
------------------- ----------------------
Awards Payouts
---------------------- -------
Number of
Restricted Option
Stock Shares LTIP* All Other
Name and title Year Salary Bonus Awards Granted Payouts Compensation (a)
- --------------------------- ---- -------- ------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
David J. Hunter 1996 $169,167 $85,000 0 100,000 0 $4,592
Chief Executive Officer 1995 149,968 75,000 0 75,000 0 4,332
1994 129,772 20,000 0 150,735(b) 0 1,349
Mckinley C. Edwards, Jr. 1996 $149,375 $60,000 0 75,000 0 $1,224
Executive Vice President, 1995 134,439 54,000 0 37,500 0 3,866
Operations
1994 110,000 10,000 0 83,424(b) 0 1,170
Richard L. Willmarth 1996 $144,167 $58,000 0 0 0 $1,062
Executive Vice President, 1995 124,960(c) 25,000 0 32,500 0 1,344
Field Operations
1994 155,672(c) 5,000 0 57,908(b) 0 1,312
Jackie A. Chamberlin 1996 $ 99,583 $30,000 0 50,000 0 $2,791
Vice President, Finance 1995 89,663 27,000 0 22,500 0 1,797
Chief Financial Officer
1994 70,500 5,000 0 41,755(b) 0 692
</TABLE>
* Long-term Incentive Plan
(a) Represents the matching contribution made pursuant to the Company's
retirement savings plan as follows: Mr. Hunter $1,323; Mr. Edwards $1,224;
Mr. Willmarth $1,062 and Ms. Chamberlin $952. In addition, the Company has
a policy to pay employees annually for earned but unused vacation hours up
to 40 hours. Other compensation includes $3,269 for Mr. Hunter and $1,839
for Ms. Chamberlin.
(b) These figures include previously granted options which the Board of
Directors repriced on April 18, 1994. All of Mr. Hunter's and Mr. Edwards'
shares underlying options listed for fiscal 1994 were the result of
repricing; 47,908 of Mr. Willmarth's shares underlying options for fiscal
1994 were the result of repricing; and 30,755 of Ms. Chamberlin's shares
underlying options for fiscal 1994 were the result of repricing. In
addition, the termination date of options listed above to purchase 40,000,
35,000 and 10,000 held by Messrs. Hunter, Edwards and Willmarth,
respectively, was
-9-
<PAGE>
extended from January 1995 to January 1997. No other amendments were made
to the options, so the vesting schedules and termination dates, as to the
balance of repriced options, remain unchanged.
(c) Mr. Willmarth accrued commissions on the Company's total revenue at the
time of sale. Commissions were earned and paid to Mr. Willmarth at the time
the Company received payment. The table includes commissions of: $14,767
earned and paid in fiscal 1995 for commissions accrued in fiscal 1994; and
$16,288 earned and paid in fiscal 1994 for commissions accrued in fiscal
1993. At June 30, 1996 Mr. Willmarth had no accrued, unpaid commissions.
Mr. Willmarth left the Company on July 1, 1996.
STOCK OPTION GRANTS
The following table shows the stock options granted to the Named Executive
Officers during 1996 and the potential realizable value of those grants (on a
pre-tax basis) determined in accordance with SEC rules. The information in this
table shows how much the Named Executive Officers may eventually realize in
future dollars if the stock gains 5% or 10% in value per year, compounded over
the life of the options. These amounts represent assumed rates of appreciation,
and are not intended to forecast future appreciation of the Company's Common
Stock.
The options described in this table have exercise prices equal to the fair
market value of a share of Common Stock on the date they were granted.
<TABLE>
<CAPTION>
OPTION SHARES GRANTED IN FISCAL 1996
Individual Grants
-----------------
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
% of Total Value at Assumed
Option Shares Annual Rates of Stock
Number of Option Granted to Exercise Price Appreciation (b)
Shares Employees in Price Per Expiration ----------------------
Name Granted (a) Fiscal Year Share Date 5% 10%
- --------------------- -------------------- ------------- ----------- ----------- -----------------------
David J. Hunter 100,000 (c) 21.1% $12.38 8/14/11 $1,336,000 $3,933,000
Mckinley C. Edwards, Jr. 75,000 (c) 15.8% $12.38 8/14/11 $1,002,000 $2,949,750
Jackie A. Chamberlin 50,000 (c) 10.6% $12.38 8/14/11 $ 668,000 $1,966,500
</TABLE>
(a) Options vest over a five-year period, with 20% vesting immediately on the
grant date and an additional 20% vesting every year thereafter. In the
event of termination on account of death or disability, the options which
are capable of vesting during the vesting period in which death or
disability occurs will vest.
(b) Calculated over a fifteen-year period, representing the life of the option.
(c) Granted August 15, 1996, for fiscal 1996 performance and additional
incentive to accomplish the five year strategic plan.
-10-
<PAGE>
STOCK OPTION EXERCISES AND OPTION VALUES
The following table shows information concerning the exercise of stock
options by each of the Named Executive Officers during fiscal 1996, and the
value of all remaining unexercised options at June 30, 1996, on a pre-tax basis.
<TABLE>
<CAPTION>
AGGREGATE OPTION SHARES EXERCISED IN FISCAL 1996 AND JUNE 30, 1996 OPTION VALUES
Shares Number of Unexercised Value of Unexercised, In-the-
Acquired on Net Value Options at 6/30/96 Money Options at 6/30/96 (b)
--------------------- -----------
Name Exercise Realized (a) Exercisable Unexercisable (c) Exercisable Unexercisable
-------- ------------ ----------- ----------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter 50,000 $440,106 106,801 168,934 $736,915 $776,116
Mckinley C. Edwards, Jr. 42,500 373,850 50,693 100,231 312,422 379,862
Richard L. Willmarth 30,908 188,596 23,000 9,625 192,266 72,805
Jackie A. Chamberlin 2,500 26,394 28,691 73,064 169,514 303,904
</TABLE>
(a) The net value realized on exercise of stock options is calculated by
subtracting the exercise price from the market value of the Company's
common stock as of the exercise date.
(b) The value of unexercised in-the-money options is equal to the market value
of the common stock at June 30, 1996 ($13.25 per share) less the per share
option price, multiplied by the number of exercisable or unexercisable
options.
(c) Includes options granted on August 15, 1996, for fiscal 1996 performance.
-11-
<PAGE>
STOCK OPTION REPRICING
The following table shows information concerning the repricing of options
for each executive officer of the Company for the ten year period July 1, 1986
to June 30, 1996.
<TABLE>
<CAPTION>
TEN-YEAR OPTION/SAR REPRICINGS
(a) (b) (c) (d) (e) (f) (g)
Length of
Original Option
Market Price of Exercise Price Term Remaining
Number of Stock at Time At Time of at Date of
Options/SARs of Repricing or Repricing or New Exercise Repricing
Repriced or Amended Amendment Amendment Price or Amendment
Name Date (#) ($) ($) ($) (in months)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter 4/18/94 40,000 $ 4.88 $ 5.875 $ 5.13 9 (1)
Chief Executive Officer 4/18/94 10,000 4.88 7.50 5.13 20
4/18/94 20,000 4.88 7.375 5.13 57
4/18/94 52,455 4.88 7.625 5.13 63
4/18/94 28,280 4.88 7.625 5.13 63
1/28/92 10,000 7.50 10.75 7.50 47
10/20/87 15,000 3.563 5.625 3.563 54
Richard L. Willmarth 4/18/94 10,000 4.88 5.875 5.13 9 (1)
Executive Vice President, 4/18/94 10,000 4.88 7.50 5.13 15
Field Operations 4/18/94 11,908 4.88 7.00 5.13 27
4/18/94 10,000 4.88 7.375 5.13 57
4/18/94 6,000 4.88 7.625 5.13 63
1/28/92 10,000 7.50 12.938 7.50 42
Mckinley C. Edwards, Jr. 4/18/94 35,000 4.88 5.875 5.13 9 (1)
Executive Vice President, 4/18/94 10,000 4.88 7.50 5.13 20
Operations 4/18/94 15,000 4.88 7.375 5.13 57
4/18/94 23,424 4.88 7.625 5.13 63
1/28/92 10,000 7.50 10.75 7.50 47
10/20/87 10,000 3.563 5.625 3.563 54
Jackie A. Chamberlin 4/18/94 10,000 $ 4.88 $ 7.50 $ 5.13 12
Chief Financial Officer 4/18/94 2,500 4.88 7.00 5.13 27
Vice President Finance 4/18/94 7,000 4.88 8.25 5.13 55
4/18/94 11,255 4.88 7.625 5.13 63
1/28/92 10,000 7.50 9.9375 7.50 39
10/20/87 1,268 3.563 4.93 3.563 59
10/20/87 6,499 3.563 4.93 3.563 59
</TABLE>
(1) While this reflects the length of the original option term remaining at the
--------
date of repricing, the actual length of the option term remaining is now 33
months, because the termination date for these options was extended from January
1995 to January 1997 at the time they were repriced.
Compensation Committee: Frank L. Randall, Jr., Chairman, Beverly J. Haddon, Byam
K. Stevens, Jr., Jeremy Kendall, David J. Hunter (non-voting member).
-12-
<PAGE>
RELATED PARTY TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During fiscal 1996 the Company sold home arrest equipment and services to
JEMTEC, Inc. in the amount of $435,463. Mr. Kendall, the Chairman of the
Company, is Chairman of JEMTEC, Inc.
Mr. Hunter, the Company's CEO, served as a non-voting member of the
Company's compensation committee during fiscal 1996, but did not participate in
discussions involving his compensation.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with, except that reports of single
transactions were filed late by Mr. Johnson, Mr. Kendall, and Mr. Stevens.
CORPORATE PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change in
the cumulative total shareholder return on the Company's common stock with the
CTA (Carl Thompson Associates) Total Return Index for the Nasdaq Stock Market
(U.S. companies) and the CTA Total Return Index for Nasdaq Stocks for a selected
peer group of seven companies whose information and identification products
include radio frequency identification technology and personal response services
for the preceding five year period. This graph includes the same peer group
reported in the Company's fiscal 1995 proxy statement.
-13-
<PAGE>
PERFORMANCE GRAPH
The following indexed graph indicates the Company's total return to its
stockholders from June 30, 1991 to June 30, 1996 as compared to total return for
the Nasdaq Stock Market (U.S. companies) Index and a self-determined Peer Group
Index selected by the Company, assuming a common starting point of $100 and that
all dividends were reinvested. The information contained in this graph is not
necessarily indicative of future Company performance.
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG BI INCORPORATED, THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX
AND A PEER GROUP
<TABLE>
<CAPTION>
Measurement period B.I., PEER NASDAQ
(Fiscal Year Covered) INC. GROUP COMPOSITE (US)
<S> <C> <C> <C>
Measurement PT -
6/28/91 $ 100.00 $ 100.00 $ 100.00
FYE 6/30/92 $ 92.65 $ 104.71 $ 120.13
FYE 6/30/93 $ 97.06 $ 176.62 $ 151.08
FYE 6/30/94 $ 55.88 $ 155.34 $ 152.52
FYE 6/30/95 $ 77.94 $ 131.68 $ 203.59
FYE 6/28/96 $ 155.88 $ 235.85 $ 261.37
</TABLE>
- --------
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472. Data from
Bloomberg Financial Markets
Self-determined peer group consists of seven companies which are as
follows: American Medical Alert Corp, Checkpoint Systems, Inc., Digital Products
Corp, Response USA, Inc., Amtech Corp, Destron Fearing Corp and Lifeline
Systems, Inc. Five of these companies have a standard industrial classification
code of 366 to 369. Two companies provide personal emergency response
monitoring. Digital Products Corp is the only company competing directly in the
same market with the Company.
-14-
<PAGE>
PROPOSALS FOR VOTING
PROPOSAL ONE: ELECTION OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR THE
ELECTION OF THE EIGHT DIRECTORS, AS DISCUSSED UNDER "ELECTION OF DIRECTORS."
PROPOSAL TWO: APPROVAL OF THE 1996 STOCK OPTION PLAN
The Board of Directors elected to begin reliance on the new Rule 16b-3 as of
August 15, 1996. The current 1991 Stock Option Plan will be replaced by the
1996 Stock Option Plan which is intended to allow the Company to utilize the
greater flexibility available under the new rule.
DESCRIPTION OF THE PLAN
General. The Plan was adopted by the Board of Directors effective August
-------
15, 1996, subject to shareholder approval, for the purpose of providing
employees, consultants and directors with the opportunity to participate in the
Company's growth through the purchase of the Company's Common Stock and to
provide increased incentive to promote the interests of the Company.
Administration of the Plan. The Plan is administered by a committee of at
--------------------------
least two non-employee members of the Board of Directors (the "Board"). The
Board may from time to time adopt such rules and regulations as it deems
advisable for the administration of the Plan, and may alter, amend or rescind
any such rules and regulations in its discretion. The Board has the power to
interpret, amend or discontinue the Plan.
Grant of Options. Options may be granted under the Plan for a total of
----------------
1,000,000 shares of Common Stock. These shares include 101,000 shares
previously approved by shareholders under the 1991 Stock Option Plan which were
not granted at termination of the plan on August 15, 1996. The Board determines
the terms of options granted under the Plan, including the type of option (which
can be incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options),
the exercise price, the number of shares subject to the option, and the
exercisability thereof. The Board also determines, at the time of grant, the
period during which the option will be exercisable.
Terms and Conditions of Options. The Board may impose on an option any
-------------------------------
additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan. The exercise price of any stock option granted
under the Plan must not be less than 100% of the fair market value of a share of
Common Stock as of the date prior to the date of grant, except that as to an
optionee who at the time an incentive stock option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price of such incentive stock option must be
at least equal to 110% of the fair market value of the shares as of the date
prior to the date of the grant. In addition, no incentive stock option can be
granted to any employee where the aggregate fair market value of the shares
(determined at the date of such option grant) for which such incentive
-15-
<PAGE>
stock options are exercisable for the first time in any calendar year exceeds
$100,000. In connection with a merger, sale of all of the Company's assets, or
other transaction which results in the replacement of the Company's Common Stock
with the stock of another corporation, the Board may terminate stock options,
accelerate the exercise date of stock options, or provide for the assumption or
replacement of stock options with comparable options of such other corporation.
Exercise of Options. An optionee may exercise less than all of the matured
-------------------
portion of an option, in which case such unexercised, matured portion shall
continue to remain exercisable, subject to the terms of the Plan, until the
option terminates.
Each option granted under the Plan terminates on the earlier of (i) the
number of years after the date of grant as is designated by the Board, or (ii)
in the case of an incentive stock option (a) three months following the
termination, for any reason other than death or disability, of employment by the
Company, or by its parent or subsidiary, of the employee to whom the option is
granted, or (b) one year following the termination, on account of death or
disability, of employment by the Company or by its parent or subsidiary, of the
employee to whom the option is granted (in which case the employee will be
deemed to have completed the full vesting period during which such employee died
or becomes disabled). The Board of Directors may provide, at the time of grant,
that the termination date for a non-qualified stock option could be as long as
twenty (20) years from the grant date, and the termination date for an incentive
stock option could be as long as ten (10) years from the grant date.
FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock Options. The Company anticipates that all options granted
-----------------------
under the Plan and treated by the Company as "incentive stock options," that is,
a stock option described in Section 422 of the Code, will have the following
anticipated (but not guaranteed) federal income tax consequences, among others:
The optionee will recognize no income at the time of grant.
Upon exercise of the incentive stock option, no income will result to any
party.
If there is no disposition of the shares until a date that is both (i) two
years from the grant of an incentive stock option and (ii) one year from its
exercise, no amount will be ordinary income and, upon disposition in a taxable
transaction, the employee will receive long-term capital gain or loss
treatment equal to the difference between his amount realized and the option
price. Any gain realized upon a disposition other than as set forth above may
result in ordinary income tax treatment to the optionee.
In the event of the tax treatment to the employee described in (c) above,
the Company receives no deduction in connection with the transaction.
Certain optionees may incur alternative minimum tax treatment under the
Code upon exercise of an incentive stock option.
-16-
<PAGE>
Non-qualified Stock Options. The Company anticipates that all non-
---------------------------
qualified stock options granted under the Plan will have the following
anticipated (but not guaranteed) federal income tax consequences, among others:
The optionee will recognize no income at the time of grant.
Upon exercise of the non-qualified stock option, the individual to whom the
option is granted should be deemed to receive ordinary income at the time of
exercise equal to the excess, if any, of the fair market value of the acquired
shares at such time over the option price for such shares.
If the shares acquired upon the exercise of a non-qualified stock option
are disposed of in a taxable transaction, the individual disposing of such
shares will have a realized and recognized capital gain or loss equal to the
difference, if any, between the amount realized and the adjusted basis of such
shares to him. Such gain or loss will be long-term or short-term depending on
whether such shares are held for longer than six months (one year for stock
acquired prior to June 23, 1984), or not. The adjusted basis usually (but not
always) will include the option price plus any ordinary income described in
(b) with respect to such shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY'S 1996
STOCK OPTION PLAN.
PROPOSAL THREE: APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the shareholders ratify the
appointment of Price Waterhouse LLP, independent accountants, to audit the
financial statements of the company for the fiscal year ending June 30, 1997.
Price Waterhouse LLP has been the Company's independent accountant for over ten
years. A representative of Price Waterhouse LLP will be present at the annual
meeting and will have an opportunity to make a statement if he so desires. This
individual will also be available to respond to appropriate questions. An
adverse vote will be considered as direction to the Board of Directors to select
other independent accountants for the fiscal year ending June 30, 1998.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be
presented at the Annual Meeting other than those described above. However, if
any other matters properly come before the meeting it is intended that the
person named in the enclosed proxy will vote on such matters in accordance with
his or her best judgment.
-17-
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting must be received by the Company, attention of the Secretary, 6400
Lookout Road, Boulder, Colorado 80301 by June 3, 1997, and must be made in
compliance with federal securities laws.
ANNUAL REPORT - FINANCIAL STATEMENTS
A copy of the Annual Report to Shareholders, including financial
statements for each of the three years in the period ended June 30, 1996, is
being mailed to all shareholders herewith. The Annual Report is not to be
regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
By Order of the Board of Directors
Mckinley C. Edwards, Jr.
Secretary
Dated: October 1, 1996
-18-
<PAGE>
Exhibit A
BI INCORPORATED
1996 STOCK OPTION PLAN
1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan") is
-------
to grant to employees, consultants and directors, options to purchase common
stock (the "Common Stock") of BI Incorporated, a Colorado corporation (the
"Corporation"), so that they may have the opportunity to participate in the
growth of the Corporation and to provide them with an increased incentive to
promote the interests of the Corporation. The options granted under the Plan
are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), unless designated as
non-qualified stock options.
2. Eligible Persons. Employees, directors and consultants of the
----------------
Corporation or of any parent or subsidiary of the Corporation shall be eligible
to be granted options under the Plan, except that incentive stock options may be
granted only to employees. "Parent" and "subsidiary" shall have the meanings
set forth in Section 424 of the Code.
3. Stock Subject to Plan. Subject to the provisions of Section 10, the
---------------------
maximum aggregate number of shares for which options may be granted and sold
under the Plan is 1,000,000 shares of Common Stock. If an option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased shares which were subject thereto shall become available for
future grant and sale under the Plan. No stock option may be granted under the
Plan more than 10 years after the adoption of the Plan by the Board.
4. Administration.
--------------
(a) The Plan shall be administered by a committee of at least two
non-employee members of the Board of Directors of the Corporation (the "Board")
appointed by the Board and serving at the Board's pleasure (the "Committee").
The Board may increase the size of the Committee, appoint additional members,
remove members (with or without cause), appoint new members, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan. As used herein, the term Board shall also mean the
Committee.
(b) The Board may from time to time adopt such rules and regulations
as it may deem advisable for the administration of the Plan, and may alter,
amend, or rescind any such rules and regulations in its discretion. The Board
shall have the power to interpret or amend or discontinue the Plan, except that
any amendment which, under state or federal law or the applicable rules of any
exchange or trading system on which the Common Stock is traded, would require
shareholder approval shall take effect only upon such approval; and further
-1-
<PAGE>
provided that without the written consent of an optionee, no amendment or
discontinuance of the Plan shall alter or impair any option previously granted
to him under the Plan, subject to any provisions otherwise in the Plan. All
decisions made by the Board in the administration and interpretation of the Plan
shall be binding and conclusive for all purposes. No member of the Board shall
be liable for any action taken or decisions made by him or her in good faith
with respect to the Plan or any options granted under it.
5. Price, Terms and Conditions of Options.
--------------------------------------
(a) Options shall be evidenced by a written Incentive Stock
Option Agreement or Non-Qualified Stock Option Agreement, as appropriate, in the
form approved from time to time by the Board. The type of option, the number of
shares which may be purchased under such option, the exercisability of such
option, the option's expiration date and the purchase price per share, shall be
designated by the Board at the time the option is granted.
(b) The purchase price per share of any option granted hereunder
shall in no event be less than 100% of the fair market value of each share at
the time the option is granted; provided, however, that incentive stock options
may not be granted to any holder of the voting rights of 10% or more of the
total combined voting power of all classes of stock of the Corporation at time
of grant, unless the purchase price is at least 110% of the fair market value of
the shares at the time of grant. "Fair market value" shall be determined as set
forth in Section 9 below. No incentive stock options shall be granted under the
Plan to any employee where the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by such employee during any calendar
year (under all such plans of the Corporation and its parent and subsidiary
corporations) shall exceed $100,000; provided that non-qualified stock options
granted under the Plan may exceed these limits. All options shall be exercisable
even though there may be outstanding any other option(s) which was or were
granted before the granting of such option. The Board may impose on any option
any additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan.
6. Transferability. Unless otherwise determined by the Board, an
---------------
option granted under the Plan shall not be transferable by the individual to
whom it is granted other than by will or the laws of descent and distribution,
and shall be exercisable, during the lifetime of such individual, only by him;
provided, however, that if such individual becomes legally disabled, his legal
representative may exercise the option on his behalf.
-2-
<PAGE>
7. Exercise of Option.
-------------------
(a) Exercise of an option shall be accomplished by delivery to
the Corporation, before the option's expiration, of written notice, signed by
the holder of the option, specifying the number of shares with respect to which
the option is exercised, the type of option being exercised, and by full payment
of the purchase price for the shares. The purchase price may, at the
Corporation's discretion, be paid by assignment to the Corporation of
outstanding shares of Common Stock of the Corporation owned by the optionee for
at least six (6) months prior to the date of exercise and having a fair market
value (as determined pursuant to Section 9 below) equal to the purchase price or
that portion thereof being paid in outstanding stock. The Corporation may issue
a certificate which reflects the net number of shares issuable after payment of
the exercise price in already owned Common Stock, so that the previously owned
certificate need not actually be tendered. An option may not be exercised for a
fraction of a share of Common Stock. At the Corporation's request, the notice of
exercise delivered to it shall contain a representation that the shares are
being purchased for investment only and not for resale or distribution. Within a
reasonable time after receipt of the properly executed notice of exercise, the
Corporation shall cause to be issued and delivered to the holder of the option a
certificate for the number of shares of Common Stock being purchased; provided,
however, that the Corporation may in its discretion allow the optionee to elect
to pay any withholding taxes payable upon exercise of a non-qualified stock
option, in whole or in part, by transferring to the Corporation shares of Common
Stock of the Corporation owned by him or by being credited by the Corporation
for shares he has a right to acquire in the option being exercised.
(b) No person shall have any rights as a stockholder with
respect to any shares covered by an option until the date of the issuance of a
stock certificate(s) for the shares for which the option has been exercised. No
adjustments shall be made for dividends or distributions or other rights for
which the record date is prior to the date such stock certificate(s) are issued,
except as provided in Section 10. Nothing in this Plan or in any option
agreement shall confer upon any optionee any rights to continue in the employ of
the Corporation or shall affect the Corporation's ability to terminate the
optionee's employment at any time.
-3-
<PAGE>
8. Expiration of Option.
--------------------
(a) Each option granted under the Plan shall expire on the
earlier of (i) the date set forth in the Option Agreement for such optionee;
(ii) no later than twenty (20) years from the date the option is granted,
provided that any incentive stock option must terminate within ten (10) years
from the date the option is granted and provided that no incentive stock option
granted to a 10% shareholder (as described in Section 5, above) shall be
exercisable after the expiration of five (5) years from the date of grant; or
(iii) in the case of an incentive stock option, three (3) months following the
termination, for any reason other than death or disability, of employment by the
Corporation, or by its parent or subsidiary, of the employee to whom the option
is granted.
(b) Unless earlier terminated pursuant to this Section 8, each
incentive stock option granted under the Plan, shall expire one (1) year
following the termination on account of death or disability of the employment by
or services for the Corporation, or by or for its parent or subsidiary, of the
employee to whom the option is granted. In the event of the termination of
employment by the Corporation of an optionee on account of his or her death or
disability, the optionee shall for purposes of the foregoing requirement be
considered to have completed the next full vesting period of employment with
respect to the vesting period in which his or her death or disability occurs.
9. Definition of Fair Market Value. For the purposes of this Plan,
-------------------------------
"fair market value" shall mean either the exercise price per share established
in the discretion of the Board of Directors or, so long as the Corporation's
stock is publicly traded, the closing price per share of Common Stock of the
Corporation on the last trading day preceding the date of grant.
10. Stock Splits, Dissolutions, Mergers, Etc.
----------------------------------------
(a) In case of any stock split, stock dividend or similar
transaction which increases or decreases the number of outstanding shares of the
Corporation's Common Stock, appropriate adjustment will be made to both the
number of shares which may be purchased under the Plan and the number and
exercise price per share of Common Stock which may be purchased under any
outstanding options.
(b) In the event of the proposed dissolution or liquidation of
the Company, all options will be deemed terminated immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, give
each Optionee the right to exercise his option prior to the consummation of such
action as to all or any part of the Common Stock subject to such option,
including shares as to which the option would not otherwise be exercisable.
-4-
<PAGE>
(c) In the case of any merger, sale of all or substantially all
of the assets of the Corporation or other transaction which results in the
replacement of the Corporation's Common Stock with the stock of another
corporation, the Board may provide for the expiration of any option, for the
acceleration of the exercise date of any option to the day immediately preceding
the closing day of such event, or for the assumption or replacement of any
options with comparable options to purchase the stock of such other corporation.
11. Effective Date. The Plan shall take effect upon August 15,
--------------
1996. If the Plan is not approved and ratified by the shareholders of the
Corporation within twelve (12) months of such date, all incentive stock options
issued under the Plan shall be disqualified as incentive stock options and shall
thereafter be non-qualified stock options, and any incentive or non-qualified
stock option granted to an officer or director of the Corporation shall lapse
and be cancelled.
ADOPTED: August 8, 1996
-5-
<PAGE>
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF BI INCORPORATED
FOR ANNUAL MEETING ON NOVEMBER 7, 1996
The undersigned hereby appoints David J. Hunter and Mckinley C.
Edwards, Jr., or either of them, attorneys and proxies for the undersigned, with
full power of substitution, to vote all shares of capital stock of BI
Incorporated (the "Company") held of record by the undersigned on September 18,
1996, at the Annual Meeting of Stockholders of BI Incorporated to be held at the
Raintree Plaza Hotel, 1900 Diagonal Highway 119, Longmont, Colorado on Thursday,
November 7, 1996, 10:00 a.m., M.S.T., and at any adjournment thereof. The
undersigned hereby revokes any proxy or proxies heretofore given in respect to
the same shares of stock.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BELOW
BY THE UNDERSIGNED WITH RESPECT TO PROPOSALS 1, 2 AND 3. IF NO DIRECTION IS
GIVEN, SUCH SHARES WILL BE VOTED FOR SUCH PROPOSALS AND SUCH SHARES WILL BE
VOTED IN EITHER OR BOTH OF THE PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.
<PAGE>
TO ENSURE A QUORUM, YOU ARE URGED TO DATE AND SIGN THIS PROXY ON THE LINE
BELOW AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
THE DIRECTORS RECOMMEND A VOTE FOR THESE TWO PROPOSALS:
1. Election of Directors.
FOR (except as WITHHOLD AUTHORITY to vote for all
---- ----
listed below) nominees listed below
Nominees: William E. Coleman, Mckinley C. Edwards, Jr.,
Beverly J. Haddon, David J. Hunter, Perry M. Johnson,
Jeremy N. Kendall, Frank L. Randall, Jr., and Byam K.
Stevens, Jr.
If you desire to withhold authority to vote for any individual
nominee, please write the nominee's name on the space provided:
-----------------------------------
2. Approval of the Company's 1996 Stock Option Plan.
FOR AGAINST ABSTAIN
---- ---- ----
3. Ratification of Price Waterhouse LLP as independent accountants.
FOR AGAINST ABSTAIN
---- ---- ----
<PAGE>
In their discretion, the above-named proxies are authorized to vote
upon such other business as may properly come before the meeting or
any adjournment hereof.
Dated: , 19
------
--------------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature if held jointly
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by President or other
authorized officer. If a partnership, please sign
in partnership name by authorized person.
