<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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] No fee required
[_] 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
BI INCORPORATED
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
TO BE HELD NOVEMBER 5, 1998
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 5, 1998, 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 an amendment to the Company's 1996 Stock Option Plan to
increase by 400,000 the number of shares available for issuance under
the plan.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the Company for the fiscal year ending June 30, 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The minutes of the last annual shareholders' meeting and the
shareholders' list of their share eligibility to vote at the 1998 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 16, 1998,
will be entitled to notice of and 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: September 28, 1998
<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 5, 1998, 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 September 28, 1998. The
Company's principal executive offices are located at 6400 Lookout Road, Boulder,
Colorado 80301, and its telephone number at those offices is (303) 218-1000.
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 an
increase in the number of shares available under the 1996 Stock Option Plan; and
(iii) for the ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year ending June 30,
1999; and (iv) in the discretion of the proxy holder on any matter properly
brought before the meeting of which the Company did not have notice prior to
June 3, 1998. In the event 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 16, 1998
will be entitled to vote at the meeting. On September 1, 1998, there were
issued and outstanding 7,640,185 shares of Common Stock of the Company, entitled
to one vote per share. The presence, in person or by proxy, of a majority of
the outstanding shares of Common Stock as of the record date constitutes a
quorum and is required in order for the Company to conduct business at the
Annual Meeting. 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. Abstentions
and broker non-votes are counted towards a quorum. Abstentions are counted in
the tabulations of the votes cast, but broker non-votes on any proposal are not
considered to be represented at the meeting as to such proposal and therefore
are not counted for purposes of determining whether a proposal has been
approved.
The Board of Directors knows of no shareholder owning more than five
percent (5%) of the outstanding voting securities of the Company, except for
Neil J. Weisman, Wellington Management, Co., Merrill Lynch Asset Management and
Dimensional Fund Advisors, Inc.
ELECTION OF DIRECTORS
The Board of Directors consists of eight incumbent members, all of whom
have been nominated and have agreed to stand for reelection at the meeting to
hold office until the next meeting of shareholders and until their successors
are elected and qualified.
1
<PAGE>
INFORMATION CONCERNING DIRECTORS
William E. Coleman, Mckinley C. Edwards, Jr., Beverly J. Haddon, David J.
Hunter, Perry M. Johnson, Jeremy N. Kendall, 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. Barry J. Nidorf has been nominated
by the Board of Directors. The Proxies cannot vote for 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. In the event a nominee for a
directorship 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.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
Director
Age Since
------- ---------
<S> <C> <C>
WILLIAM E. COLEMAN is Chairman of Colorado Venture Management, Inc., a 64 1984
business consulting and venture capital firm, and has been President of Cogen
Technology, Inc., developers of cogeneration projects, since August 1987. He is
a director of Hauser, Inc. Dr. Coleman has been Vice Chairman of the Board since
November 1992.
MCKINLEY C. EDWARDS, JR. has been Executive Vice President and Chief 56 1990
Operating Officer since November 1996. He joined the Company in November 1983 as
Manufacturing Manager, was elected Vice President of Manufacturing in November
1984, promoted to Executive Vice President of Operations in April 1985 and was
elected as Treasurer and Secretary in June 1986.
BEVERLY J. HADDON has been Partner at CRL Associates, a business consulting 56 1994
and government lobbying firm, since April 1993. Prior to this date, she held
various positions over 28 years with Norwest Bank, her latest being Executive
Vice President from June 1991 through May 1992. She is a director of Hauser,
Inc.
DAVID J. HUNTER joined the Company in June 1981 and served as Operations 53 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 58 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., Chairman of Easton Minerals, and
Chairman of Logicsys, Inc. Mr. Kendall has been Chairman of the Board since
November 1992.
PERRY M. JOHNSON has served as a Corrections Consultant since April 1988. 67 1994
He 67 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.
BARRY J. NIDORF has served as a Corrections Consultant since March 1997. 57 1997
Prior 57 to this date, he held various positions, over 32 years with the Los
Angeles County Probation Department, his latest being Chief Probation Officer
from June 1984 to March 1997.
BYAM K. STEVENS, JR. has served as a security analyst and portfolio manager 67 1989
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>
2
<PAGE>
Director Compensation
Each non-employee director was granted, on July 1, 1998, an option pursuant
to the 1996 Stock Option 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 1998. 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
meeting attended during the fiscal year as stated below. On November 13, 1997,
each re-elected non-employee director received $5,000.
COMMITTEES, ATTENDANCE, NOMINATIONS
The Company has standing Audit, Nomination and Compensation Committees.
The Company's Audit Committee during fiscal 1998 was comprised of Messrs.
Coleman, Hunter, Johnson, 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 4 times during fiscal year 1998.
During fiscal 1998, the Compensation Committee consisted of Messrs. Edwards, and
Hunter (non-voting members), 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 4 times during fiscal 1998. The Nomination Committee consisting of Messrs.
Hunter, Coleman, Kendall and Johnson did not meet in fiscal 1998. This
committee was formed to develop the composition and participation guidelines of
the Board of Directors. The Company's Board of Directors met four times during
fiscal 1998. Each Director participated by personally attending during fiscal
1998 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 shareholder and
the proposed candidate (see "Shareholder Proposals") and setting forth the
complete business, professional and educational background of the proposed
candidate.
3
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of August 31, 1998 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 (as defined in the section of this proxy statement
entitled "Executive Compensation - Summary Compensation Table"), 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, 1998 upon the exercise of warrants or options.
<TABLE>
<CAPTION>
Name Amount and nature Percent of Class
of beneficial ownership
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Neil J. Weisman 9.0%
c/o Home Port Holdings, Inc.
139 West Saddle River Road
Saddle River, NJ 07458 684,300 (1)
Wellington Management, Co.
75 State Street
Boston, MA 02109 623,000 (1) 8.2%
Merrill Lynch Asset Management 7.7%
800 Scudders Mill Road
Plainsboro, NJ 08536 586,200 (1)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 554,500 (1) 7.3%
Jackie A. Chamberlin 84,997 (2) 1.1%
William E. Coleman 5,000 (3) *
Mckinley C. Edwards, Jr. 139,813 (4) 1.8%
Beverly J. Haddon 32,500 (5) *
David J. Hunter 266,426 (6) 3.4%
Perry M. Johnson 34,500 (7) *
Jeremy N. Kendall 51,500 (8) *
Barry J. Nidorf 0 *
Byam K. Stevens, Jr. 61,300 (9) *
All Officers and Directors as a Group 8.3%
(9 persons) 676,036 (10)
</TABLE>
- ------------------------------
* Represents less than 1%
(1) As of June 29, 1998.
(2) Includes options to purchase 77,380 shares, exercisable within sixty days.
(3) Includes options to purchase 5,000 shares, exercisable within sixty days.
(4) Includes options to purchase 98,674 shares, exercisable within sixty days.
Also includes 3,000 shares owned by Mr. Edwards' children, as to which
shares Mr. Edwards disclaims beneficial ownership.
(5) Includes options to purchase 31,500 shares, exercisable within sixty days.
4
<PAGE>
(6) Includes options to purchase 223,235 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 31,500 shares, exercisable within sixty days.
(8) Includes options to purchase 42,000 shares, exercisable within sixty days.
(9) Includes 4,000 shares owned by Mr. Stevens' relatives, as to which shares
he disclaims beneficial ownership. Also includes options to purchase 42,000
shares, exercisable within sixty days.
(10) Includes options to purchase 551,289 shares, exercisable within sixty days.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Named Executive Officers, (Messrs. Hunter, 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 1998 executive compensation, the Compensation
Committee (the "Committee") administered the compensation for the corporate
officers and grants to the officers under the 1996 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. The Committee utilized the services of a
----------------------------
professional executive compensation consultant to assist the Company in
establishing the corporate officer compensation policy. It remains the
Committee's policy to assure that the officers are compensated annually at an
average to similar positions at comparable 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 have chosen to use the
Committee's policy 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. 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.
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 equity ownership through its Option Plans.
5
<PAGE>
Corporate officer 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 1998's revenue was at a record level. Revenue at $62.0 million was
up 28% over fiscal 1997 revenue of $48.4 million. Net income increased to $2.7
million, up 50% from $1.8 million in fiscal 1997. During the period, the
Company invested in activities related to new product development and market
expansion in its three businesses. It is Management's belief that such
investments are essential to the progress of the Company over the long term.
The Committee recommended and the Board approved fiscal 1998 bonuses to the
three officers in the following amounts: David Hunter-$16,064; Mckinley
Edwards-$10,604; and Jacqueline Chamberlin-$5,282.
These bonuses totaled $31,950 and were lesser amounts than had been
originally allocated because, in the Committee's view, results were short of the
operating targets for the year as set forth in the Company's Strategic and
Operating Plans as approved by the Board in July 1997, although progress had
been made in fiscal 1998.
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.
Accordingly, in July 1998, the Committee reviewed the status of each
officer's stock options and concluded that option grants for each officer would
be included as part of the comprehensive review for fiscal 1999.
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 1998, the
Committee recommended and the Board approved an annual salary of $208,000 for
Mr. Hunter effective July 1, 1997. This salary was 5% more than the previous
year and recognized the Company's progress in revenue and cash flow growth in
fiscal 1997 when compared to fiscal 1996.
In accordance with the Fiscal 1998 Officer Bonus Guideline, Mr. Hunter was
eligible to receive a bonus of 50% of his base salary if the Company had met its
planned net income target for fiscal 1998. Since this target was not met, this
full bonus was not paid. The bonus of $16,064 mentioned above was approved as
recognition of the progress that was made in fiscal 1998. The Committee
recommended no additional options be granted to Mr. Hunter at this time.
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: Beverly J. Haddon, Chairwoman; Jeremy N. Kendall;
Byam K. Stevens, Jr.; David J. Hunter (non-voting member); and Mckinley C.
Edwards, Jr. (non-voting member).
6
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid each of the last three
fiscal years ended June 30, 1998, 1997 and 1996 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>
Long-term Compensation
--------------------------------------
Awards Payouts
------------------------ -----------
Number of
Restricted Option
Stock Shares LTIP* All Other
Name and title Annual Compensation Awards Granted Payouts Compensation (a)
- -------------- -------------------------------- ---------- --------- ---------- ----------------
Year Salary Bonus
---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
David J. Hunter 1998 $207,821 $16,064 0 0 0 $13,947
President, 1997 197,500 0 0 100,000(b) 0 8,450
Chief Executive Officer 1996 169,167 85,000 0 100,000(b) 0 4,592
Mckinley C. Edwards, Jr. 1998 $171,452 $10,604 0 0 0 $15,382
Executive Vice President, 1997 163,750 0 0 75,000(b) 0 7,369
Chief Operating Officer 1996 149,375 60,000 0 75,000(b) 0 1,224
Jackie A. Chamberlin 1998 $113,968 $ 5,282 0 0 0 $12,021
Vice President, Finance, 1997 109,167 0 0 50,000(b) 0 4,987
Chief Financial Officer 1996 99,583 30,000 0 50,000(b) 0 2,791
</TABLE>
* Long-term Incentive Plan
(a) Represents the matching contribution made pursuant to the Company's 401k
retirement savings plan as follows: Mr. Hunter $1,603; Mr. Edwards $1,375;
and Ms. Chamberlin $925. In addition, the Company has a policy to pay
employees annually for earned but unused vacation hours up to 40 hours.
Other compensation includes $2,144 for Mr. Hunter, $3,808 for Mr. Edwards
and $896 for Ms. Chamberlin for unused vacation hours.
Effective July 1, 1997 the Board of Directors approved an annual car
allowance of $10,200 for each officer which is included in other
compensation.
The Company pays the life insurance premiums in connection with a policy
purchased as part of a deferred compensation arrangement for certain key
executives. Other compensation includes $3,772 for insurance premiums paid
for Mr. Hunter, $3,200 for Mr. Edwards and $3,628 for Ms. Chamberlin.
(b) These options were originally granted on August 15, 1996, for fiscal 1996
performance and repriced on January 21, 1997 by the Board of Directors. The
vesting schedules and termination dates of repriced options remain
unchanged.
7
<PAGE>
STOCK OPTION GRANTS
There were no stock options granted to the Named Executive Officers during
fiscal 1998.
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 1998, and the
value of all remaining unexercised options at June 30, 1998, on a pre-tax basis.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND JUNE 30, 1998 OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised, In-the-
Shares Options at 6/30/98 Money Options at 6/30/98 (b)
Acquired on Net Value ------------------ -----------------------------
Name Exercise Realized (a) Exercisable Unexercisable Unexercisable Exercisable
- ---- ----------- ------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter 0 $ 0 184,485 91,250 $691,762 $246,798
Mckinley C. Edwards, Jr. 16,000 $92,545 74,299 60,625 251,011 159,024
Jackie A. Chamberlin 0 0 61,755 40,000 223,227 102,892
</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, 1998 ($9.375 per share) less the per share
option price, multiplied by the number of exercisable or unexercisable
options.
8
<PAGE>
STOCK OPTION REPRICING
The following table shows information concerning the repricing of options
for each executive officer of the Company for the ten year period July 1, 1988
to June 30, 1998.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g)
Number of Market Price of Exercise Price At Length of Original
Securities Stock at Time At Time of New Option Term Remaining
underlying of Repricing or Repricing or Exercise at Date of Repricing
Options/SARs Amendment Amendment Price or Amendment (in
Name Date Repriced or ($) ($) ($) months)
Amended
(#)
- ------------------------------------------------------------------------------------------------------------------------------------
David J. Hunter 1/21/97 100,000 $7.00 $ 12.83 $7.00 115
Chief Executive Officer 4/18/94 40,000 4.88 5.875 5.13 9 (1)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Mckinley C. Edwards, Jr. 1/21/97 75,000 7.00 12.38 7.00 115
Executive Vice President,
Chief Operating Officer 4/18/94 35,000 4.88 5.875 5.13 9 (1)
4/18/94 10,000 4.88 7.50 5.13 20
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
- ------------------------------------------------------------------------------------------------------------------------------------
Jackie A. Chamberlin 1/21/97 50,000 7.00 12.38 7.00 115
Chief Financial Officer,
Vice President Finance 4/18/94 10,000 4.88 7.50 5.13 12
4/18/94 2,500 4.88 7.00 5.13 27
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
- ------------------------------------------------------------------------------------------------------------------------------------
</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 was 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: Beverly J. Haddon, Chairwoman; Byam K. Stevens, Jr.;
Jeremy N. Kendall; David J. Hunter (non-voting member); and McKinley C.
Edwards, Jr. (non-voting member).
9
<PAGE>
1996 STOCK OPTION PLAN
THE FOLLOWING IS A SUMMARY OF THE COMPANY'S 1996 STOCK OPTION PLAN AND DOES NOT
PURPORT TO DESCRIBE FULLY THE PLAN.
The Company's 1996 Stock Option Plan (the "Plan") was adopted on August 6,
1996, for the purpose of granting employees, directors and consultants of the
Company options to purchase Common Stock so that they may have the opportunity
to participate in the growth of the Company, thereby providing these people with
an increased incentive to promote the interests of the Company. No option may
be granted under the Plan after August 6, 2006. The Company does not receive
any separate consideration for the issuance of the options other than the
services rendered or to be rendered to the Company by the optionee.
General Terms and Conditions of Options
---------------------------------------
The Board determines the terms of all options granted under the Plan,
subject to the limitations contained in the Plan. The Board is free to
determine the type of option (which can be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or a non-qualified stock option), the number of shares subject to the
option, the exercisability thereof, the period during which the option will be
exercisable and any vesting provisions applicable to the option, subject to
certain limits set forth in the Plan.
The per share exercise price of an option cannot be less than 100% of the
fair market value of each share at the time the option is granted; however,
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
Company at time of grant (a "10% Shareholder"), unless the purchase price is at
least 110% of the fair market value of the shares at the time of grant. "Fair
market value" means either the exercise price per share established in the
discretion of the Board or, so long as the Company's stock is publicly traded,
the closing price per share on the last trading day preceding the date of grant.
No incentive stock options may be granted 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 that employee during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) exceeds $100,000; non-
qualified stock options may exceed these limits. All options are exercisable
even though there may be outstanding any other option(s) which was or were
granted before the granting of another option.
Appropriate adjustments are to be made to the terms of outstanding options
to reflect stock splits, dividends or similar transactions. In the event of the
proposed dissolution or liquidation of the Company, all options will be deemed
terminated immediately prior to the consummation of the action, unless otherwise
provided by the Board. In connection with a merger, sale of all or
substantially 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 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,
subject to any provisions contained in any individual option agreement.
Persons Eligible to Receive Options Under the Plan. Employees (including
--------------------------------------------------
executive officers), directors and consultants of the Company and any parent or
subsidiary of the Company (as defined in Section 424 of the Internal Revenue
Code of 1986 , as amended (the "Code")) are eligible to receive options under
the Plan. As of July 31, 1998, there were eight directors (two of whom are also
executive officers), one additional executive officer, approximately 800
employees and one consultant who were eligible to receive options under the
Plan.
Administration of the Plan. The Plan is administered by at least two non-
--------------------------
employee members of the Board of Directors (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. The
Board may from time to time adopt 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, except that any amendment which
10
<PAGE>
would require shareholder approval under state or federal law or the applicable
rules of any exchange or trading system on which the Common Stock is traded,
takes effect only upon such approval. Subject to provisions that are already in
the Plan, no amendment or discontinuance of the Plan can alter or impair any
option previously granted to the optionee under the Plan without the written
consent of an optionee.
Number of Options Grantable Under the Plan. Options may be granted under
------------------------------------------
the Plan for a total of 1,400,000 shares of Common Stock. The number of shares
underlying options available to the Plan was increased to 1,400,000 from
1,000,000 on July 30, 1998, by the Board of Directors, subject to shareholder
approval at the next Annual Meeting of Shareholders.
Exercise of Options. An optionee may exercise less than all of the vested
-------------------
portion of an option, in which case such unexercised, vested portion shall
continue to remain exercisable, subject to the terms of the Plan, until the
option terminates. With certain limited exception, vested options must be
exercised within three months of an optionee's termination of employment with
the Company.
Manner of Exercising Options. Exercise of an option is accomplished by
----------------------------
delivery to the Company prior to 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 in cash. The purchase price may, at the
Company's discretion, be paid by assignment to the Company of outstanding shares
of Common Stock of the Company owned by the optionee for at least six (6) months
prior to the date of exercise and having a fair market value (as defined under
the Plan) equal to the purchase price of the shares being acquired through
exercise of the option. An option may not be exercised for a fraction of a
share of Common Stock.
Term and Termination of Options. No option may be granted with a term of
-------------------------------
greater than ten years from the date the option is granted, provided that any
incentive stock option must terminate within ten years from the date of grant
and an incentive option granted to a 10% Shareholder shall not be exercisable
after the expiration of five (5) years from the date of grant. An incentive
stock option must terminate three months following the termination of employment
for any reason other than death or disability. An incentive stock option
granted under the Plan terminates one year following date of death or
termination of employment related to disability of the employee to whom the
option is granted. In the event of the termination of employment of an optionee
on account of his or her death or disability, the optionee is 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 and in that case, the
optionee's legal representative may exercise the option on his or her behalf.
Transferability. With certain limited exceptions, an option is not
---------------
transferable by the individual to whom it is granted otherwise than by will or
the laws of descent and distribution, and can be exercised during the lifetime
of such individual, only by him or her; provided, that if the optionee becomes
legally disabled or dies, the legal representative may exercise the option on
his or her behalf.
The Board may impose on an option any additional terms and conditions which
it deems advisable and which are not inconsistent with the Plan.
Federal Income Tax Consequences of Option on the Optionee and the Company.
-------------------------------------------------------------------------
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 the 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; generally, the Company receives no deduction in
connection with the transaction; and, certain optionees may incur alternative
minimum tax treatment under the Code upon exercise of an incentive stock option.
11
<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 the holder; such gain or loss will be long-
term or short-term depending on whether or not such shares are held for longer
than six months; and, the adjusted basis usually (but not always) will include
the option price plus any ordinary income described above with respect to such
shares.
Form S-8 Registration of Shares of Common Stock
- -----------------------------------------------
Issuable Pursuant to Options Under the Plan
- -------------------------------------------
The Company has registered up to 1,000,000 shares of Common Stock
underlying options issuable under the Plan with the SEC under a Form S-8
Registration Statement that was effective as of March 27, 1997. If Proposal 3
is approved, and the number of shares issuable pursuant to exercise of options
issuable under the Plan is increased by 400,000 shares, the Company intends to
file an additional Form S-8 Registration Statement to register the 400,000
additional shares of Common Stock approved for issuance upon the exercise of
options that may be granted under the Plan as soon as practicable.
Information Concerning Options Outstanding and Grantable Under the Plan.
- -----------------------------------------------------------------------
As of July 31, 1998, there were a total of 824,500 options outstanding
under the Plan, of which 308,496 were vested and 51,625 options granted and
exercised. Assuming approval of the increase in the number of shares submitted
to shareholders at this meeting, an additional 400,000 options will be available
for grants to eligible optionees. As of July 31, 1998, the total market value
of the shares of Common Stock underlying options granted under the Plan as of
that date was $7,420,500, based on a closing bid price on that date of $9.00.
The Company has not yet allocated any specific number of options to be
granted to any individual or any group of eligible optionees.
The following table sets forth information regarding options granted as of
July 31, 1998:
Options Outstanding Under 1996 Stock Option Plan as of July 31, 1998
--------------------------------------------------------------------
Name or Class of Optionee Total Options Held Vested Options
- ------------------------- ------------------ --------------
David J. Hunter 100,000 40,000
Mckinley C. Edwards, Jr. 50,000 20,000
Jackie A. Chamberlin 75,000 30,000
All executive officers,
as a group (3 persons) 225,000 90,000
William E. Coleman 19,500 4,500
Beverly J. Haddon 34,000 19,000
Jeremy N. Kendall 34,000 19,000
Perry M. Johnson 34,000 19,000
Barry J. Nidorf 9,000 4,500
Byam K. Stevens, Jr. 34,000 19,000
All directors who are not
executive officers officers
as a group, (6 persons) 164,500 85,000
All employees as a group, including
officers who are not executive officers 435,000 133,496
12
<PAGE>
RELATED PARTY TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Mr. Hunter, the Company's CEO and Mr. Edwards, the Company's COO,
served as non-voting members of the Company's compensation committee during
fiscal 1998, but did not participate in discussions involving their
compensation.
During fiscal 1998 the Company sold home arrest equipment and services
to JEMTEC, Inc. in the amount of $75,000. Mr. Kendall, the Chairman of the
Company, is Chairman of JEMTEC, Inc.
REPORTING COMPLIANCE
SECTION 16(A) BENEFICIAL OWNERSHIP
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, 1998,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with, except that one
report of a single transaction was filed late by 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 S&P (S&P Compustat) Total Return Index for the Nasdaq Stock Market
(U. S. companies) and the S&P Total Return Index for Nasdaq Stocks for a
selected peer group of six 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 1997 proxy statement.
13
<PAGE>
PERFORMANCE GRAPH
The following indexed graph indicates the Company's total return to its
stockholders from June 30, 1993 to June 30, 1998 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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BI INCORPORATED, THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX
AND A PEER GROUP**
[PERFORMANCE GRAPH APPEARS HERE]
=============================================================================
TOTAL RETURN ANALYSIS JUN-93 JUN-94 JUN-95 JUN-96 JUN-97 JUN-98
=============================================================================
BI Inc. $100.00 $ 57.58 $ 80.30 $160.61 $ 90.91 $113.64
- -----------------------------------------------------------------------------
Nasdaq Composite (US) $100.00 $100.96 $134.77 $173.03 $210.38 $277.61
- -----------------------------------------------------------------------------
Peer Group $100.00 $ 79.62 $ 91.26 $197.84 $106.46 $ 96.26
- -----------------------------------------------------------------------------
Source: S&P Compustat
** Self-determined peer group consists of six companies which are as
follows: American Medical Alert Corp, Checkpoint Systems, Inc.,
Response USA, Inc., Amtech Corp, Destron Fearing Corp and Lifeline
Systems, Inc. Four of these companies have a standard industrial
classification code of 366 to 369. Two companies provide personal
emergency response monitoring.
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: RATIFICATION OF AMENDMENT TO 1996 STOCK OPTION PLAN
Reasons for Proposal to Increase Shares Under Plan
- --------------------------------------------------
The Board of Directors has approved, and recommends that shareholders
approve, an amendment to the Company's 1996 Stock Option Plan (the "Plan") that
would increase the number of shares of Common Stock underlying options that may
be granted under the Plan from its present number of 1,000,000 shares to
1,400,000 shares.
REASONS FOR THE PROPOSED AMENDMENT
The Plan was originally adopted in August 1996 for the purpose of
encouraging employees, directors and others in a position to contribute to the
success of the Company by granting them a right to participate in the Company
through exercise of stock options.
As a result of the grant of options pursuant to the Plan, as of July 30,
1998, there remained only 123,875 shares available for issuance upon the
exercise of options that might be granted under the Plan. Consequently, on that
date, the Board of Directors adopted an amendment to the Plan to increase the
number of shares reserved under it by 400,000, to a total of 1,400,000 shares,
and approved submission of that amendment to shareholders for their approval at
the next Annual Meeting. During the coming year, the Board intends to study and
assess the present compensation mechanisms employed by the Company and to
recommend possible changes to the compensation plans of the Company. In the
meantime, the Board believes that the additional 400,000 shares that it has
approved for use in the Plan are necessary to give it the ability and
flexibility to continue to attract and retain competent people as employees of
the Company.
DESCRIPTION OF THE PLAN
A description of the Plan, including information as to the numbers of
options outstanding and held by various optionees as of July 31, 1998, is set
forth in the foregoing section of this Proxy Statement entitled "Executive
Compensation - 1996 Stock Option Plan." A copy of the plan will be made
available to shareholders entitled to vote at the meeting by written request to
the Company, attention of the Secretary, 6400 Lookout Road, Boulder, Colorado
80301.
NEED FOR SHAREHOLDER APPROVAL OF THE AMENDMENT TO THE PLAN
In order to allow the options that may be issued as incentive stock options
to receive the favorable tax treatment such options are allowed, as well as to
obtain certain exemptions from Exchange Act Section 16 "short-swing profits"
rules that would otherwise apply, and to comply with the Company's NASDAQ
listing requirements, shareholders of the Company must approve the amendment to
the Plan within twelve months of the date it was adopted by the Board of
Directors.
VOTE REQUIRED
Approval of the amendment to the Plan requires the affirmative vote of a
majority of the shares of Common Stock present and voting at a meeting if a
quorum is present.
15
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 2.
PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the shareholders ratify the
appointment of PricewaterhouseCoopers LLP, independent accountants, to audit the
financial statements of the Company for the fiscal year ending June 30, 1999.
PricewaterhouseCoopers LLP has been the Company's independent accountant for
over ten years. A representative of PricewaterhouseCoopers 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 a direction to the Board of
Directors to select other independent accountants for the fiscal year ending
June 30, 2000.
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 of which the Company did not
have notice prior to June 3, 1998 the person named in the enclosed proxy will
vote on such matters in accordance with his or her best judgment. No other
matters have been brought to the Company's attention by any person prior to
June 3, 1998.
SHAREHOLDER PROPOSALS
Proposals of shareholders submitted pursuant to SEC Regulation 240.14a-8
that are intended to be presented at the 1999 Annual Meeting must be received by
the Company, attention of the Secretary, 6400 Lookout Road, Boulder, Colorado
80301, by May 29, 1999, and must be made in compliance with federal securities
laws.
Proposals of shareholders submitted otherwise than pursuant to SEC
Regulation 240.14a-8 will be considered untimely if not received by May 29,1999.
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, 1998, 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 deemed to be made.
By Order of the Board of Directors
Mckinley C. Edwards, Jr.
Secretary
Dated: September 28, 1998
16
<PAGE>
BI INCORPORATED
1996 STOCK OPTION PLAN
APPENDIX TO PROXY STATEMENT
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 1,400,000 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 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
<PAGE>
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 otherwise 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.
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
-2-
<PAGE>
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.
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 the 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.
-3-
<PAGE>
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.
(c) In the case of any merger, sale of all or substantially
all of the assets of the Corporation of 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
-4-
<PAGE>
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF BI INCORPORATED
For Annual Meeting on November 5, 1998
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 16,
1998, 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 5, 1998, 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 OF WHICH THE COMPANY HAD NOT RECEIVED
NOTICE PRIOR TO JUNE 3, 1998.
<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 THREE PROPOSALS:
1. Election of Directors.
_____ FOR _____ WITHHOLD AUTHORITY to vote for all nominees
listed below
Nominees: William E. Coleman, Mckinley C. Edwards, Jr., Beverly J.
Haddon, David J. Hunter, Jeremy N. Kendall, Perry M. Johnson,
Barry J. Nidorf 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. Ratification of amendment to 1996 Stock Option Plan.
____FOR ____AGAINST ____ABSTAIN
3. Ratification of PricewaterhouseCoopers LLP as independent accountants.
____FOR ____AGAINST ____ABSTAIN
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.
