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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
Annual Report Pursuant To Section 13 Or 15(d)Of
The Securities Exchange Act of 1934
For the fiscal year ended: June 30, 2000
Commission File Number: 0-12410
BI INCORPORATED
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction
of incorporation or organization)
84-0769926
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(I.R.S. Employer Identification No.)
6400 Lookout Road, Boulder, Colorado 80301
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (303) 218-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
-----
At September 26, 2000, there were 7,974,612 shares of Common Stock outstanding
and the aggregate market value of Common Stock held by non-affiliates was
$64,544,516.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
BI Incorporated ("BI" or the "Company") is the leading manufacturer
and provider of electronic monitoring equipment and services, and community
correctional services to the criminal justice market worldwide.
Since entering the market in 1984, BI's electronic monitoring business
unit ("EM") has developed four generations of home arrest products. Three
companies, acquired from 1990-1992, were combined to form BI's monitoring
service centers, allowing the Company to provide additional services to
corrections agencies. In December 1995, the Company acquired the assets of
JurisMonitor, Inc. to address the needs of programs designed to reduce risk in
domestic violence cases. Recognizing yet another need within corrections, BI
purchased the product rights to an automated case load management service in
December 1990, BI's PROFILE(TM) and PROFILE Plus(TM) products.
In December 1993, the Company acquired an exclusive license for its
Institutional Management System ("IMS") software from SCC Communications Corp.
of Boulder, Colorado, upon which BI's PREMIER IMS product and correctional
information systems business unit ("CIS") was based. The Company sold all
related assets of this product line on April 30, 1999. The sale of this business
unit has been accounted for as a discontinued operation in the Company's
financial statements.
The Company started its Community Correctional Services ("CCS")
business unit through the acquisition of four companies in fiscal 1997. On
October 10, 1996, the Company completed the merger with Community Corrections
Corporation, Justice Alternatives Inc. and Tennessee Probation Services, Inc.,
collectively referred to as "CCC." CCC provides probation services to
misdemeanant probationers through correctional service centers in Georgia,
Florida, Tennessee and South Carolina. On January 31, 1997, the Company acquired
Peregrine Corrections, Inc. ("PCI") of Denver, Colorado. PCI is an industry
leader in day-reporting, a non-residential criminal sentencing alternative for
felony probationers. PCI provides services through correctional service centers
in Colorado, Illinois, New Mexico, Oregon and Washington. On October 1, 1999 the
Company acquired two correctional service centers in New Mexico specializing in
Treatment and Drug Court services.
In July 2000 the Company acquired Intervention Court Services, L.L.C.,
and Insights Counseling Services, Inc. for a purchase price of approximately
$6.1 million. These organizations provide court compliance supervision,
electronic monitoring, alcohol and domestic violence supervision programs and
drug testing to 11,300 offenders from 27 offices located in Colorado and Utah.
Annual revenue associated with this acquisition is expected to be $5.3 million.
Proposed Tender Offer, Merger and Going Private Transaction
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On August 18, 2000, KBII Acquisition Company, Inc., a Colorado
corporation ("Offeror") and a wholly-owned subsidiary of KBII Holdings, Inc., a
Delaware corporation ("Parent"), commenced a tender offer (the "Offer") to
purchase all of the outstanding shares of Common Stock (the "Shares") of the
Company at a price of $8.25 per Share, net to the seller in cash (less any
required withholding taxes), without interest thereon, upon the terms and
subject to the conditions set forth in the Offer to Purchase and the related
Letter of Transmittal, dated August 18, 2000. The Offer is presently set to
expire (unless further extended) at midnight, Eastern time, on Tuesday October
3, 2000.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration date of the Offer, a number
of Shares which will constitute at least 90% of Shares outstanding at the time
that the Shares are accepted for payment pursuant to the Offer (the Minimum
Condition").
Once the Minimum Condition is satisfied and at least 90% of the Shares
have been purchased, the Offeror will be merged with and into the Company
pursuant to the Colorado Business Corporation Act ("CBCA") pursuant to the
provisions that allow a corporation that is at least 90% owned by a subsidiary
to merge with that subsidiary without a vote of all shareholders of the parent
company. This type of merger is customarily referred to as a "short-form
merger."
If the Minimum Condition is not satisfied by the expiration of the
Offer, but the number of Shares validly tendered pursuant to the Offer
represents more than 75% of all Shares outstanding at the time that the Offer is
terminated (the "Alternative Condition"), Offeror is relieved of its obligation
to accept such tendered Shares, but Offeror and the Company shall, subject to
Offeror having received an extension of its financing commitments until such
time as a merger can be consummated, take such actions as may be necessary to
cause Offeror to be merged with and into the Company pursuant to the provisions
of the CBCA that allow a merger to be consummated if it is submitted to all
shareholders of the Company and approved by the requisite number of Shares (in
this case a majority of the Shares outstanding). This type of merger is
customarily referred to as a "long-form merger."
The Offer is being made pursuant to an Agreement and Plan of Merger
dated as of August 10, 2000, among Parent, Offeror and the Company (the "Merger
Agreement"). Following the consummation of the Offer and the satisfaction or
waiver of certain conditions, Offeror will merge with and into the Company or,
at Parent's election and subject to certain conditions, the Company will merge
with and into Offeror or another wholly owned subsidiary of Parent (the
"Merger"). In the Merger,each Share outstanding at the Effective Time (as
defined in the Merger Agreement) (other than Shares held by Parent, Offeror or
the Company, by any direct or indirect wholly owned subsidiary of Parent or the
Company or by shareholders who perfect dissenters' rights pursuant to the CBCA)
will, by virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive, without interest, an amount in cash equal
to $8.25 per Share (less any required withholding taxes) or such greater amount
per Share which may be paid pursuant to the Offer.
If the Offer and/or the Merger (either by way of a short-form merger
or long-form merger) is completed, the Company has been advised that Parent
intends to delist the Company's securities, deregister the Shares under the
Securities Exchange Act of 1934 and delist the Shares from Nasdaq. The Company
will then become a private company which will no longer be subject to the
reporting requirements that apply to public companies under the federal
securities laws.
The Company and certain affiliated persons have filed documents with
the Securities and Exchange Commission (the "Commission") on Schedule 14D-9 and
Schedule 13E-3. Offeror and Parent have filed documents with the Securities and
Exchange Commission on Schedule TO. These Schedules (as amended from time to
time) contain additional information concerning the terms and conditions
applicable with respect to the Offer and the Merger, as well as additional
disclosure about various aspects of the proposed transaction. The reader is
advised to review these documents to obtain additional information concerning
the Offer and the proposed Merger. See also, Item 13 -- Certain Relationships
--- ----
and Related Transactions - Related Party Transactions Relating to the Proposed
Merger of the Company with KBII Acquisition Company, Inc." herein, for
information concerning certain proposed transactions between the Company and
certain affiliates in connection with the proposed Offer and Merger.
The Schedules filed by the Company and the Offeror and Parent (as well
as the other reports, proxy statements, and other information filed by the
Company with the Commission) should be available for inspection at the
Commission's Public Reference Room, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies should be obtainable upon payment of the
Commission's customary charges by writing to the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material should also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains the schedules, reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The Company files all such schedules and reports electronically.
Industry and Market Background
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According to the U.S. Bureau of Justice Statistics latest report, 6.5
million adults were under some form of correctional supervision at December 31,
1999. The number of prisoners under the jurisdiction of federal or state
correctional authorities on that date reached a record high of 2.0 million.
Moreover, 4.5 million adults were under parole or probation supervision. The
total adult correctional population has increased 45% from 1990 to 1999. These
are the targeted populations for the Company's products and services.
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At June 30, 2000 the Company was monitoring approximately 21,500
offenders daily on home arrest; approximately 41,800 misdemeanant and felon
probationers were being managed through the Company's CCS correctional service
centers, and approximately 20,000 offenders were using BI's automated PROFILE
service.
The Company believes that its comprehensive product lines provide
viable, cost-effective solutions to the problem of prison and jail overcrowding,
as well as providing additional innovative tools for corrections agencies to
manage the vast amount of information required more efficiently. Monitoring,
supervision and day reporting services provided by BI enable correction agencies
to manage probation and parole populations effectively for less than traditional
institutional incarceration. This alternative provides a lower cost solution to
agencies because home arrest and supervision programs are structured in a way
that allows the offender to pay for these services.
PRODUCTS AND SERVICES
Electronic Monitoring Equipment and Services
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BI HomeGuard 200: The Company's premier product line, the BI
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HomeGuard 200, consists of a radio frequency transmitter, worn on an offender's
ankle or wrist, and a receiver unit called a field monitoring device ("FMD"),
installed in the offender's home. The transmitter produces uniquely encoded
signals which are received by the FMD. Using standard telephone lines, the FMD
relays the information to the agency's host computer or BI monitoring service.
The host computer can communicate with several hundred FMDs at one time. If the
offender moves beyond a certain distance from the FMD, the radio signal is
broken and an indication of the break in transmission is relayed by the FMD to
the host computer. Monitoring center personnel enter predetermined curfews into
the host computer using BI's proprietary software. If an offender fails to
comply with these terms or tampers with the transmitter, the host computer
signals a violation and the officer in charge is alerted according to
predetermined agency criteria.
The BI HomeGuard 200 is equipped with proprietary security features
which include patented electronic tamper detection devices that cause a tamper
signal to be transmitted to the host computer if the individual tampers with
either the ankle bracelet or the FMD. The call back characteristic of the series
confirms the location of the FMD at specified intervals. These tamper detection
devices, the system's ability to crosscheck breaks in the transmission with pre-
programmed curfew terms and the host computer's operating system effectively
differentiate the BI HomeGuard 200 from its competitors' products.
An additional component of the HomeGuard 200 is the BI Drive-BI(TM)
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Monitor. The Drive-BI is a hand-held, portable unit used to receive encoded
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transmissions from the HomeGuard 200 ankle bracelet transmitters worn by
offenders. The Drive-BI does not require installation of an FMD in the
offender's home. Rather, a compliance officer has the capability to drive by the
individual's residence or work place and uses the portable receiving unit to
verify compliance with the terms of the program.
BI Sobrietor: The BI Sobrietor(TM) is a remote, in-home alcohol
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testing device which can be used stand-alone or in conjunction with electronic
home arrest. It combines voice verification, triple tamper protection and fuel
cell technology to provide corrections officials with an increased level of
security and actual analyses of offenders' blood alcohol levels. The unit is
ergonomically designed, lightweight and easy to install.
BI JurisMonitor(TM): The BI JurisMonitor System is a cost effective
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approach to domestic violence intervention and compliance with court orders,
combining electronic monitoring technology with a coordinated community
response. In the JurisMonitor system, the offender wears an ankle bracelet that
emits a continuous signal. The victim is provided with an FMD base unit, which
sets off an alarm when the transmitter comes within
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the proximity of the base unit. In addition, the monitoring unit in the
offender's home verifies curfew compliance and detects tampering or attempts to
shield the bracelet. When the FMD detects the presence of the offender, four
events are set into motion: an audible alarm sounds within the home; the
monitoring center is alerted; the unit begins an audio recording and police are
dispatched based on the protocols established by the jurisdiction.
The BI K2 Home Escort(TM) System uses time-tested software to manage
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and monitor subjects from the agency's site without relying on services of a
third-party vendor. The system allows agencies to customize the database to
accommodate specific conditions for individual subjects, such as defining
records and schedules, adding comments and determining alert-handling
procedures. Based on a standard DOS/Novell operating system, K2 provides top
security and reliability, disk mirroring, redundancy and a fault-resistant
design for a variety of electronic and alcohol field monitors.
BI SkyGuard 500(TM) SkyGuard 500 provides 24 hour a day monitoring of
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an offender's location through the use of our nation's Global Positioning
Satellite (GPS) system. Combined with the HomeGuard 200 or BI 9000 electronic
monitoring system, SkyGuard provides the most comprehensive integrated
supervision available today. SkyGuard tracks compliance to pre-determined
geographic and schedule restrictions, called inclusion and exclusion zones. With
these pre-programmed time and space constraints, agencies designate where an
offender can and can't go. SkyGuard is expected to be available in fiscal year
2001.
BI GuardCenter(TM) BI Incorporated uses its electronic monitoring
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products to provide corrections agencies with comprehensive remote monitoring
services. BI's GuardCenter is at the core of an integrated supervision program,
and uses the most advanced technology available, monitoring the status of
individuals and communicating any violations and other information according to
predetermined agency criteria. Corrections officials use BI's equipment without
having to provide agency staff to monitor individuals or obtain capital to
purchase host system computer equipment. This allows flexibility, control,
security and dramatic savings over the costs of incarceration. BI certifies its
monitoring center personnel, who monitor subjects from GuardCenters in Boulder,
Colorado and Anderson, Indiana, 24 hours a day, seven days a week. The two
facilities are fully redundant and feature unprecedented system uptime and
accurate data entry and reporting. GuardWare(TM) is the software that manages
offender information and supervision parameters within the GuardCenter. This
application runs on an industry standard Microsoft(R) Windows(R) NT and SQL
Server platform. Guardlink(TM) is a computing based window that gives agencies
remote access to GuardCenter data.
BI TelGuard 2.0(TM) TelGuard utilizes advanced voice verification
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technology to provide agencies with a flexible way to effectively perform
compliance monitoring of community based offenders. TelGuard monitors offenders
with random, scheduled, inbound or outbound verification calls over standard
telephones. During a verification call, TelGuard compares the offender's
voiceprint to a voiceprint taken during enrollment. TelGuard verifies the
offender's identity and location, and subsequently the offender's compliance to
curfew and schedule restrictions. Alerts are communicated to officers by e-mail,
fax or pager. When an alert is e-mailed, it contains an embedded sound file so
that an officer can hear the verification session.
Community Correctional Services
-------------------------------
Focused on providing supervision and offender intervention treatment
services to agencies in 12 states, BI's CCS business unit partners with agencies
to help interrupt the cycle of chronic crime. As of June 30, 2000, BI had 83
offices providing either daily or weekly face to face contact with offenders,
collecting fees and insuring compliance with court or agency ordered conditions.
BI requires offenders to accept responsibility and makes them accountable for
their actions, providing extensive follow up when offenders fail to meet their
conditions of release, and notification to the supervising agency or court of
non-compliance. Our offices can provide tailored levels of supervision based on
an individual offender's needs. This individualized offender program can
significantly reduce the number of
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new crimes from what would have been committed without intervention, resulting
in lower law enforcement and correctional costs, and safer communities.
REVENUE FROM BUSINESS SEGMENTS
The Company's two reportable segments, EM and CCS, are strategic
business units that offer different products and services. The EM business unit
recognized revenue of $45,386,000; $45,698,000 and $41,938,000 in 2000, 1999,
and 1998 respectively, from the sale of electronic monitoring products and
services. The CCS business unit recognized revenue of $ 26,695,000 in 2000,
$22,669,000 in 1999 and $16,688,000 in 1998. These sources of revenue reflect
the continuing expanding acceptance of correction agencies to use the Company's
products and services.
PRODUCT DEVELOPMENT
The Company designs and engineers the primary hardware and software
elements of its product lines, other than the host computer systems. The Company
solicits customer input to enhance its current products and to develop and
design new products. During fiscal 2000 the Company advanced the development of
its next generation monitoring software. The Company began limited utilization
of this software during fiscal 1999 to enhance customer satisfaction and improve
efficiencies. For the years ended June 30, 2000, 1999, and 1998, the Company had
research and development expenses excluding capitalized amounts of approximately
$1,400,000; $1,900,000, and $2,400,000, respectively.
MANUFACTURING
The Company performs final assembly, testing, and quality control of
its products at its facility in Boulder, Colorado. The Company generally uses
standard parts and components obtained from a variety of vendors. The Company
also uses custom molded parts made from BI owned tooling. The Company has not
experienced and does not anticipate any difficulty in obtaining the necessary
manufacturing assemblies, parts and components.
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SALES, DISTRIBUTION AND MARKETING
The Company markets and sells its products and services to federal,
state and local government agencies throughout the United States directly
through its sales personnel. The Company sold its electronic monitoring products
to distributors in The Netherlands, South Africa, Singapore, Switzerland and
five provinces in Canada. The Company believes the success of these programs
will open up other international opportunities.
Customers may acquire the Company's products and services by purchase,
rental or lease-purchase. Under a typical rental arrangement, the term is for a
period of up to one year, payments are due monthly and the Company retains title
to the equipment. Under the typical lease-purchase agreement, the lease is
generally for a term of 36 months, payments are due monthly and generally the
customer has the option to acquire the equipment at a nominal cost at the end of
the lease term. Payments by governmental entities under rental and lease-
purchase arrangements are contingent upon annual appropriations. Certain
government agency contracts are paid directly by the offender using the
Company's products and services. Although there can be no assurance, the Company
believes that the likelihood of nonpayment due to lack of appropriations is
remote. See Notes 1 and 2 to the Consolidated Financial Statements.
SIGNIFICANT CUSTOMERS
In fiscal 2000, the Administrative Office of the U.S. Federal Courts
accounted for 9% of the Company's total revenue. This customer accounted for 9%
of total revenue in fiscal 1999 and 10% in fiscal 1998. A loss of this customer
could have a material, adverse effect on the Company.
CUSTOMER SERVICE, SUPPORT AND WARRANTIES
The Company believes that extensive customer service and support are
critical to maintaining a leading position in the criminal justice market. The
Company provides extensive support services to its electronic monitoring
customers including complete installation, training and ongoing technical
assistance. The Company operates a toll-free hot-line, which customers with
products under warranty or covered by extended service contracts may use to
request assistance on the operation of the Company's monitoring systems. The
Company can perform many remote diagnostic procedures using telephones and
modems, and historically, using these procedures, has been able to correct
difficulties experienced by its customers. The Company provides customers any
updates of its monitoring system software during the warranty period and to
customers on extended service contracts.
The Company arranges for 24-hour hardware service on computer
equipment and peripherals, and directly provides 24-hour software support.
Products manufactured by the Company are serviced at its Boulder, Colorado
facility. The Company provides a full warranty on all its hardware products for
one year from the date of delivery. The Company also offers, for a fee, annual
extended service contracts which provide the same coverage for a greater term.
Certain of the warranties provided by the Company's suppliers are for a period
less than the period provided by the Company to its customers.
BI's CCS business unit provides a full range of community correctional
services through contracts with correctional jurisdictions or judicial entities.
CCS continues the tradition of excellent customer service and offers the
standard company warranties when providing electronic monitoring or Sobrietor
equipment as part of its service offerings.
BACKLOG AND RECURRING REVENUE
The Company includes only firm purchase orders in its backlog, which
can vary significantly from month to month. The Company believes that its
backlog at any particular time is generally not indicative of
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the level of future sales. The Company had approximately $5,097,000 of monthly
recurring monitoring, service and rental revenue during June 2000, compared to
approximately $5,222,000 during June 1999.
COMPETITION
The Company believes there are eight competitors in the manufacturing
of EM equipment and 15 competitors in the monitoring of this equipment. It is
anticipated that competition will increase as additional companies and
corrections agencies recognize the benefits of EM programs. The principal
methods of competition are price, quality of products and service, experience
and proven product performance. While the Company believes that its products and
vices are currently superior to those of its competitors, there can be no
assurance that this competitive advantage will be maintained.
With the acquisition of Community Corrections Corporation and
Peregrine Corrections, Inc. in 1996 and 1997 respectively, BI created the
Community Correctional Services business unit and entered new areas within the
corrections market. As of June 20, 2000, BI provided direct community
correctional services through 83 offices in 12 states. Currently there are in
excess of 40 smaller competitors providing similar services in these states. BI
is the only national company providing a full range of community correctional
services to the corrections industry today. It is expected that as the market
expands, other competitors will enter this market.
GEOGRAPHIC SOURCES OF REVENUE
Domestically, the Company generates revenue in all fifty states.
Internationally, the Company, through its EM business unit, records less than $1
million of direct revenue under minimal general business risks.
REGULATION
Some of the hardware products produced by the Company's Electronic
Monitoring Business Unit emit radio frequency energy and/or connect to the
telephone network. These products require approval by the Federal Communications
Commission (FCC) and safety approval by a nationally recognized test laboratory
(NRTL). The Company has received approvals by the FCC and an NRTL for its
products that are sold in the United States. It will be necessary to obtain
these approvals for future radio frequency and telecommunications products.
Approvals or waivers from certain foreign governments are also required to
export these products into those countries and the Company has received these
approvals or waivers. Approvals or waivers will be necessary for future radio
frequency and telecommunications products.
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INSURANCE
The Company maintains general and professional liability insurance
coverage at $10,000,000 and $10,000,000, respectively. Management of the Company
believes such insurance is adequate for its existing operations.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has 26 United States and 15 foreign patents granted or
acquired as well as seven foreign patents pending. These patents expire between
2001 and 2011. The Company licenses proprietary voice verification technology
exclusively for its home arrest product. All required licenses associated with
fiscal year 2000 usage were purchased in advance. There can be no assurance that
the protection afforded by these patents and licenses will provide the Company
with a competitive advantage, or that the Company will be able to successfully
assert its intellectual property rights in infringement actions. In addition,
there can be no assurance that the Company's current products or products under
development will not infringe other patents or proprietary rights of others.
EMPLOYEES
At June 30, 2000, the Company had 970 employees, none of whom were
represented by a union. Of these 970 employees, 410 were electronic monitoring
staff, 460 community correctional services employees and 100 corporate staff.
Management believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the executive officers of the Company is
located at item 10 of the Report under the caption "Directors and Executive
Officers of the Company."
ITEM 2. PROPERTIES.
The Company currently leases approximately 78,000 square feet at its
two facilities located in Boulder, Colorado. The leases for these facilities
expire in September 2010. Under certain conditions both leases provide BI with
an option to terminate, with a one-year notice, beginning in September 2000.
The Company also leases approximately 18,000 square feet for its
eastern monitoring office in Anderson, Indiana. The lease, dated October 1,
1999, expires in September 2009 with an option to terminate after four years.
In addition, the Company leases facilities at 82 other locations for a
total of approximately 166,000 square feet. These facilities are associated with
its day reporting and probation services and are located in California,
Colorado, Florida, Georgia, Illinois, Indiana, New Jersey, New Mexico, Oklahoma,
Oregon, Pennsylvania, South Carolina, Tennessee, Texas and Washington.
Many of the Company's leases contain renewal rights and cancellation
rights. At the present time, such facilities are adequate for the Company's
purposes.
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ITEM 3. LEGAL PROCEEDINGS.
On February 6, 1998, Bill M. Kirby filed a complaint in US District
Court, North District of Texas, Fort Worth Division naming BI Incorporated as
the defendant. The suit alleges negligence and misrepresentation resulting in a
wrongful death. The plaintiff seeks damages of $11,600,000.
On July 20, 1998, Joseph Gill Sr. filed a complaint naming Rudolph
McGriff, City of Philadelphia and BI Incorporated as defendants in the Court of
Common Pleas in Philadelphia County, Pennsylvania. The suit brings two counts, a
survival action and a wrongful death action, and asks for damages in excess of
$100,000.
On July 20, 1999, Joe T. Young filed a complaint naming BI
Incorporated and Tamara Anderson in the United States District court, Northern
District of Georgia, for wrongful detention. Plaintiff seeks compensatory
damages in the sum of $200,000 and punitive damages in the amount of $200,000.
On August 10, 1999, Sheila Kennerly filed a complaint, naming
Montgomery, Ohio, Montgomery County Sheriff Department, and BI Incorporated as
defendants in the United States District Court, Southern District of Ohio, West
Division, for wrongful death, survivorship action and civil rights violation.
The plaintiff seeks $10,500,000 in damages.
On August 17, 1999, Jaby & Latonya Crews filed a complaint naming BI
Incorporated, Pamela Goodfriend and Eric Longfellow in State Court of Fulton
County, Georgia, for wrongful detainment. Plaintiff is seeking $300,000 in
damages.
On August 16, 2000, M. Dean Briggs filed suit in District Court,
County of Boulder, Colorado on behalf of himself and all other similarly
situated, against the Company and David J. Hunter, William E. Coleman, Mckinley
C. Edwards, Jr., Beverly J. Haddon, Jeremy N. Kendall, Perry M. Johnson, Barry
J. Nidorf and Byam K. Stevens, Jr., all of whom are directors of the Company.
Messrs. Hunter and Edwards are also officers of the Company. The Company was
served, through its registered agent, with a copy of the Summons and Complaint
on August 21, 2000. The claim arises out of the proposed tender offer and merger
transaction with KBII Acquisition Company, Inc and its affiliates. The Complaint
states that the action is brought as a class action on behalf of the holders of
the Company's common stock (the "Class") against the Company, its directors and
certain officers, claiming that the defendants "individually and as part of a
common plan and scheme or in breach of their fiduciary duties to plaintiff and
the other members of the Class, are attempting unfairly to deprive plaintiff and
other members of the Class of the true value of their investment in the Company
by having the Company enter into the Merger Agreement. Plaintiff Briggs claims
that the "merger consideration to be paid to Class members is unconscionable,
unfair and grossly inadequate." The suit seeks, among other things, an
injunction against the defendants from consummating the Merger, rescission of
the Merger Agreement, damages, and attorneys' fees. On September 25, 2000,
Plantiff Briggs voluntarily dismissed this action.
Management believes the Company has adequate legal defenses and/or
insurance coverage against all of the above described claims and intends to
defend them vigorously. There can be no assurances however, that any individual
case will result in an outcome favorable to the Company. In the event of any
adverse outcome, neither the amount nor the likelihood of any potential
liability which might result is reasonably estimable. The Company currently
believes that the amount of the ultimate potential loss would not be material to
the Company's financial position or results of operations. However, an adverse
future outcome in any individual case, including legal defense costs, could have
a material effect on the Company's reported results of operations in a
particular quarter.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the NASDAQ Stock Market under the symbol
"BIAC."
The following table sets forth for the periods indicated the range of
high and low bid prices for the Common Stock as reported by NASDAQ. The bid
quotations represent inter-dealer quotations, without retail mark-ups, mark-
downs or commissions and may not necessarily represent actual transactions.
=========================================================
Fiscal Year Ended June 30,
2000
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High Low
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First Quarter $ 9.25 $ 7.06
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Second Quarter 9.13 6.06
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Third Quarter 9.00 6.75
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Fourth Quarter 7.88 4.53
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Fiscal Year Ended June 30,
1999
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First Quarter $ 9.75 $ 6.25
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Second Quarter 9.13 7.00
---------------------------------------------------------
Third Quarter 11.69 7.00
---------------------------------------------------------
Fourth Quarter 10.19 8.13
=========================================================
As of June 30, 2000, there were approximately 3,000 holders of record
of the Common Stock.
The Company has never paid cash dividends. It is the Company's
intention to retain earnings to finance the expansion of its business, and
therefore it does not anticipate paying cash dividends in the foreseeable
future. Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs,
plans for expansion and restrictions, if any, under its debt obligations. The
Company's current line of credit requires the Company to obtain the lender's
prior written consent to the payment of any dividends.
9
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected Consolidated Statement of Operations data and
Consolidated Balance Sheet data have been derived from the Consolidated
Financial Statements of the Company. The financial data set forth below should
be read in conjunction with the Consolidated Financial Statements and notes
thereto and Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations and other financial information included elsewhere in
this Annual Report on Form 10-K. Historical results are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue $ 72,081 $ 68,367 $ 58,626 $ 46,993 $ 39,212
Cost of operations 41,449 33,782 28,665 22,046 19,200
--------- --------- ---------- -------- --------
Gross profit 30,632 34,585 29,961 24,947 20,012
Selling, general and
administrative expenses 21,943 20,185 17,278 14,037 10,916
Provision for doubtful accounts 1,576 1,927 1,806 1,732 228
Depreciation an amortization 3,181 3,352 3,080 2,067 1,392
Research and development expenses 1,422 1,943 2,417 2,698 2,661
Income from continuing operation
before income taxes 2,510 7,178 5,380 4,413 4,812
Income tax provision (1,069) (3,022) (2,394) (1,957) (1,949)
--------- --------- ---------- -------- --------
Net income from continuing operations 1,441 4,156 2,986 2,456 2,863
Loss from results of
discontinued operations (1) 0 (3,267) (315) (623) 0
Loss on disposal of discontinued operations 0 (835) 0 0 0
--------- --------- ---------- -------- --------
Net income $ 1,441 $ 54 $ 2,671 $ 1,833 $ 2,863
========= ========= ========== ======== ========
Diluted earnings per share $ .18 $ .01 $ .34 $ .25 $ .40
Weighted average number of outstanding ========= ========= ========== ======== ========
common shares - diluted 8,027 7,977 7,841 7,451 7,160
========= ========= ========== ======== ========
Balance Sheet Data:
Working capital $ 17,695 $ 10,660 $ 14,825 $ 14,541 18,172
Total assets 64,951 68,251 61,989 55,421 42,820
Long-term debt, net of current
maturities (excludes Capital Lease) 6,146 0 0 0 0
Total stockholders' equity 47,963 45,881 44,907 40,620 37,206
</TABLE>
(1) During fiscal 1999, the Company recorded an asset impairment charge and
ultimately sold all assets related to the CIS business unit. The
discontinuance of this business unit has been accounted for as a
discontinued operation. See MD&A discussion and Note 5 of the consolidated
financial statements. Segment information for the discontinued business
unit for 1996 is not available.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information in "Management's Discussion and Analysis" and other
statements periodically reported by the Company contain forward-looking
statements that involve risk and uncertainties as defined in the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Management
believes that its expectations are based on reasonable assumptions. However, no
assurances can be given that its goals will be achieved and investors are
cautioned that such forward-looking statements involve risk and uncertainties.
It should be noted that the earnings history of the Company has not been
consistent year to year. Factors that could cause actual results to differ
materially include, but are not limited to:
10
<PAGE>
fluctuations due to timing of award of government contracts; pricing pressures;
changes in federal, state and local regulations; liability in excess of
insurance coverage; new product introductions by competitors or unexpected
delays of new product introductions by the Company; raw material availability;
changes in telecommunications regulations or technologies; or the loss of a
material contract through lack of appropriation or otherwise.
RESULTS OF OPERATIONS:
The following tables provide a breakdown of selected results by business
unit. The total amounts are audited and agree with the audited Consolidated
Statement of Operations. The Company's business units consist of Electronic
Monitoring (EM), Community Correctional Services (CCS) and Corrections
Information Systems (CIS) which was sold in 1999.
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended Twelve Months Ended
June 30, 2000 June 30, 1999 June 30, 1998
EM CCS Total EM CCS Total EM CCS Total
(in thousands) (in thousands) (in thousands)
Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recurring revenue
Service & monitoring 33,853 26,695 60,548 33,380 22,669 56,049 26,848 16,688 43,536
Rental 1,246 1,246 854 854 742 742
Total recurring revenue 35,099 26,695 61,794 34,234 22,669 56,903 27,590 16,688 44,278
Direct sales 10,127 10,127 11,390 11,390 13,822 13,822
Other income 160 160 74 74 526 526
Total revenue 45,386 26,695 72,081 45,698 22,669 68,367 41,938 16,688 58,626
Gross profit
Recurring revenue
Service & monitoring 16,726 9,153 25,879 17,968 9,490 27,458 14,818 6,232 21,050
Rental 712 712 539 539 521 521
Total recurring revenue 17,438 9,153 26,591 18,507 9,490 27,997 15,339 6,232 21,571
Direct sales 3,881 3,881 6,514 6,514 7,864 7,864
Other income 160 160 74 74 526 526
Total gross profit 21,479 9,153 30,632 25,095 9,490 34,585 23,729 6,232 29,961
Gross profit % 47.3% 34.3% 42.5% 54.9% 41.9% 50.6% 56.6% 37.3% 51.1%
</TABLE>
Revenue
-------
Total revenue for fiscal year 2000 increased 5.4% to $72,081,000
compared to $68,367,000 in fiscal year 1999. The Company is continuing to expand
recurring revenue which includes service, monitoring and rental income, although
there can be no assurances that the Company will be successful in continuing
this expansion. These revenue sources, which are generated within both business
units increased 8.6% in fiscal year 2000 compared to fiscal year 1999. Recurring
revenue increased to $61,794,000 or 85.7% of total revenue, in fiscal 2000 from
$56,903,000, or 83.2% of total revenue, in fiscal 1999. Both business units
reported recurring revenue increases for fiscal 2000 as compared to fiscal 1999.
The EM business unit revenue decreased 0.7% to $45,386,000 in fiscal
2000 compared to $45,698,000 in fiscal 1999. This business unit is comprised of
both equipment sales and monitoring services. Some government agencies purchase
equipment and run their own monitoring programs, others elect to utilize both
monitoring equipment and services offered by the Company, while other agencies
purchase equipment from the Company and then contract with the Company for the
service portion of the monitoring. Recurring revenue, which is comprised of
electronic monitoring and rental income, increased 2.5% to $35,099,000 in fiscal
2000 from $34,234,000 in fiscal 1999. This increase in recurring revenue relates
to the continuing trend of government agencies to contract for electronic
monitoring rather than purchasing
11
<PAGE>
equipment. Direct sales revenue decreased to $10,127,000 in fiscal 2000 from
$11,390 ,000 in fiscal 1999. This is consistent with the Company's market
strategy of emphasizing recurring revenue over direct sales.
The CCS business unit recurring revenue increased 17.8% to $26,695,000
in fiscal 2000 compared to $22,669,000 in fiscal 1999. CCS provides community
correctional supervision and services in 12 states through its 83 correctional
service centers. The Company currently provides services for approximately
42,000 offenders. The Company intends to continue to broaden the services
provided to the offender and anticipates continued revenue growth in this
business unit for fiscal year 2000.
Total revenue increased 16.6% to $68,367,000 in fiscal 1999 from
$58,626,000 in fiscal 1998. Direct sales decreased to $11,390,000 in fiscal 1999
compared to $13,822,000 in fiscal 1998. Service, monitoring and rental income
increased to $56,903,000 in fiscal 1999 or 28.5% over the $44,278,000 in fiscal
1998.
Gross Profit
------------
Total gross profit decreased to $30,632,000 or 42.5% as a percentage
of total revenue for fiscal 2000 compared to $34,585,000 or 50.6% as a
percentage of total revenue for fiscal 1999.
The EM business unit gross profit decreased to 47.3% as a percentage
of EM revenue for fiscal 2000 compared to 54.9% in fiscal 1999. Direct sales
gross profit decreased to 39.3% in fiscal 2000 compared to 57.5% in fiscal 1999.
This decrease was due to a few significant factors. The first factor was
market price erosion on direct sales of mature monitoring products. This
decrease amounted to approximately $250,000 in reduced gross profit for fiscal
2000. Another factor that affected EM direct sales gross profits for fiscal 2000
was manufacturing overhead and direct labor cost increases of approximately
$500,000. The Company expects these additional costs to be absorbed through
efficiency improvements and increased manufacturing volume in fiscal 2001. The
final cost factor that affected direct sales gross profit was $600,000 of Y2K
expenses in fiscal 2000 related to product and service modifications. Recurring
revenue gross profit decreased to 49.7% in fiscal 2000 compared to 54.1% in
fiscal 1999. This decrease was due to increased monitoring center costs of
approximately $800,000 associated with the development of the next generation
monitoring software. Operating two software systems resulted in increased labor
and telecom expenses as well as additional system administration and customer
support costs. The implementation of the new monitoring center software will
eliminate these duplicate costs in addition to increasing labor efficiencies
which should improve gross profits in fiscal 2001.
The CCS business unit gross profit decreased to 34.3% as a percentage
of CCS revenue for fiscal 2000 compared to 41.9% in fiscal 1999. This decrease
was partially due to a temporary revenue reduction of $180,000 in a major day
reporting program. The revenue associated with this program has begun to
increase again in early fiscal 2001. An additional cost factor that affected
gross profit was increased labor costs throughout the 85 centers to bring
compensation rates in line with industry averages. This market rate adjustment
of approximately 3% of gross profit, was largely completed in fiscal 2000. It is
expected that this labor increase will be off set by improved efficiencies and
increased revenue in fiscal 2001. Additionally, new CCS centers initially
operate at lower gross margins. The Company opened two large centers, one in
Georgia and one in California that contributed $600,000 less gross profit than
will be expected for a fully operational center. The Company expects increased
client counts, additional cost reductions and improved operating efficiencies to
increase the gross profit of these centers in fiscal 2001. The Company will
continue to make additional investments in new services and community
correctional centers throughout fiscal 2001. Gross profit impacts from
investments should be offset by gross profit improvements in mature offices.
Total gross profit as a percentage of total revenue remained constant
at approximately 51% for fiscal 1999 and fiscal 1998. Total gross profit for
fiscal 1999 was $34,585,000 compared to $29,961,000 for fiscal 1998. The EM
business unit gross profit decreased to 54.9% as a percentage of revenue
compared to 56.6% in fiscal 1998. This decrease was due to additional costs in
the monitoring centers associated with the development of the next generation
monitoring software. Direct sales gross profit remained constant at 57% for
fiscal 1999 and fiscal 1998. CCS gross profit improved to 41.9% of revenue in
fiscal 1999 compared to 37.3% of revenue in fiscal 1998. This improvement was
due to cost reductions and client count increases throughout the CCS centers.
Selling, General and Administrative (S,G&A)
-------------------------------------------
12
<PAGE>
S,G&A expenses as a percentage of total revenue increased to 30.4% for
fiscal 2000 compared to 29.5% in fiscal 1999. Total S,G&A expense for fiscal
2000 was $21,943,000 compared to $20,185,000 in fiscal 1999. The increase in
expenditures is related to additional business development expenses associated
with acquisition activities, increased interest expense on the expanded line of
credit, as well as increases in sales and marketing expenditures related to
growth of new and existing customer sites. The Company centralized its S,G&A
support functions in fiscal 2000 and no longer provides these services based
upon business units.
S,G&A expenses as a percentage of total revenue remained constant at
29.5% for fiscal 1999 and fiscal 1998. Total S,G&A expense for fiscal 1999 was
$20,185,000 compared to $17,278,000 in fiscal 1998. The Company increased
expenses associated with selling, marketing, account management and commission
expense on increased revenue, as well as market expansion and diversification
expenses.
Provision for Doubtful Accounts
-------------------------------
The provision for doubtful accounts as a percentage of total revenue
decreased to 2.2% in fiscal 2000 compared to 2.8% of total revenue in fiscal
1999. Total doubtful accounts expense for the twelve months ended June 30, 2000,
was $1,576,000 compared to $1,927,000 in the corresponding period a year ago.
This decrease is primarily the result of improved collections on the CCS
receivables. This is consistent with the Company's past initiatives relating to
improved collections. The provision relates largely to the Company's probation
and day reporting services. Probation service revenue is 100% paid by the
offender and carries an increased risk of default. Day reporting revenue for
fiscal 2000 was 24.0% paid by the offender and the remaining paid by government
agencies. The Company will continue to emphasize additional collection
procedures to further reduce payment defaults.
The provision for doubtful accounts was $1,927,000 or 2.8% of total
revenue in fiscal 1999 compared to $1,806,000 or 3.1% in fiscal 1998. The
provision relates largely to the Company's CCS business unit. Probation service
revenue is 100% paid by the offender and carries an increased risk of default.
The Company initiated collection improvement activities throughout fiscal 1999
which reduced offender related bad debts.
Amortization and Depreciation (A&D)
-----------------------------------
A&D expenses decreased to 4.4% as a percentage of total revenue for
fiscal 2000 compared to 4.9% in fiscal 1999. Total A&D expense was $3,181,000 in
fiscal 2000 compared to $3,352,000 in fiscal 1999. Due to the completion and
release of new products in late fiscal 1999 and throughout fiscal 2000 the
Company's additions to property, plant and equipment decreased in fiscal 2000
relative to fiscal 1999. During the first quarter of fiscal 2000 the Company
converted the capital lease on its headquarters building to a operating lease
which resulted in a decreased depreciation expense in the current year. In
addition, Y2K A&D expenditures associated with deployment of new Y2K compliant
information systems and equipment, leasehold improvements and telecommunications
equipment decreased significantly in fiscal 2000 compared to fiscal 1999.
A&D expenses increased $272,000 to $3,352,000 or 4.9% of revenue in
fiscal 1999 from $3,080,000 or 5.3% of revenue in fiscal 1998. The increase was
due primarily to additions to property, plant and equipment during fiscal 1999.
Research and Development Expenses (R&D)
---------------------------------------
R&D expenses decreased to 2.0% as a percentage of total revenue for
fiscal 2000 compared to 2.8% in fiscal 1999. Total R&D expense was $1,422,000 in
fiscal 2000 compared to $1,943,000 in fiscal 1999. The Company's R&D
expenditures are solely related to EM business unit expenses associated with
software development efforts for improved automation to the Company's electronic
monitoring centers, as well as investments in numerous next generation products.
One of these products was introduced in the fourth quarter of fiscal 1999. Two
additional products were released in the second quarter fiscal 2000. The Company
expects to continue expenditures for improvements to the monitoring operations
and development of future home arrest products in fiscal 2000.
13
<PAGE>
R&D expenses decreased to 2.8% as a percentage of total revenue in
fiscal 1999 as compared to 4.1% in fiscal 1998. The fiscal 1999 expenditures
related to software development for automation improvements to the Company's
monitoring center as well as development of future home arrest products.
Discontinued Operations
-----------------------
In March 1999, the Company entered into a letter of intent to sell the
assets of its CIS business unit. Based on management's assessment of the net
realizable value of the CIS business unit assets, with consideration of the
terms of the proposed sale included in the letter of intent, the Company
recorded an asset impairment charge. Subsequently the Company decided to
discontinue its CIS business unit and sold the net assets on April 30, 1999. The
CIS business unit's losses from its results of operations and its disposal are
presented in the Company's financial statements of operations as discontinued
operations, net of related income taxes. Revenues of the CIS business unit were
$3,574,000; $3,375,000 and $1,408,000 in fiscal 1999, 1998 and 1997,
respectively. The proceeds from the sale of the discontinued business unit were
$1,000,000 cash, $1,221,000 in common stock and $852,000 long term note
receivable for a total of $3,073,000. See also Note five to the Consolidated
Financial Statements.
Net Income and Income Taxes
---------------------------
The Company recorded income tax expense from continuing operations of
$1,069,000 and $3,022,000 for fiscal 2000 and 1999 respectively, which differs
from the statutory rate largely as a result of state income taxes and non-
deductible goodwill amortization expense.
For fiscal 2000, the Company had net income of $1,441,000 or $.18
diluted earnings per share compared to fiscal 1999 net income of $54,000 or $.01
diluted earnings per share. The changes in net income relate primarily to the
items discussed above.
The Company recorded net income tax expense from continuing operations
of $3,022,000 and $2,394,000 for fiscal 1999 and 1998 respectively, which
differs from the statutory rate largely as a result of state income taxes and
non-deductible goodwill amortization expense.
For fiscal 1999, the Company had net income of $54,000 or $.01 diluted
earnings per share compared to fiscal 1998 net income of $2,671,000 or $.34
diluted earnings per share. The changes in net income relate primarily to the
items discussed above.
Impact of Year 2000 Issues
--------------------------
The Year 2000 issue is related to computer software utilizing two
digits rather than four to define the appropriate year. As a result, any of the
Company's computer programs, or any of the Company's suppliers or vendors that
have date sensitive software, may incur system failures or generate date if "00"
is recognized as 1900 rather than 2000.
The Company has been addressing Year 2000 issues throughout fiscal
years 1998, 1999 and 2000 and has modified any products or services that are
affected by Year 2000 issues. Some older products or services have "end of life"
programs in place. The Company has had a formal comprehensive Year 2000
readiness plan in place under the oversight of its executive management. The
Company estimates that approximately $1,393,000 has been incurred during fiscal
years 1998, 1999 and 2000 to the end of calendar year 1999 related to addressing
Year 2000 events. Approximately 40% of this amount was related to fixed asset
additions for new computer related equipment and software upgrades which will be
amortized over a three year period. The remaining amount was expensed as
incurred. The Company does not include the costs of internal employee time in
the above cost calculations, since these costs are not separately tracked. The
above costs, however, do include costs of third party contractors and
consultants.
The Company believes that based upon changes and modifications already
made, the impact of Year 2000 issues have not been, and are not expected to be,
material. However, failure to identify and correct any mission-critical internal
or third party Year 2000 processing problem could have a material adverse
operational or financial consequence to the Company. There was no disruption of
any operations for the Company due to the date changeover from December 31, 1999
14
<PAGE>
to January 1, 2000. Although there has been no significant Year 2000 problems to
date, the Company will continue to monitor the situation closely.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, the Company generated $7,023,000 of cash from
operating activities, received $641,000 from the issuance of common stock
associated with the exercise of stock options, obtained proceeds from borrowings
of $2,273,000, expended $2,875,000 for capital equipment and leasehold
improvements, expended $3,148,000 for equipment associated with rental and
monitoring contracts, expended $3,731,000 for capitalized internally developed
software and expended $517,000 for an acquisition net of cash acquired. The
total of all cash flow activities resulted in a balance of cash and cash
equivalents of zero for fiscal 2000.
The Company's working capital increased $7,035,000 to $17,695,000 at
June 30, 2000. This increase was the result of restructuring the Company's bank
financing to long term from short term and increased inventory levels of
$1,681,000 due to new product introductions which will be reduced in future
months. Accounts receivable decreased throughout fiscal 2000 primarily as a
result of the Company emphasizing collection activities. The Company will
continue to emphasize improved accounts receivable collections across both
business units and expects to reduce its past due receivables in fiscal 2001 as
compared to fiscal 2000.
The Company has an available $7,500,000 line of credit with Bank One,
Boulder, Colorado which expires in January 2002 (see note 6 to the Consolidated
Financial Statements). This financing will fund anticipated fiscal year 2001
working capital requirements. As of June 30, 2000 $5,700,000 had been drawn
against this line. Subsequent to this date the Company paid down the line to
$5,100,000. The line of credit sets forth certain financial and other covenants,
including prior written consent to the payment of any dividends, that must be
met by the Company if indebted to the bank. The Company was not in compliance
with the covenants with respect to minimum net income as of June 30, 2000,
however management has received a waiver from the bank with respect to
compliance with the covenant. The Company expects to generate cash from
operations during fiscal 2001 which will be used to further pay down a portion
of the working capital line of credit. The Company has an additional line of
credit available with Bank One to finance current and future acquisitions (see
note 6 to the Consolidated Financial Statements). During December 1999 the
Company borrowed $600,000 against this line to finance an acquisition within the
CCS business unit. This financing will be repaid through monthly payments over
five years. During July 2000 the Company borrowed an additional $6,000,000
against this line for two acquisitions within the CCS business unit providing
supervision and electronic monitoring services to over 11,000 offenders through
27 offices located in Colorado and Utah. This financing will be repaid through
monthly payments over five years. However, it is planned that as a result of the
merger transaction with KBII discussed in Part 1 Item 1 the Company will retire
all outstanding debt with Bank One.
Working capital may be obtained by financing certain operating and
sales-type leases under recourse and non-recourse borrowing arrangements. These
borrowings would be collateralized with a security interest in the leased
equipment. At June 30, 2000, the Company had unfunded leases in the amount of
$7,255,000 which could be used as collateral for future borrowing arrangements.
The Company believes it will have adequate sources of cash and
available bank line of credit to fund anticipated working capital needs for its
existing business through fiscal 2001.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The instrument's
cash flows are denominated in U.S. dollars. The Bank One working capital line of
credit balance of $5,700,000 represents the majority of these financial
instruments.
15
<PAGE>
Market Risk
<TABLE>
<CAPTION>
Recorded Value Fair Value Maturity Date
-------------- ---------- -------------
<S> <C> <C> <C>
Short - term borrowings $ 139,000 $ 139,000 February 2002
Interest rate 7.50% to 9.60% 7.50% to 9.60% to March 2005
Long - term borrowings:
Working Capital Line of Credit $5,000,000 $5,000,000 January 2002
Libor plus 1.95% 8.56% 8.56%
Working Capital Line of Credit $ 700,000 $ 700,000 January 2002
Prime Interest rate 9.50% 9.50%
December 1999 Acquisition Loan $ 550,000 $ 550,000 January 2005
Prime Interest rate 9.50% 9.50%
</TABLE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Public Accountants and the Consolidated
Financial Statements are set forth on pages F-1 to F-21 of this report.
Schedule II is included on page F-22. All other financial
statement schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On May 10, 1999, the Company dismissed PricewaterhouseCoopers
LLP (PWC) as its independent public accountants. PWC's reports on the Company's
financial statements for the past two fiscal years contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with its audits for the two
most recent fiscal years and through May 10, 1999, there were no disagreements
with PWC on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of PWC would have caused them to make reference
thereto in their report on the financial statements for those years. PWC has
furnished the Company with a copy of its letter addressed to the SEC stating
that it agrees with the foregoing statements. That letter was filed by the
Company as Exhibit 16 to its Current Report on Form 8-K reporting an event of
May 10, 1999, which the Company filed on May 17, 1999.
The Company engaged Arthur Andersen LLP as its new independent
public accountants as of May 10, 1999. The Company has not had any significant
disagreements with the current accountants on accounting and financial
disclosure.
The Company's Audit Committee recommended and approved the
decision to change independent public accountants.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information Concerning Directors
--------------------------------
The following sets forth the name, age as of June 30, 2000, the year each
became a director, current principal occupation or employment and five year
employment history for the eight members currently serving on the Board.
<TABLE>
<CAPTION>
Director
Age Since
--- ------
<S> <C> <C>
William E. Coleman is Chairman of Colorado Venture Management, a
venture capital firm, and Chairman of Colorado Energy
Management, developers of cogeneration projects. Dr. Coleman has
been Vice Chairman of the Board since November 1992............. 66 1984
Mckinley C. Edwards, Jr. has been Executive Vice President and
Chief 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................. 58 1990
Beverly J. Haddon is currently President of The Haddon Firm,
which is engaged in business consulting and government lobbying.
Prior to forming The Haddon Firm, Ms. Haddon was a Partner at
CRL Associates, a business consulting 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........ 59 1994
David J. Hunter joined the Company in June 1981 and served as
Operations 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................ 55 1982
Jeremy N. Kendall has been Chairman and Chief Executive Officer
of Stake 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 Environmental Reclamation Inc., Chairman of
Easton Minerals, and Chairman of Logicsys, Inc. Mr. Kendall has
been Chairman of the Board since November 1992.................. 60 1981
Perry M. Johnson has served as a Corrections Consultant since
April 1988. 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....................................................... 69 1994
Barry J. Nidorf has served as a Corrections Consultant since
March 1997. Prior 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............................................................. 59 1997
Byam K. Stevens, Jr. has served as a security analyst and
portfolio manager for the stock brokerage firm of H.G.
Wellington & Co., Inc. since March 1986. From January 1973 to
</TABLE>
17
<PAGE>
that time, he served in the same capacities for Stillman,
Maynard & Co. until the two firms merged........................ 69 1989
Information Concerning Director Designees
-----------------------------------------
The following sets forth the name, age as of August 10, 2000, current
principal occupation or employment and five year employment history for the
two persons who have been designated by KBII Acquisition Company ("KBII") to
assume directorships upon the purchase of at least 90% of the outstanding shares
of BI Common Stock in the tender offer and the consummation of a merger between
BI and KBII. This information was provided by KBII.
James A. Kohlberg is President of KBII Acquisition Company, Inc. and KBII
-----------------
Holdings, Inc., Managing Member of KBII Management, LLC (General Partner of
KBII Acquisition Company, L.P., the controlling shareholder of KBII Holdings,
Inc.). Mr. Kohlberg has been a principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Christopher Lacovara is Secretary of KBII Acquisition Company, Inc. and
--------------------
KBII Holdings, Inc., and Secretary of KBII Management, LLC. Mr. Lacovara has
been an associate with and/or principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Information Concerning Current Officers
---------------------------------------
The following table sets forth certain information with respect to the
current executive officers of the Company.
At June 30, 2000 the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David J. Hunter 55 President and Chief Executive Officer
Mckinley C. Edwards, Jr. 58 Executive Vice President and Chief Operating Officer, Secretary and Treasurer
Jacqueline A. Chamberlin 45 Vice President of Finance and Chief Financial Officer
Steven P. Merrefield 51 Executive Vice President
Jonathan M. Hinebauch 59 Vice President, Business Development
</TABLE>
All executive officers serve at the discretion of the Board of Directors.
David J. Hunter's biography is set forth above.
Mckinley C. Edwards' biography is set forth above.
Jacqueline A. Chamberlin has been Vice President of Finance and Chief
Financial Officer since November 1993. She joined the Company in January 1983
and served as Accounting Manager through November 1985, Controller until May
1992 and Vice President of Accounting up to November 1993.
Steven P. Merrefield has been with the Company since April 1990. He has
served as Vice President of Monitoring, Vice President of Major Accounts, Vice
President of Customer Services, Vice President and General Manager of the
Electronic Monitoring Division and Vice President and General Manager of the
Community Correctional Services Division. Currently, he is Executive Vice
President overseeing Marketing and Sales. In February 1999 he was appointed a
corporate officer. He has been in the corrections industry for over twenty-
five years. Before joining the Company, he held numerous positions in public
and private corrections. He has worked for the Florida Department of
Corrections, Georgia Department of Corrections and Harris County, TX.
Jonathan M. Hinebauch has been Vice President of Business Development since
1996 and elected a corporate officer in February 1999. He joined the Company
in 1986 and has held numerous positions ranging from VP Sales and Marketing from
1986 to 1988 and Major Account Management from 1988 to 1993. Prior to working
for the Company, Mr. Hinebauch was President of Alpine Designs from 1971 to
1973, VP of Camp 7 from 1973 to 1975 and Founder of Altra Inc. in 1975.
18
<PAGE>
Committees, Attendance, Nominations for Fiscal 2000
---------------------------------------------------
The Company has standing Audit, Nomination and Compensation Committees. The
Company's Audit Committee during fiscal 2000 was comprised of Messrs. Coleman,
Hunter, Johnson, Nidorf 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 3 times during fiscal year 2000.
During fiscal 2000, 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 seven times during fiscal 2000. The Nomination Committee
consisting of Messrs. Hunter, Coleman, Kendall and Johnson did not meet in
fiscal 2000. This committee was formed to develop the composition and
participation guidelines of the Board of Directors. The Company's Board of
Directors met eight times during fiscal 2000. Each Director participated by
personally attending during fiscal 2000 over 75% of both the Board of
Directors meetings and meetings of committees of which he or she was a member.
ITEM 11. EXECUTIVE COMPENSATION
Current Director Compensation
-----------------------------
Each non-employee director was granted, on July 1, 2000, an option pursuant
to the 1999 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 2000. Non-employee directors received $2,500 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
16, 1999, each re-elected non-employee director received $7,500.
In the event of retirement, directors, other than those who have been found
in a legal proceeding to have violated their duties to the Company, are
entitled to a one-time payment of $1,000 per year for service on the Board
upon their retirement. Service of more than one fiscal quarter of a year is
deemed service for that year. Any compensation shall be paid with the final
check delivered to the retiring Director for accrued Director's fees.
Executive Compensation Paid During Fiscal 2000
----------------------------------------------
Summary Compensation Table
The following table sets forth the compensation paid each of the last three
fiscal years ended June 30, 2000, 1999 and 1998 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 2000 $280,267 $ 0 0 20,000 0 $30,208
President, 1999 237,546 0 0 0 0 23,156
Chief Executive Officer 1998 207,821 16,064 0 0 0 13,947
Mckinley C. Edwards, Jr. 2000 $213,631 $ 0 0 20,000 0 $25,507
Executive Vice President 1999 193,539 0 0 0 0 20,851
Chief Operating Officer 1998 171,452 10,604 0 0 0 15,382
Jackie A. Chamberlin 2000 $143,054 $ 0 0 20,000 0 $16,545
Vice President, Finance, 1999 133,246 0 0 0 0 18,905
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Chief Financial Officer 1998 113,968 5,282 0 0 0 12,021
Jonathan M. Hinebauch (b) 2000 $137,002 $ 0 0 20,000 0 $24,718
Vice President, 1999 118,548 13,416 0 12,000 0 9,426
Business Development
Steven P. Merrefield (b) 2000 $151,040 $ 0 0 20,000 0 $18,216
Executive Vice President 1999 142,925 13,655 0 15,000 0 9,529
</TABLE>
--------
* Long-term Incentive Plan
(a) Other compensation includes:
1. matching contribution made pursuant to the Company's 401k retirement
savings plan as follows: Mr. Hunter $2,450; Mr. Edwards $1,936; Ms.
Chamberlin $1,460; Mr. Hinebauch $1,400; and Mr. Merrefield $1,677;
2. payment of unused vacation hours up to 40 hours: $5,673 for Mr.
Hunter; $4,231 for Mr. Edwards; and $2,885 for Mr. Merrefield;
3. annual car allowance of $10,200 each to Mr. Hunter, Mr. Edwards, Ms.
Chamberlin, Mr. Hinebauch and Mr. Merrefield;
4. effective July 1, 1998 the Board of Directors approved an annual
allowance of up to $10,000 for financial and tax advisory services.
Fiscal 2000 payments for these services: Mr. Hunter $5,983, Mr.
Edwards $4,035; Ms. Chamberlin $555, Mr. Hinebauch $9,700 and Mr.
Merrefield $1,725;
5. the Company paid life insurance premiums in connection with a policy
purchased as part of a deferred compensation arrangement, as
follows: $5,902 for Mr. Hunter; $5,105 for Mr. Edwards; $4,330 for
Ms. Chamberlin; $3,418 for Mr. Hinebauch and $1,729 for Mr. Merrefield.
(b) On February 4, 1999 Jonathan M. Hinebauch and Steven P. Merrefield
became Corporate Officers of BI Incorporated. The table reports total fiscal
1999 and 2000 compensation.
Stock Option Grants
-------------------
The following table shows the stock options granted to the Named Executive
Officers during fiscal 2000 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 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>
Potential Realizable
Value at Assumed
Options Shares Granted in Fiscal 2000 Annual Rate of Stock
Individual Grants Price Appreciation (b)
----------------------------------------------------- ------------------------
% of Total
Number of Option Shares
Option Granted to Exercise
Shares Employees in Price Per Expiration
Name Granted (a) Fiscal Year Share Date 5% 10%
---- ----------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter................... 20,000 5.2% $7.25 11/16/06 $59,000 $137,800
Mckinley C. Edwards, Jr........... 20,000 5.2% $7.25 11/16/06 $59,000 $137,800
Jackie A. Chamberlin.............. 20,000 5.2% $7.25 11/16/06 $59,000 $137,800
Jonathan M. Hinebauch............. 20,000 5.2% $7.25 11/16/06 $59,000 $137,800
Steven P. Merrefield.............. 20,000 5.2% $7.25 11/16/06 $59,000 $137,800
</TABLE>
--------
(a) 10,000 shares vest immediately. The remaining options vest over a two year
period, with 25% vesting each year following the grant date. In the event
of termination on account of death or disability, the options which would
20
<PAGE>
have vested during the vesting period in which death or disability occurs
will, vest. In the event of a change in control the options vest
immediately.
(b) Calculated over a seven-year period, representing the life of the option.
(c) Granted November 16, 1999 pursuant to the Company's 1996 Stock Option Plan.
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 2000, and the
value of all remaining unexercised options at June 30, 2000, on a pre-tax basis.
Aggregate Option Exercises in Fiscal 2000 and June 30, 2000 Option Values
<TABLE>
<CAPTION>
Value of Unexercised,
Number of Unexercised In-the-Money Options at
Shares Options at 6/30/00 6/30/00 (b)
Acquired on Net Value ------------------------- -------------------------
Name Exercise Realized (a) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter......... 80,735 $272,077 165,000 30,000 $29,688 $ 0
Mckinley C. Edwards,Jr.. 7,424 $ 23,627 107,500 25,000 $14,844 $ 0
Jackie A. Chamberlin.... 0 $ 0 72,500 20,000 $ 5,938 $ 0
Jonathan M. Hinebauch... 0 $ 0 59,694 24,424 $ 0 $ 0
Steven P. Merrefield.... 0 $ 0 33,930 23,545 $ 2,376 $ 0
</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, 2000 ($5.375 per share) less the per share
option price, multiplied by the number of exercisable or unexercisable
options.
Stock Option Repricing
----------------------
The following table shows information concerning the repricing of options for
each executive officer of the Company for the ten year period July 1, 1990 to
June 30, 2000.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
(g)
Length of
Original
(c) Option Term
Number of (d) (e) Remaining
Securities Market Price Exercise at Date of
underlying of Stock at Price at Time Repricing
Options/SARs Time of of (f) or
(a) (b) Repriced or Repricing or Repricing or New Exercise Amendment
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) (in months)
---- ------- ------------ ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
David J. Hunter 1/21/97 100,000 $7.13 $12.38 $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 7.13 12.38 7.00 115
Executive Vice
President, 4/18/94 35,000 4.88 5.875 5.13 9(1)
Chief Operating Officer 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 7.13 12.38 7.00 115
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Chief Financial Officer, 4/18/94 10,000 4.88 7.50 5.13 12
Vice President Finance 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
Jonathan M. Hinebauch 1/27/97 15,000 7.13 9.19 7.00 72
Vice President, Business 1/27/97 27,188 7.13 11.9375 7.00 115
Development
Steven P. Merrefield 1/27/97 16,475 7.13 11.9375 7.00 115
Vice President and
General 4/18/94 5,000 4.88 8.25 5.13 55
Manager, CCS 4/18/94 5,000 4.88 7.50 5.13 20
Business Unit 4/18/94 15,143 4.88 7.625 5.13 63
4/18/94 2,500 4.88 7.50 5.13 12
4/18/94 1,000 4.88 7.50 5.13 12
</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.
(2) Compensation Committee: Beverly J. Haddon, Chairman, Byam K. Stevens, Jr.,
Jeremy Kendall, David J. Hunter (non-voting member) and Mckinley C. Edwards,
Jr.(non-voting member).
Report of the Compensation Committee
------------------------------------
With respect to fiscal 2000 executive compensation, the Compensation
Committee (the "Committee") administered the compensation for the corporate
officers and grants to the officers under the 1996 and 1999 Stock Option Plans.
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 periodically utilizes 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 with a base
salary, an annual bonus plan, and long-term incentive stock based compensation.
The Company's compensation objective is to provide compensation which is
designed to be competitive for base salaries with the companies BI competes with
for executive talent, and which is variable with the performance of the
organization. Incentive compensation will vary with performance. Above- average
performance results in above-average total compensation, and below- average
performance for the Company results in below-average total compensation. The
focus is placed on company performance and individual contributions toward that
performance. The Board has 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.
22
<PAGE>
Corporate officer reviews are typically 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 2000 revenue was at a record level of $72.1 million, up 5.4% over
fiscal 1999 revenue of $68.4 million. Net income from continuing operations in
its Electronic Monitoring (EM) and Community Correctional Services (CCS)
business units decreased to $1.4 million, from $4.2 million in fiscal 1999.
During the period, the Company invested in activities related to new product
development and market expansion in EM and CCS. It is management's view that
such investments are essential to the progress of the Company over the long
term.
No officer bonuses were paid for fiscal 2000.
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.
Pursuant to the Company's Compensation Policy and in accordance with the
Company's long-term compensation plan, at the November 1999 Board of Directors
meeting, the Committee recommended and the Board approved stock option grants of
20,000 shares for each of the Company's five executive officers, each priced at
market value on the date of the grant.
Pursuant to an officer salary plan based on a national executive survey and
consultant recommendation, the officers were paid the following salaries
effective July 1, 1999: Mr. Hunter $295,000 annually, an increase of 24.6%; Mr.
Edwards $220,000 annually, an increase of 18.9%; Ms. Chamberlin $145,000
annually, an increase of 11.5%; Mr. Merrefield $150,000 annually, an increase of
2.4%; and Mr. Hinebauch $145,000 annually, an increase of 16%. These salaries
are now at the parity levels recommended in 1998 by the compensation consultant
as a result of his analysis of national compensation surveys.
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 2000, the Committee
recommended and the Board approved an annual salary increase from $222,500 to
$295,000 for Mr. Hunter effective July 1, 1999. A three-step salary adjustment
plan was developed to bring Mr. Hunter's salary in line with national survey
data and the executive consultant's findings relative to similar positions in
comparable companies. The Committee believes Mr. Hunter's salary is now in line
with these findings.
No bonus was paid to Mr. Hunter pursuant to the fiscal 2000 incentive plan.
Pursuant to the Company's Compensation Policy and in accordance with the
Company's long-term compensation plan, at the November 1999 meeting of the Board
of Directors, the Committee recommended and the Board approved a stock option
grant of 20,000 shares. This grant was priced at market value on the date of the
grant.
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;
23
<PAGE>
Byam K. Stevens, Jr.; David J. Hunter (Non-voting Member); And Mckinley C.
Edwards, Jr. (Non-voting Member).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 10, 2000 (except as
specifically noted with respect to certain persons) 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 10, 2000 upon the exercise of warrants or options. The
address of each person for whom an address is not shown is care of the
Company.
<TABLE>
<CAPTION>
Amount And nature
Name of beneficial ownership Percent Of Class
---- ------------------------ ----------------
<S> <C> <C>
Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, Nj 08536 722,200(1) 9.1%
Neil J. Weisman
C/o Home Port Holdings, Inc.
139 West Saddle River Road
Saddle River, Nj 07458 684,300(1) 8.6%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, Ca 90401 591,300(2) 7.4%
Jackie A. Chamberlin 113,372(3) 1.4%
William E. Coleman 28,500(4) *
Mckinley C. Edwards, Jr. 180,063(5) 2.2%
Beverly J. Haddon 56,000(6) *
Jonathan M. Hinebauch 74,290(7) *
David J. Hunter 323,373(8) 4.0%
Perry M. Johnson 58,000(9) *
Jeremy N. Kendall 72,150(10) *
Steven P. Merrefield 58,751(11) *
Barry J. Nidorf 18,000(12) *
Byam K. Stevens, Jr. 81,950(13) 1.0%
Kohlberg/Management Shareholder Group 749,849(14) 8.9%
All Officers and Directors as a Group
(11 persons) 1,064,449(15) 12.2%
</TABLE>
_________
* Represents less than 1%
(1) As Of June 30, 2000.
(2) As Of March 31, 2000.
(3) Includes options to purchase 82,500 shares, exercisable within sixty days.
Upon completion of a merger between the Company, KBII and KBII Holdings,
24
<PAGE>
Inc., all options will vest on the effective date of the merger, including
10,000 additional options, which are not included in the table.
(4) Includes options to purchase 28,500 shares which are presently
exercisable.
(5) Includes options to purchase 122,500 shares, exercisable within sixty days.
Upon completion of a merger between the Company, KBII and KBII Holdings,
Inc., all options will vest on the effective date of the merger, including
options to purchase an additional 10,000 shares, which are not included in
the table.
(6) Includes options to purchase 55,000 shares which are presently
exercisable.
(7) Includes options to purchase 65,618 shares, exercisable within sixty days.
Upon completion of a merger between the Company, KBII and KBII Holdings,
Inc., all options will vest on the effective date of the merger, including
options to purchase an additional 18,500 shares, which are not included in
the table.
(8) Includes options to purchase 185,000 shares, exercisable within sixty days.
Upon completion of a merger between the Company, KBII and KBII Holdings,
Inc., all options will vest on the effective date of the merger, including
options to purchase an additional 10,000 shares, which are not included in
the table.
(9) Includes options to purchase 55,000 shares which are currently
exercisable.
(10) Includes options to purchase 61,000 shares which are currently
exercisable.
(11) Includes options to purchase 38,475 shares, exercisable within sixty days.
Upon completion of a merger between the Company, KBII and KBII Holdings,
Inc., all options will vest on the effective date of the merger, including
options to purchase an additional 20,000 shares, which are not included in
the table.
(12) Includes options to purchase 18,000 shares which are currently
exercisable.
(13) Includes 4,000 shares owned by Mr. Stevens' relatives, as to which shares
he disclaims beneficial ownership. Also includes options to purchase 61,000
shares which are currently exercisable.
(14) The Kohlberg/Management Shareholder Group consists of KBII Acquisition
Company, Inc., KBII Holdings, Inc., KBII Acquisition Company, L.P., KBII
Management, LLC, James A. Kohlberg, David J. Hunter, Mckinley C. Edwards,
Jr., Jacqueline A. Chamberlin, Steven P. Merrefield and Jonathan M.
Hinebauch. The beneficial ownership represents shares and options held
exclusively by David J. Hunter, Mckinley C. Edwards, Jr., Jacqueline A.
Chamberlin, Steven P. Merrefield and Jonathan M. Hinebauch, and includes
options to purchase 494,093 shares, exercisable within 60 days. Each member
of the Kohlberg/Management Shareholder Group disclaims beneficial ownership
of shares held of record by any other member of the group.
(15) Includes options to purchase 278,500 shares which are presently exercisable
and 494,093 shares issuable on exercise of options which will become
exercisable within sixty days. Upon completion of a merger between the
Company, KBII and KBII Holdings, Inc., all options will vest on the
effective date of the merger.
Possible Change in Control
--------------------------
On August 10, 2000, the Company entered into an Agreement and Plan of
Merger with KBII Acquisition Company, Inc. and KBII Holdings, Inc., pursuant
to which the Board of Directors agreed to support a tender offer by KBII
Acquisition Company, Inc. for all of the outstanding shares of BI common
stock, to be followed by a merger between BI and KBII Acquisition Company,
Inc. to acquire control of all shares not acquired through the tender offer.
Pursuant to this Agreement, a change in control of the Company would occur.
Current Employment Contracts, Termination Of Employment And Change-In-Control
Arrangements; Certain Agreements With Respect To The Merger
-----------------------------------------------------------
The Named Executive Officers, (Messrs. Hunter, Edwards, Hinebauch,
Merrefield and Ms. Chamberlin) have employment agreements with the Company.
These agreements assure continuity of management in the event of any actual
change in control, as defined in these agreements. The Company agrees to
continue the employ of the executive for two years 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. Any unvested portion of stock
options held by the executive will become fully vested upon the change of
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.
25
<PAGE>
Upon completion of a merger between the Company, and KBII Acquisitions
Company, Inc., each of these persons has agreed to forego the entitlement to
severance payments under their employment agreements in return for continuing
employment with the Company following the merger. The terms of employment
between the Company and the named Executive Officers will be set forth in
certain policies to be adopted by the Company following the Merger, including a
"Separation Policy," which is planned to cover, at least, the Named Executive
Officers. Pursuant to the terms of the Policy, if a Named Executive Officer is
terminated by reason of an involuntary termination (other than for cause), death
or permanent disability), the Company will pay to the Named Executive Officer a
severance benefit equal to the greater of (i) 12 months' salary or (ii) one
month's salary for each year of service up to a maximum of two years according
to the terms of the Policy, provided in the event of a change of control the
Company will pay to the Named Executive Officer a benefit equal to 24 months'
salary. In the event of termination for cause, the Named Executive Officer shall
have no right to receive any form of compensation, remuneration or benefit
otherwise required or provided hereunder, but shall be entitled to receive any
unpaid salary earned to date and all unpaid and accrued vacation, sick and
personal days.
The Named Executive Officers have also agreed with KBII Holdings, Inc.,
that they will reinvest a portion of their current equity and/or exchange all
of their vested BI stock options (Ms. Chamberlin and Messrs. Hinebauch and
Merrefield) or a portion of their vested options (Messrs. Hunter and Edwards)
for equity and options in KBII Holdings, Inc. which will amount to
approximately 1.78% of the outstanding equity capital of KBII Holdings, Inc.,
on a fully diluted basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Related Party Transactions
----------------------------------
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 2000,
but did not participate in discussions involving their compensation.
During fiscal 2000 the Company sold home arrest equipment and services to
JEMTEC, Inc. in the amount of $19,100. Mr. Kendall, the chairman of the Company,
is Chairman of JEMTEC, Inc.
On June 27, 1999 the compensation committee approved a loan policy for the
officers and directors of the Company to exercise company stock options and pay
applicable taxes. The Board of Directors ratified this policy at a regularly
scheduled meeting on August 4, 1999. Amounts up to 80% of the exercise price may
be borrowed. The terms of the loan include a five year balloon payment, interest
at prime rate and adequate security other than the stock being acquired.
On July 26, 1999 Mr. Hunter borrowed $437,552 pursuant to the above terms
to exercise two company stock options expiring July 28, 1999 for 80,735 shares
at $5.13 each.
Related Party Transactions Relating to the Proposed
Merger of the Company with KBII Acquisition Company, Inc.
--------------------------------------------------------
Stock Voting and Tender Agreement:
The Named Executive Officers have agreed pursuant to the Voting Agreement
to tender their Shares in the Offer and, if necessary, to vote their Shares
(whether now owned or hereafter acquired) in favor of the Merger and the
transactions contemplated thereby and against any competing offer. As of August
10, 2000, the Named Executive Officers owned directly 3.2% of the issued and
outstanding Common Stock of the Company.
Side Letter:
In exchange for receiving options to purchase the Stock in Parent ("Parent
Options"), each of the Named Executive Officers has agreed not to (i) exercise
any options to purchase Shares (except as otherwise agreed between any Named
Executive Officer and Parent) or (ii) directly or indirectly, offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or
enter into agreement, option or other arrangement or understanding with respect
to or consent to offer for sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the options owned by such
persons or any interest therein.
Stock Purchases and Option Grants in Parent:
Pursuant to a proposed Stock Option Plan and certain Stock Option Grant
Letters, the Named Executive Officers will receive Parent Options (also referred
to as rollover options). The Parent Options will be fully vested and shall not
expire if the Named Executive Officers' employment is terminated for any reason.
In addition to the Parent Options, it is anticipated that the holders will
receive other stock options in Parent (sometimes referred to as non-rollover
options), as described below.
Upon completion of the Merger, the Named Executive Officers will
beneficially own approximately 1.75% (including shares subject to options that
may be acquired within 60 days of the Merger) of the issued and outstanding
capital stock of Parent on a fully diluted basis. In addition, Parent will grant
the Named Executive Officers additional compensatory options to purchase up to
8.19% of the capital stock of Parent on a fully diluted basis, which options
will vest ratably over three years based on the Company attaining certain
performance goals, as described below.
Jacqueline A. Chamberlain has agreed to purchase for $66,563 in cash 44,375
shares representing approximately 0.23% (0.17% on a fully diluted basis) of
Parent's issued and outstanding capital stock, and Steven P. Merrefield has
agreed to purchase for $52,223 in cash 34,815 shares representing approximately
0.18% (0.13% on a fully diluted basis) of Parent's issued and outstanding
capital stock. David J. Hunter, Steven P. Merrefield, Jacqueline A. Chamberlain,
Mckinley C. Edwards Jr. and Jonathan M. Hinebauch will rollover vested options
to acquire Common Stock of the Company into options with an exercise price of
$0.01 per share to acquire 156,040 shares, 38,570 shares, 89,555 shares, 33,557
shares and 57,146 shares, respectively, representing approximately 0.60%, 0.15%,
0.34%, 0.13% and 0.22%, respectively, of the outstanding capital stock of Parent
on a fully diluted basis. In addition, Parent will grant to Mr. Hunter, Mr.
Merrefield, Ms. Chamberlin, Mr. Edwards and Mr. Hinebauch compensatory options
with an exercise price of $1.50 per share to purchase up to 725,000 shares,
365,000 shares, 335,000 shares, 350,000 shares and 347,000 shares, respectively,
representing approximately 2.80%, 1.41%, 1.29%, 1.35% and 1.34%, respectively,
of the outstanding capital stock of Parent on a fully diluted basis, which
options will vest ratably over three years based on the Company attaining
certain performance goals. The non-rollover stock options to be granted to the
Named Executive Officers will vest as follows: (i) options to acquire one-third
of the shares will vest on January 1, 2002 if the Company reaches an earnings
before interest, taxes, depreciation and amortization ("EBITDA") for fiscal year
2001 of $17.1 million, (ii) options to acquire one-third of the shares will vest
on January 1, 2003 if the Company reaches an EBITDA for fiscal year 2002 of
$19.5 million, and (iii) options to acquire one-third of the shares will vest on
January 1, 2004 if the Company reaches an EBITDA for fiscal year 2003 of $21.4
million. The non-rollover options to acquire 2,122,000 shares of capital stock
of Parent to be granted to the Named Executive Offices represent approximately
77% out of the total option pool for all employees of options to acquire
2,765,000 shares of capital stock of Parent. On a fully diluted basis, including
unvested options, Mr. Hunter, Mr. Merrefield, Ms. Chamberlin, Mr. Edwards and
Mr. Hinebauch will beneficially own 3.40%, 1.69%, 1.81%, 1.48% and 1.56%,
respectively, of outstanding capital stock of Parent. In addition, in connection
with the Merger, Mr. Hunter and Mr. Edwards will be entitled to receive $101,563
and $158,281, respectively, as part of the Merger consideration to cash out non-
rollover options to acquire Shares (based on the amount that $8.25 exceeds the
exercise price of such options). Parent anticipates that following the Merger,
it will expand its Board of Directors to consist of seven persons, one of whom
will be a Named Executive Officer.
Stockholders' Agreement:
It is anticipated that the Named Executive Officers will purchase stock in
the Parent after the Merger. In connection with this stock ownership, it is
anticipated that the Named Executive Officers will become a party to a
Stockholders' Agreement which, among other things, restricts transfer of the
stock, provides pre-emptive rights, participation rights and registration
rights.
Reporting Compliance Concerning 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, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with.
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), Total Return Index for the Russell 2000 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 1999
proxy statement.
26
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG BI
INCORPORATED, THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX,
RUSSELL 2000 INDEX AND A PEER GROUP**
TOTAL RETURN INDEX-BASE 100
SOURCE - S&P COMPUSTATION
BASE YEAR - 100: 6/30/95
COMPANY NAME JUN-95 JUN-96 JUN-97 JUN-98 JUN-99 JUN-00
---------------- ------ ------ ------ ------ ------ ------
BI INC. 100.0 200.00 113.21 141.51 128.30 81.13
RUSSELL 2000 100.0 123.89 144.11 167.91 170.43 195.07
PEER GROUP INDEX 100.0 231.36 123.12 109.03 75.54 68.57
________
The Following indexed graph indicates the Company's total return to its
stockholders from June 30, 1995 to June 30, 2000 as compared to total return
for the Nasdaq Stock Market (U.S. Companies) Index, Russell 2000 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
Description Of The Graph:
The Performance Graph depicts, in straight-line fashion, the performance
figures in the foregoing table for BI Incorporated, the Russell 2000 Index and
The Self-determined Peer Group. The X-axis of the Graph depicts time from June
1995 through June 2000. The Y-axis covers the scale from -0- through 250. The
separation of each point is linear. Each point (representing the number in the
table above) has been connected to the preceding and following point by a
straight line.
** 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.
27
<PAGE>
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets at June 30, 2000 and 1999
Consolidated Statements of Operations for each of the
three years in the period ended June 30, 2000
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended June 30,
2000
Consolidated Statements of Cash Flows for each of the
three years in the period ended June 30, 2000
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules: Schedule II -
Valuation and qualifying accounts
All other financial statement schedules are omitted because
they are not applicable or the required information is shown
in the consolidated financial statements or notes thereto.
(b) None.
(c) Exhibits:
3.1 Articles of Incorporation, as amended, of the Registrant, as filed
with and incorporated by reference from the Company's Proxy Statement
for the Annual Meeting of Shareholders held November 7, 1991.
3.2 Bylaws, as amended, of the Registrant, as filed with and incorporated
by reference from the Company's Registration Statement on Form S-18
(Registration No. 2-82311-D) effective May 4, 1983.
4.1 Form of Common Stock Certificate, as filed with and incorporated by
reference from the Company's Registration Statement on Form S-1
(Registration No. 33-36683) filed September 4, 1990.
*4.2 BI Incorporated 1991 Employee Stock Purchase Plan.
4.3 BI Incorporated 1991 Stock Option Plan. Filed with the Commission on
December 20, 1991 as an exhibit to Form S-8, and modified by exhibit
to Form S-8, filed with the Commission on April 28, 1993, and
incorporated by reference, and modified by exhibit to Form S-8, filed
with the Commission on March 2, 1995, and incorporated by reference.
4.4 BI Incorporated 1996 Stock Option Plan, as filed with and
incorporated by reference from the Company's registration statement
on Form S-8, as exhibit 4.1, as filed with the Commission on May 21,
1999.
10.1 Form of Employment Agreement, previously filed with the Commission as
an exhibit to 1994 Form 10-K and incorporated by reference.
10.2 Property lease between the Company and Terrence J. O'Connor
(landlord) dated May 15, 1990 with Addendum's dated February 9, 1996
and October 10, 1996 concerning building located at 6400 Lookout
Road, Boulder, Colorado, 80301, as filed with and incorporated by
reference on Form 10-K for the fiscal year ended June 30, 1998
(incorporated by reference to the liked numbered exhibit filed with
the Company's report on Form 10K for the Fiscal Year ended June 30,
1999 filed on September 24, 1999).
10.3 Property leases between the Company and Point II, LLC (landlord)
concerning building located at 6325 Gunpark Drive, Boulder, Colorado,
80301 dated February 9, 1996 with Addendum's dated June 13, 1996 and
February 26, 1997 and lease dated February 21, 1997, as filed with
and incorporated by reference from exhibit 4.8 to the Company's
Annual Report on form 10-K for the fiscal year ended June 30, 1998
(incorporated by reference to the liked numbered exhibit filed with
the Company's report on Form 10K for the Fiscal Year ended June 30,
1999 filed on September 24, 1999).
28
<PAGE>
10.4 Agreement and Plan of Merger dated as of August 10, 2000 among KBII
Holdings, Inc., KBII Acquisition Company and the Company, as filed
with and incorporated by reference from exhibit (d)(1) to the
Schedule TO filed by KBII Holdings, Inc., and KBII Acquisition
Company on August 18, 2000.
10.5 Form of side letter, to be entered into in substantially same form at
or prior to the consummation of the merger of the Company and KBII
Acquisition Company, among KBII Acquisition Company, KBII Holdings,
Inc., and certain shareholders of the Company, as filed with and
incorporated by reference to exhibit (d)(2) to the Schedule TO filed
by KBII Holdings, Inc., and KBII Acquisition Company on August 18,
2000.
10.6 Stock Voting and Tender Agreement dated as of August 10, 2000, among
KBII Acquisition Company, KBII Holdings, Inc., and certain
shareholders of the Company, as filed and incorporated by reference
to exhibit (d)(3) to the Schedule TO filed by KBII Holdings, Inc.,
and KBII Acquisition Company on August 18, 2000.
10.7 Form of Separation Policy, to be entered into in substantially same
form at or prior to the consummation of the merger of the Company and
KBII Acquisition Company, as filed and incorporated by reference to
exhibit (d)(4) to the Schedule TO filed by KBII Holdings, Inc., and
KBII Acquisition Company on August 18, 2000.
10.8 Confidentiality Agreement between Kohlberg & Co., L.L.C. and the
Company, dated as of January 21, 2000, as filed and incorporated by
reference to exhibit (d)(5) to the Schedule TO filed by KBII
Holdings, Inc., and KBII Acquisition Company on August 18, 2000.
10.9 Amended and Restated Rights Plan dated December 1, 1999, as amended
August 9, 2000, as filed and incorporated by reference to the
Schedule 14D-9 filed by the Company on August 18, 2000.
10.10 Form of Stockholders' Agreement for KBII Holdings, Inc., to be
entered into in substantially same form at or prior to the
consummation of the merger of the Company and KBII Acquisition
Company, as filed and incorporated by reference to exhibit (d)(6) to
the Schedule TO filed by KBII Holdings, Inc., and KBII Acquisition
Company on August 18, 2000.
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of PriceWaterhouseCoopers LLP
_______
* Filed herewith
In the event that you have received a copy of this Annual Report on Form 10-K
which does not contain exhibits, the Company will, upon written request directed
to investor relations at the Company's principal offices referred to on the 10-K
cover page, provide a copy of any exhibit filed as part of this report upon
payment of a reasonable fee.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BI Incorporated
By: /s/ David J. Hunter
--------------------
David J. Hunter
President
Date: September 28, 2000
------------------
Pursuant to the requirements of the Securities Exchange Act Of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David J. Hunter
------------------------------
David J. Hunter President, Chief Executive
Officer And Director
(Principal Executive Officer) September 28, 2000
/S/ Jacqueline A. Chamberlin
------------------------------
Jacqueline A. Chamberlin Vice President Of Finance
(Principal Financial And
Accounting Officer) September 28, 2000
/s/ Jeremy N. Kendall
------------------------------
Jeremy N. Kendall Chairman September 28, 2000
/s/ William E. Coleman
------------------------------
William E. Coleman Vice Chairman September 28, 2000
/s/ Mckinley C. Edwards, Jr.
------------------------------
Mckinley C. Edwards, Jr. Director September 28, 2000
/s/ Beverly J. Haddon
------------------------------
Beverly J. Haddon Director September 28, 2000
/s/ Perry M. Johnson
------------------------------
Perry M. Johnson Director September 28, 2000
/s/ Barry J. Nidorf
------------------------------
Barry J. Nidorf Director September 28, 2000
/s/ Byam K. Stevens, Jr.
------------------------------
Byam K. Stevens, Jr. Director September 28, 2000
</TABLE>
30
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of BI Incorporated:
We have audited the accompanying consolidated balance sheets of BI Incorporated
(a Colorado corporation) and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial consolidated
statements and schedule based on our audits. The consolidated financial
statements of BI Incorporated as of June 30, 1998, were audited by other
auditors whose report dated August 14, 1998 expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BI Incorporated and
subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule II "Allowance for Losses on Accounts
Receivable" is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects in relation to the basic financial statements taken as a
whole.
As discussed in Note 13, on August 10, 2000, the Company entered into an
agreement and plan of merger with KBII Acquisition Company, Inc. and KBII
Holdings, Inc., pursuant to which the Board of Directors agreed to support the
tender offer by KBII Acquisition Company, Inc. for all of the outstanding shares
of BI common stock.
Arthur Andersen LLP
Denver, Colorado
August 10, 2000 (except with respect to the matter
discussed in Note 9, as to which the
date is August 16, 2000)
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of BI Incorporated:
In our opinion, the consolidated statements of operations, stockholders' equity
and cash flows for the year ended June 30, 1998 present fairly, in all material
respects, the results of operations and cash flows of BI Incorporated and its
subsidiaries for the year ended June 30, 1998, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of BI Incorporated and its subsidiaries for
any period subsequent to June 30, 1998.
PricewaterhouseCoopers LLP
Broomfield, Colorado
August 14, 1998
F-2
<PAGE>
BI INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash $ -- $ --
Receivables, net 13,673 14,444
Receivables from officers and employees 65 77
Income taxes receivable 1,211 --
Inventories, net 5,946 4,265
Investment in sales-type leases 3,338 3,662
Deferred tax asset 1,067 933
Prepaid expenses 817 660
-------- --------
Total current assets 26,117 24,041
Investment in sales-type leases 3,917 3,368
Rental and monitoring equipment, net 5,547 5,826
Property and equipment, net 8,470 13,854
Intangibles, net 11,402 11,998
Long term deferred tax asset 163 2,011
Investments in common stock 1,321 1,321
Software, net 6,383 2,960
Other assets 1,631 2,872
-------- --------
Total assets $ 64,951 $ 68,251
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,451 $ 2,516
Outstanding liabilities in excess of cash 883 971
Accrued compensation and benefits 3,226 2,673
Deferred revenue 1,789 1,535
Income taxes payable -- 215
Current portion of long-term debt 243 4,052
Other liabilities 830 1,419
-------- --------
Total current liabilities 8,422 13,381
Capital lease obligations 439 6,714
Deferred revenue 1,981 2,275
Long-term debt, net of current portion 6,146 --
Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 7,969 shares issued and
outstanding June 30, 2000, and 7,791
shares issued and outstanding June 30, 1999 36,075 34,996
Stockholder receivable (438) --
Retained earnings 12,326 10,885
-------- --------
47,963 45,881
-------- --------
Total liabilities and stockholders' equity $ 64,951 $ 68,251
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
For the year
ended June 30,
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues
Service and monitoring income $ 60,548 $ 56,049 $ 43,536
Direct sales 10,127 11,390 13,822
Rental income 1,246 854 742
Other income 160 74 526
-------- -------- --------
Total revenues 72,081 68,367 58,626
-------- -------- --------
Costs and expenses
Cost of service and monitoring income 34,669 28,591 22,486
Cost of direct sales 6,246 4,876 5,958
Cost of rental income 534 315 221
Selling, general and administrative expenses 21,943 20,185 17,278
Provision for doubtful accounts 1,576 1,927 1,806
Amortization and depreciation 3,181 3,352 3,080
Research and development expenses 1,422 1,943 2,417
-------- -------- --------
Total costs and expenses 69,571 61,189 53,246
-------- -------- --------
Income from continuing operations before income taxes 2,510 7,178 5,380
Income tax provision (1,069) (3,022) (2,394)
-------- -------- --------
Net income from continuing operations 1,441 4,156 2,986
Loss from results of discontinued operations,
net of tax -- (3,267) (315)
Loss on disposal of discontinued operations,
net of tax -- (835) --
-------- -------- --------
Net income $ 1,441 $ 54 $ 2,671
======== ======== ========
Basic earnings per share from continuing operations $ 0.18 $ 0.54 $ 0.40
======== ======== ========
Basic (loss) per share from discontinued operations $ -- $ (0.53) $ (0.04)
======== ======== ========
Basic earnings per share $ 0.18 $ 0.01 $ 0.36
======== ======== ========
Weighted average number of common shares outstanding 7,921 7,709 7,506
======== ======== ========
Diluted earnings per share from continuing operations $ 0.18 $ 0.52 $ 0.38
======== ======== ========
Diluted (loss) per share from discontinued operations $ -- $ (0.51) $ (0.04)
======== ======== ========
Diluted earnings per share $ 0.18 $ 0.01 $ 0.34
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 8,027 7,977 7,841
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------ Stockholder Retained
Shares Amount Receivable Earnings Total
------------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1997 7,417 $32,460 $ - $ 8,160 $ 40,620
Exercise of stock options 202 1,198 - - 1,198
Issuance of common stock pursuant to
stock purchase plan 21 145 - - 145
Tax benefit from exercise of stock options - 273 - - 273
Net income - - - 2,671 2,671
------------------ ------ -------- --------
Balance June 30, 1998 7,640 34,076 - 10,831 44,907
Exercise of stock options 125 663 - - 663
Issuance of common stock pursuant to
stock purchase plan 26 153 - - 153
Tax benefit from exercise of stock options - 104 - - 104
Net income - - - 54 54
------------------ ------ -------- --------
Balance June 30, 1999 7,791 34,996 - 10,885 45,881
Exercise of stock options 150 852 (438) - 414
Issuance of common stock pursuant to
stock purchase plan 28 157 - - 157
Tax benefit from exercise of stock options - 70 - - 70
Net income - - - 1,441 1,441
------------------ ------ -------- --------
Balance June 30, 2000 7,969 $36,075 $ (438) $12,326 $ 47,963
================== ====== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year
ended June 30,
---------------------------------
2000 1999 1998
---------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,441 $ 54 $ 2,671
Adjustments to reconcile net income to net cash
from operating activities:
Amortization and depreciation 7,942 7,352 7,133
Provision for doubtful accounts 1,576 1,927 1,806
Provision (benefit) from deferred income taxes 1,714 (990) (575)
Changes in assets and liabilities:
Receivables (670) (6,198) (4,080)
Investment in sales-type leases (225) 836 (1,109)
Inventories, net (1,681) (872) 425
Prepaid and other assets (363) (292) (197)
Accounts payable (1,160) 526 1,243
Accrued and other expenses (36) 1,517 669
Deferred revenue (89) (144) 501
Income taxes payable / receivable (1,426) (28) 217
Decrease in net assets of discontinued operations - 1,100 (1,619)
------- ------ -------
Net cash from operating activities 7,023 4,788 7,085
------- ------ -------
Cash flows from investing activities:
Purchases of property and equipment (2,875) (3,657) (4,607)
Purchases of rental and monitoring equipment (3,148) (3,968) (3,176)
Capitalization of software development costs (3,731) (3,238) (937)
Expenditures for licenses - (756) (623)
Cash paid for acquisitions net of cash acquired (517) 1,000 -
Proceeds from sale of investment 475 - -
Sale of short-term investments - - 450
------- ------ -------
Net cash used in investing activities (9,796) (10,619) (8,893)
------- ------ -------
Cash flows from financing activities:
Payments on capital lease obligation (141) (183) (83)
Proceeds from issuance of common stock 641 816 1,343
Proceeds from borrowings 2,273 4,052 -
------- ------ -------
Net cash from financing activities 2,773 4,685 1,260
------- ------ -------
Net change in cash - (1,146) (548)
Cash at beginning of period - 1,146 1,694
------- ------ -------
Cash at end of period $ - $ - $ 1,146
------- ------ -------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
<PAGE>
Note 1 - Operations and Summary of Significant Accounting Policies
BI Incorporated, a Colorado corporation, (the "Company") designs, manufactures,
markets and supports electronic monitoring systems and other automatic
identification devices. The Company provides 24-hour monitoring services using
equipment it manufactures. In addition, the Company provides probation services
to misdemeanant probationers and day reporting services to felony probationers.
These products and services are for use by corrections agencies as an integral
part of their community correction programs.
On October 1, 1999 the Company acquired two correctional service centers in New
Mexico specializing in Treatment and Drug Court services.
On August 10, 2000, the Company entered into an agreement and plan of merger
with KBII Acquisition Company, Inc. and KBII Holdings, Inc., pursuant to which
the Board of Directors agreed to support a tender offer by KBII Acquisition
Company, Inc. for all of the outstanding shares of BI Incorporated common stock.
See further discussion in Note 13.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany accounts have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain 1999 and 1998 financial statement amounts have been reclassified to
conform to the current year presentation.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash, accounts receivable and net investments in sales-
type leases. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral. Additionally, the
Company manages a portion of its credit risk by billing certain services in
advance. The Company has no significant financial instruments with off-balance
sheet risk of accounting loss, such as foreign exchange contracts, option
contracts, or other hedging arrangements.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable, net
investments in sales-type leases, investments in common stock, short-term trade
payables, and borrowings. In management's opinion, the carrying amounts of these
financial instruments, other than the investments in common stock, approximate
their fair values at June 30, 2000 and 1999, because of their short-term nature
and terms. The investment in common stock is carried at cost. Management has
estimated the fair value of the common stock at $1,863,000 and $1,374,000 as of
June 30, 2000 and 1999. The common stock held by the Company is a non-publicly
tradable class of stock, issued by a company with other classes of common stock
that is publicly traded. In making the estimate, management has assumed the fair
value of this common stock is driven by the market value of the publicly
tradable common stock. However, a 10% discount for illiquidity is assumed.
F-7
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid instruments purchased with original maturity of three months or
less to be cash equivalents.
Inventories
Inventories are stated at the lower-of-cost-or-market. Cost is determined using
the first-in, first-out ("FIFO") method.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives of three to seven years. Rental and
monitoring equipment are stated at cost and depreciated on a straight-line basis
over three years. Repair and maintenance expenses which do not extend the useful
lives of the related assets are expensed as incurred.
Intangibles
Goodwill represents the excess of purchase price over fair value of net assets
acquired and is amortized on a straight-line basis over periods of 10-20 years.
The Company's long-lived assets are reviewed for impairment whenever events and
circumstances warrant. A long-lived asset is deemed impaired if the future
undiscounted cash flows are insufficient to recover the carrying amount of the
asset. If impaired, the long-lived asset is reduced to its fair value.
Patents and licenses are amortized on a straight-line basis over 10-17 years.
The manufacturing technology is amortized over the greater of units of
production method or 10 years, on a straight-line basis. Amortization related to
goodwill, patents and licenses and the manufacturing technology was $1,100,000,
$971,000, and $1,484,000 in fiscal 2000, 1999, and 1998, respectively.
Capitalized Software
The Company capitalizes internally developed software costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of development costs of software products begins once the
technological feasibility of the product is established. Based on the Company's
product development process, technological feasibility is established upon
completion of a detailed program design. Capitalization ceases when such
software is ready for general release, at which time amortization of the
capitalized costs begins. Capitalized software costs are net of accumulated
amortization of $2,772,000, $2,463,000 and $2,647,000 as of 2000, 1999 and 1998,
respectively.
Amortization of capitalized internally developed software costs is computed as
the greater of: (a) the amount determined by ratio of the product's current
revenue to its total expected future revenue or (b) the straight-line method
over the product's estimated useful life of five years. During all periods
presented herein, the Company has used the straight-line method to amortize such
capitalized costs. Amortization of software costs was $308,000, $568,000 and
$531,000 in 2000, 1999 and 1998, respectively.
F-8
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Research and Development
Research and development costs relating principally to the design and
development of products (exclusive of software costs capitalized) are expensed
as incurred. The cost of developing routine enhancements are expensed as
research and development costs as incurred because of the short time between the
determination of technological feasibility and the date of general release of
related products.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", the Company reviews its long-lived
assets, including goodwill and other intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
generally measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is equal to the
amount by which the carrying amounts of the assets exceed the fair value of the
asset. The Company has not recorded a provision for possible impairment of long-
lived assets or intangible assets.
Investments in Common Stock
The Company's investment in common stock is currently in common stock that does
not have a readily determinable market value. These investments are accounted
for at the lower of cost or the estimated fair market value. The Company reviews
the valuation of the common stock on an ongoing basis. If the entity in which
the stock is issued from were to experience a deterioration in its financial
position, the recorded value of the common stock may be decreased.
Supplemental disclosures of cash flow information
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C>
Interest received $710,000 $ 595,000 $ 601,000
Interest paid 675,000 681,000 602,000
Income taxes paid,
net of refunds 731,000 1,384,000 2,230,000
</TABLE>
Interest received includes interest from sales-type leases, which is recognized
using the effective interest rate method, and classified with direct sales
revenue.
F-9
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Supplemental schedule of noncash investing and financing activities
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C>
Financial instruments received
in exchange for assets of
discontinued business unit $ - $2,073,000 $ -
Equipment acquired under
capital lease 585,000 - -
Issuance of Common Stock in
exchange for note receivable
from shareholder 438,000 - -
</TABLE>
Revenue recognition
Service and monitoring income is recorded monthly over the term of the contract
and any prepaid amounts are deferred. Product and sales-type lease direct sales
revenue is generally recorded upon shipment. Rental income associated with
operating leases is recorded monthly over the rental period. Probation and day
reporting service income is recognized monthly as the probation services are
provided. Revenue from software system sales relates primarily to discontinued
operations (Note 5), and was recognized using the percentage of completion
method.
The Company records the portion of future minimum sales-type lease payments
related to second and third year extended maintenance services as deferred
revenue. This revenue is recognized monthly, beginning in month thirteen of the
lease, over the remaining term of the lease. The costs of product warranties are
accrued at the time of product sales and are recorded based upon estimates of
costs to be incurred to repair or replace items under warranty.
Advertising Costs
The Company expenses advertising costs as incurred. The Company had advertising
expense of $101,000, $91,000 and $74,000 for the years ended June 30, 2000, 1999
and 1998, respectively.
Stock Based Compensation
The Company accounts for its employee stock option plan and other employee
stock-based compensation arrangements using the intrinsic value method but
discloses the proforma effect of using the fair value method. Under the
intrinsic value method, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price of the options.
Income Taxes
A current provision for income taxes is recorded for actual or estimated amounts
payable or refundable on tax returns filed or to be filed for each year.
Deferred income tax assets and liabilities are recorded for the expected future
income tax consequences, based on enacted tax laws, of temporary differences
between the financial
F-10
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
reporting and tax bases of assets and liabilities and carryforwards. The overall
change in deferred tax assets and liabilities for the period measures the
deferred tax expense for the period. Effects of changes in tax laws on deferred
tax assets and liabilities are reflected as adjustments to tax expense in the
period of enactment. Deferred tax assets are recognized for the expected future
tax effects of all deductible temporary differences, loss carryforwards and tax
credit carryforwards. Deferred tax assets are reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a period
from non-owner sources. For the years ended June 30, 2000 and 1999 there have
been no differences between the Company's comprehensive income and its net
income.
Net income (loss) per share
Basic earnings (loss) per share ("EPS") excludes all dilution and is based upon
the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Common equivalent shares are excluded in periods in which they have an
anti-dilutive effect. For 2000, 1999 and 1998, the difference between weighted
average shares outstanding - basic and weighted average shares outstanding -
diluted is attributable to outstanding options to purchase common stock
resulting in common stock equivalent shares of 106,000, 268,000 and 335,000,
respectively. Outstanding common stock equivalents of 1,498,000, 1,196,000 and
1,045,000 for 2000, 1999, and 1998, respectively, are anti-dilutive and have
been excluded from the weighted average shares-diluted.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133 - In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), and in June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB 133" ("SFAS No. 137"). SFAS No. 137 requires the Company
to adopt SFAS No. 133 for fiscal years beginning after June 15, 2000. SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. To date, the Company has not entered into any derivative financial
instruments or hedging activities.
Staff Accounting Bulletin No. 101 - During December 1999, the Securities and
Exchange Commission released Staff Accounting Bulletin 101, "Revenue
Recognition" ("SAB 101"), to establish guidelines for revenue recognition and
enhance revenue recognition disclosure requirements. SAB 101 clarifies basic
criteria for when revenues are taken into account for purposes of a company's
financial statements. SAB 101 is not required to be adopted by the Company until
the quarter ending June 30, 2001, with retroactive implementation to July 1,
2000. If the Company determines that its revenue recognition policies must
change to be in compliance with SAB 101, the implementation of SAB 101 will
require the Company to restate its quarterly results for 2001 to reflect the
cumulative effect of change in accounting principle as if SAB 101 had been
implemented on July 1, 2000. The Company is currently assessing the implications
of adopting SAB 101.
Statement of Position 98-1 - In March 1998, the American Institute of Certified
Public Accountants ("AICPA") issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-
1"). SOP 98-1 was effective for fiscal 2000. The adoption of SOP 98-1 did not
have a material impact on the Company's financial condition or results of
operations.
F-11
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
FASB Interpretation No. 44 - In March 2000, the FASB issued Interpretation No.
44 "Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25" ("FIN 44"). This interpretation provides
guidance for certain issues relating to the application of Opinion No. 25. This
interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after December 15, 1998 or
January 12, 2000. Management of the Company believes that the adoption of this
interpretation will not have a material impact on its consolidated financial
statements.
Note 2 - Receivables, Net Investment in Sales-Type Leases, and Operating Leases-
as Lessor
A significant portion of the Company's receivables and net investment in sales-
type leases is due from governmental agencies or divisions thereof. One of these
customers accounted for 9% of total revenue in 2000, 9% of total revenue in
1999, and 10% of total revenue in 1998.
Receivables
consist of the following (in thousands):
<TABLE>
<CAPTION>
As of June 30
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
Trade receivables $16,723 $16,954
Allowance for doubtful accounts (3,050) (2,510)
-----------------------------
$13,673 $14,444
=============================
</TABLE>
Net investment in sales-type leases
The components of the Company's net investment in sales-type leases are as
follows (in thousands):
<TABLE>
<CAPTION>
As of June 30
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Total minimum lease payments $ 8,128 $ 7,696
Less: Deferred revenue (873) (666)
-------------------------------
Net investment 7,255 7,030
Less: Current portion (3,338) (3,662)
-------------------------------
Long-term portion $ 3,917 $ 3,368
===============================
</TABLE>
Future minimum lease payments to be received under sales-type leases at June 30,
2000 are (in thousands) $3,866, $2,326, $1,301, $596, and $39 in fiscal 2001,
2002, 2003, 2004, and 2005, respectively.
Operating leases - as lessor
The Company offers short-term leases to its customers as an alternative to
buying its products. The lease term for operating leases is generally up to one
year, with payments due monthly, and the Company retains title to the equipment.
F-12
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Note 3 - Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
As of June 30
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Raw materials $3,836 $3,055
Work-in-process 896 715
Finished goods 1,547 845
---------------------------
6,279 4,615
Less: allowance for obsolescence (333) (350)
---------------------------
$5,946 $4,265
===========================
</TABLE>
Note 4 - Equipment and Intangibles
Rental and Monitoring Equipment
Rental and monitoring equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
As of June 30
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Rental equipment $ 2,323 $ 1,881
Monitoring equipment 22,382 19,720
----------------------------
24,705 21,601
Less: accumulated depreciation and amortization (19,158) (15,775)
----------------------------
$ 5,547 $ 5,826
============================
</TABLE>
Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
As of June 30
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Property and equipment $ 21,808 $ 25,488
Less: accumulated depreciation (13,338) (11,634)
-------------------------------
$ 8,470 $ 13,854
===============================
</TABLE>
F-13
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
As of June 30
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Goodwill $14,742 $14,258
Patents and licenses 1,767 2,649
Manufacturing technology 3,000 3,000
-------------------------------
19,509 19,907
Less: accumulated amortization (8,107) (7,909)
-------------------------------
$11,402 $11,998
===============================
</TABLE>
Note 5 - Discontinued Operations
In 1999, the Company decided to discontinue its CIS business unit and sold the
net assets. The CIS business unit's losses from its results of operations and
its disposal are presented in the Company's financial statements as discontinued
operations, net of related income taxes. The results of discontinued operations
include CIS's operating losses for 1999 ($709,000, net of taxes) plus an asset
impairment charge ($2,558,000, net of taxes), which was charged to income before
the Company adopted a formal plan to dispose of the business unit. Selling and
other additional costs that the Company expected to incur ($835,000, net of
taxes) which relate to the final sales contract were included in the loss on
disposal of discontinued operations. Revenue from the CIS business unit was
$3,574,000 and $3,375,000 in fiscal 1999 and 1998, respectively.
Note 6 - Borrowings and Lease Commitments
The Company has a $7,500,000 bank line of credit expiring in January 2002. At
June 30, 2000, the Company had borrowings of $5,000,000 bearing interest at the
LIBOR rate plus 1.95%, (8.56% at June 30, 2000) and $700,000 at the bank's prime
rate, (9.50% at June 30, 2000) outstanding against the line. Borrowings under
the line of credit are secured by inventory, equipment and accounts receivable.
The line of credit sets forth certain financial and other covenants, including
prior written consent to the payment of any dividends, that must be met by the
Company if indebted to the bank. The Company was not in compliance with the
covenants with respect to minimum net income as of June 30, 2000, however,
management has received a waiver from the bank with respect to compliance with
the covenant. The Company has $550,000 outstanding on a promissory note earning
interest on the unpaid balance at the bank's prime rate, (9.50% at June 30,
2000) and maturing in December 2004. The Company also has outstanding vehicle
loans totaling $139,000, as of June 30, 2000. The vehicle loans bear interest at
varying rates from 7.50% to 9.60% and mature between February 2002 and March
2005.
The Company leases two generators under a sixty month capital lease expiring
November 2004. The interest rate is 9.29% and the unpaid balance is $302,000 at
June 30, 2000. The Company also leases Telephone System Equipment under a sixty
month capital lease that expires October 2000. The interest rate is 8.88% and
the unpaid balance is $218,000 as of June 30, 2000.
The Company leases office space and certain equipment under operating leases.
Rental expense was $3,707,000, $2,182,000, and $933,000 for fiscal 2000, 1999
and 1998, respectively. Minimum rental payments required
F-14
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of June 30, 1999 are $3,169,000, $2,515,000,
$1,924,000, $1,836,000, and $1,632,000 in fiscal 2001, 2002, 2003, 2004, and
2005, respectively
Note 7 - Income Taxes
The provision for income taxes attributable to income from continuing operations
is comprised of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision
(benefit)
Federal $ (568) $3,434 $2,285
State (39) 498 466
Foreign (38) 80 218
Deferred provision
(benefit)
Federal 1,708 (950) (684)
State 142 (54) (69)
Change in valuation
allowance (136) 14 178
------------------------------------------------------------------------
$1,069 $3,022 $2,394
========================================================================
</TABLE>
A reconciliation of income tax provision computed by applying the federal income
tax rate of 34% to income from continuing operations before income taxes is as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Expected statutory rate $ 853 $ 2,441 $ 1,829
State taxes, net 82 331 245
Goodwill amortization 335 327 286
Tax exempt interest on
Sales-type leases (112) (121) (99)
Increase (decrease) of
valuation allowance (136) 14 178
Other, net 47 30 (45)
----------------------------------------------------------
$ 1,069 $ 3,022 $ 2,394
==========================================================
</TABLE>
F-15
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
The income tax benefit attributable to income from discontinued operations is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Current benefit
Federal $ - $(2,315) $(220)
State - (341) (32)
------------------------------------------------------
$ - $(2,656) $(220)
======================================================
</TABLE>
The provision for income taxes is attributable to continuing operations and
discontinued operations as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------
<S> <C> <C> <C>
Provision attritutable to continuing
operations $1,069 $ 3,022 $2,394
Benefit attributable to discounted - (2,656) (252)
----------------------------------
Total income tax provision $1,069 $ 366 $2,142
==================================
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities for fiscal 2000 and 1999 were as follows (in thousands):
<TABLE>
2000 1999
-------------------------------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 123 $ 339
Accrued liabilities 587 390
Amortization and depreciation 1,867 1,756
Bad debt 1,070 866
Accrued rent 356 346
Maintenance - unearned revenue 79 74
Other - miscellaneous 226 217
-------------------------------
Total deferred tax asset 4,308 3,988
Deferred tax liabilities:
Deferred revenue (342) (222)
Capitalized software (2,548) (526)
Other (132) (104)
-------------------------------
Total deferred tax liabilities (3,022) (852)
-------------------------------
Valuation allowance (56) (192)
--------------------------------
Net deferred tax asset 1,230 2,944
Less current deferred tax asset (1,067) (933)
--------------------------------
Long-term deferred tax asset $ 163 $2,011
================================
</TABLE>
F-16
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
At June 30, 2000, 1999 and 1998, the Company had foreign tax credit
carryforwards for income tax purposes of $123,000, $339,000 and $208,000,
respectively. These would expire in fiscal year 2001 through fiscal year 2005 if
not utilized. Due to the uncertainty relating to the realization of the benefit
of the tax credits, a valuation allowance has been recorded for a portion of the
amounts.
Note 8 - Employee Benefit Plans, Options and Warrants
The Company has three stock option plans, the 1991 Stock Option Plan (the "1991
Plan"), the 1996 Stock Option Plan (the "1996 Plan"), and the 1999 Stock Option
Plan (the "1999 Plan"). The 1991 Plan and the 1996 Plan have expired, although
outstanding options are still being exercised.
Under the Company's 1999 Stock Option Plan, the Company may grant options to its
employees and directors. Under the Plan, options are granted at an exercise
price equal to the fair market value of the Company's common stock on the grant
date and the options expire in 10 years or less.
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in fiscal 2000, 1999 and 1998, respectively:
No estimated dividends; expected volatility of 47.3%, 57.9% and 56.9% for 2000,
1999 and 1998, respectively; risk-free interest rates between 6.01% and 6.76%
for 2000, 4.74% and 6.13% for 1999, and 5.44% and 5.95% for 1998; and expected
option terms between 7 and 10 years for 2000, 1999 and 1998.
Had compensation cost for the Company's stock based compensation plans been
determined based on the fair value at the grant dates for award under those
plans, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $1,441 $ 54 $2,671
Proforma 324 (1,017) 1,696
Net income (loss) per share - basic:
As reported .18 .01 .36
Proforma .04 (.13) .23
Net income (loss) per share - diluted:
As reported .18 .01 .34
Proforma .04 (.13) .22
</TABLE>
F-17
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
The following table summarizes option transactions under all six plans during
each of the three years ending June 30, 2000 (shares in thousands):
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
-----------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, June 30, 1997 1,359 $6.34
Granted 278 8.29
Exercised (202) 5.94
Canceled (58) 6.70
-----------------------------------------------------------------------------------
Outstanding, June 30, 1998 1,377 6.78
Granted 220 9.90
Exercised (125) 5.32
Canceled (9) 6.59
-----------------------------------------------------------------------------------
Outstanding, June 30, 1999 1,463 7.37
Granted 412 7.43
Exercised (150) 5.62
Canceled (122) 8.18
-----------------------------------------------------------------------------------
Outstanding, June 30, 2000 1,603 $7.49
===================================================================================
</TABLE>
The weighted average fair value of options granted during 2000, 1999, and 1998
was $4.34, $7.83, and $5.41, respectively.
The following table summarizes information about fixed stock options outstanding
at June 30, 2000 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ------------------------------------------
Weighted Average
Number Outstanding Remaining Weighted Average Number Exercisable Weighted Average
Range of at June 30, Contractual Life Exercise Price at June 30, Exercise Price
Exercise Prices 2000 2000
------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.19 - 4.88 57 1.2 years $ 4.19 57 $ 4.19
$5.50-6.88 305 3.9 years $ 6.63 193 $ 6.59
$7.00-7.25 880 6.0 years $ 7.12 607 $ 7.04
$8.00-9.38 163 5.7 years $ 8.64 80 $ 8.84
$10.13-11.88 198 5.2 years $10.43 81 $10.41
------------------------------------------------------------------------------- ------------------------------------------
$4.19-11.88 1,603 5.3 years $ 7.49 1,018 $ 7.21
</TABLE>
F-18
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Employee Stock Purchase Plan
In July 1990, the Board of Directors adopted an Employee Stock Purchase Plan
("Purchase Plan") offering employees the right to collectively purchase a
maximum of 200,000 shares of the Company's common stock. The maximum amount of
shares available for purchase in any six month period is 50,000 shares. Eligible
employees may contribute up to 10% of their base pay towards the purchase of the
Company's common stock at 85% of the lower of the average market price on the
first or the last day of the offering period. Proceeds received from the
issuance of shares under the Purchase Plan are credited to stockholder's equity
in the fiscal year shares are issued. Under the Purchase Plan, the Company sold
28,000, 26,000, and 21,000 shares to employees in 2000, 1999, and 1998,
respectively.
Employee Savings Plan
The Company has a 401(k) savings plan whereby the Company matches, subject to
certain limits, $.20 for each $1.00 employees contribute up to a maximum of 5%
of compensation. Total Company contributions during fiscal 2000, 1999, and 1998
were $164,000, $105,000, and $80,000, respectively.
Note 9 - Legal Proceedings
The Company is involved in six legal proceedings as of June 30, 2000. One
alleges general negligence and misrepresentation; one alleges wrongful death
from general negligence; a third suit alleges wrongful death, survivorship
action, and a civil rights violation; and two suits claiming "false arrest". One
of the claimants seeks damages of $17,000,000, the second seeks damages in
excess of $100,000, (a motion for summary judgement has been entered on our
behalf with respect to this suit), another seeks $10,500,000, and the final two
are demands of $300,000 and $400,000 respectively.
On August 16, 2000, the Company became a party to a complaint filed against it
and certain of its officers and directors by M. Dean Briggs on behalf of himself
and All Other Similarly Situated in the District Court, County of Boulder,
Colorado. The complaint is based on BI's acceptance of a tender offer from KBII
Acquisition Company, Inc., a private merchant banking firm, to acquire all the
outstanding common stock. Allegations include: (a) the transaction will deny the
BI's public shareholders from sharing in the future profitability of the
Company, (b) it will result in a reduction in the value of stock, (c) lack of
open bidding (market check) to ascertain true value, (d) conflict of interest by
management and, (e) breach of fiduciary duty.
Management believes the Company has adequate legal defenses and/or insurance
coverage against all claims and intends to defend them vigorously. There can be
no assurances however, that any individual case will result in an outcome
favorable to the Company. In the event of any adverse outcome, neither the
amount nor the likelihood of any potential liability which might result is
reasonably estimable. The Company currently believes that the amount of the
ultimate potential loss would not be material to the Company's financial
position or results of operations. However, an adverse future outcome in any
individual case, including legal defense costs, could have a material effect on
the Company's reported results of operations in a particular quarter.
F-19
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Note 10 - Segment Information
The Company's two reportable segments, Electronic Monitoring ("EM") and
Community Correctional Services ("CCS"), are strategic business units that offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are insignificant. The Company evaluates
performance based on operating earnings of the respective business units.
Receivables and inventories are reported by segment, but other balance sheet
information is not reported, since the Company does not produce such information
Summarized financial information concerning the Company's reportable segments of
continuing operations is shown in the following table (in thousands):
<TABLE>
<CAPTION>
For the years ended June 30, EM CCS Total
-----------------------------------------
<S> <C> <C> <C>
1998
Revenues $41,938 $16,688 $58,626
Segment income before taxes 6,133 (753) 5,380
Segment net income 3,404 (418) 2,986
Receivables, net 9,110 1,140 10,250
Inventories, net 3,393 - 3,393
1999
Revenues $45,698 $22,669 $68,367
Segment income before taxes 5,688 1,490 7,178
Segment net income 3,293 863 4,156
Receivables, net 10,824 3,697 14,521
Inventories, net 4,265 - 4,265
2000
Revenues $45,386 $26,695 $72,081
Segment income before taxes (219) 2,729 2,510
Segment net income (126) 1,567 1,441
Receivables, net 8,290 5,448 13,738
Inventories, net 5,946 - 5,946
</TABLE>
The following table is a reconciliation of the Company's Segment assets to its
total assets (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------------------------
<S> <C> <C>
Segment Assets:
Receivables, net $13,738 $14,521
Inventories, net 5,946 4,265
Other unallocated current assets 6,433 5,255
--------------------------
Total current assets 26,117 24,041
Long-term assets 38,834 44,210
--------------------------
Total assets $64,951 $68,251
==========================
</TABLE>
F-20
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Note 11 - Related Party Transactions
The Company sold products to JEMTEC, Inc. for $85,000, $219,000, and $75,000 for
2000, 1999 and 1998, respectively. The Chairman of the Company is also Chairman
of JEMTEC, Inc.
Note 12 - Quarterly Financial Information (unaudited)
The following interim financial information presents the fiscal year 1999 and
2000 results of continuing operations on a quarterly basis (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Fiscal quarters ended
9/30/98 12/31/98 3/31/99 6/30/99
----------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 15,721 $ 17,202 $ 17,542 $ 17,902
Total costs and expenses 14,810 16,047 16,331 17,023
----------------------------------------------------
Net income from continuing
operations $ 911 $ 1,155 $ 1,211 $ 879
====================================================
Diluted earnings per share from
continuing operations $ 0.11 $ 0.14 $ 0.16 $ 0.11
====================================================
Fiscal quarters ended
9/30/99 12/31/99 3/31/00 6/30/00
----------------------------------------------------
Total revenue $ 17,715 $ 18,300 $ 18,300 $ 17,766
Total costs and expenses 17,099 18,065 17,794 17,682
----------------------------------------------------
Net income from continuing
operations $ 616 $ 235 $ 506 $ 84
====================================================
Diluted earnings per share from
continuing operations $ 0.08 $ 0.03 $ 0.06 $ 0.01
====================================================
</TABLE>
Note 13 - Subsequent Events
In July 2000, BI acquired Intervention Court Services, L.L.C., and Insights
Counseling Services, Inc., Utah and Colorado based providers of EM and CCS
services (collectively "Intervention"). Intervention provides management and
administration services which include programs consisting of court compliance
supervision, electronic monitoring, remote alcohol testing, intensive alcohol
and domestic violence supervision programs, and drug testing. These acquisitions
increase the Company's market presence in the Rocky Mountain region of the U.S.
and further expand the offender supervision scope of the business.
On August 10, 2000, the Company entered into an agreement and plan of merger
with KBII Acquisition Company, Inc. and KBII Holdings, Inc., pursuant to which
the Board of Directors agreed to support a tender offer by KBII Acquisition
Company, Inc. for all of the outstanding shares of BI common stock at a price of
$8.25 per share. This offer is set to expire on October 3, 2000. There are
certain minimum conditions that must be met for the transaction to be completed.
If the merger is completed, it is expected that the debt and equity of the
Company will be restructured.
F-21
<PAGE>
SCHEDULE II
(in thousands)
Allowance for losses on Accounts Receivable:
<TABLE>
<CAPTION>
=============================================================================================================================
Balance
beginning of Charged to cost Beginning Balance Balance at end of
period and expenses at Acquisition Write offs period
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7-1-97 - 6-30-98 $ 1,760 $ 1,806 $ - $(2,250) $1,316
7-1-98 - 6-30-99 $ 1,316 $ 1,927 $ - $ (733) $2,510
-----------------------------------------------------------------------------------------------------------------------------
7-1-99 - 6-30-00 $ 2,510 $ 1,576 $ - $(1,036) $3,050
=============================================================================================================================
</TABLE>
F-22
<PAGE>
(c) Exhibits:
3.1 Articles of Incorporation, as amended, of the Registrant, as filed
with and incorporated by reference from the Company's Proxy Statement
for the Annual Meeting of Shareholders held November 7, 1991.
3.2 Bylaws, as amended, of the Registrant, as filed with and incorporated
by reference from the Company's Registration Statement on Form S-18
(Registration No. 2-82311-D) effective May 4, 1983.
4.1 Form of Common Stock Certificate, as filed with and incorporated by
reference from the Company's Registration Statement on Form S-1
(Registration No. 33-36683) filed September 4, 1990.
*4.2 BI Incorporated 1991 Employee Stock Purchase Plan.
4.3 BI Incorporated 1991 Stock Option Plan. Filed with the Commission on
December 20, 1991 as an exhibit to Form S-8, and modified by exhibit
to Form S-8, filed with the Commission on April 28, 1993, and
incorporated by reference, and modified by exhibit to Form S-8, filed
with the Commission on March 2, 1995, and incorporated by reference.
4.4 BI Incorporated 1996 Stock Option Plan, as filed with and
incorporated by reference from the Company's registration statement
on Form S-8, as exhibit 4.1, as filed with the Commission on May 21,
1999.
10.1 Form of Employment Agreement, previously filed with the Commission as
an exhibit to 1994 Form 10-K and incorporated by reference.
10.2 Property lease between the Company and Terrence J. O'Connor
(landlord) dated May 15, 1990 with Addendum's dated February 9, 1996
and October 10, 1996 concerning building located at 6400 Lookout
Road, Boulder, Colorado, 80301, as filed with and incorporated by
reference on Form 10-K for the fiscal year ended June 30, 1998
(incorporated by reference to the liked numbered exhibit filed with
the Company's report on Form 10K for the Fiscal Year ender June 30,
1999 filed on September 24, 1999).
10.3 Property leases between the Company and Point II, LLC (landlord)
concerning building located at 6325 Gunpark Drive, Boulder, Colorado,
80301 dated February 9, 1996 with Addendum's dated June 13, 1996 and
February 26, 1997 and lease dated February 21, 1997, as filed with
and incorporated by reference from exhibit 4.8 to the Company's
Annual Report on form 10-K for the fiscal year ended June 30, 1998
(incorporated by reference to the liked numbered exhibit filed with
the Company's report on Form 10K for the Fiscal Year ender June 30,
1999 filed on September 24, 1999).
<PAGE>
10.4 Agreement and Plan of Merger dated as of August 10, 2000 among KBII
Holdings, Inc., KBII Acquisition Company and the Company, as filed
with and incorporated by reference from exhibit (d)(1) to the
Schedule TO filed by KBII Holdings, Inc., and KBII Acquisition
Company on August 18, 2000.
10.5 Form of side letter, to be entered into in substantially same form at
or prior to the consummation of the merger of the Company and KBII
Acquisition Company, among KBII Acquisition Company, KBII Holdings,
Inc., and certain shareholders of the Company, as filed with and
incorporated by reference to exhibit (d)(2) to the Schedule TO filed
by KBII Holdings, Inc., and KBII Acquisition Company on August 18,
2000.
10.6 Stock Voting and Tender Agreement dated as of August 10, 2000, among
KBII Acquisition Company, KBII Holdings, Inc., and certain
shareholders of the Company, as filed and incorporated by reference
to exhibit (d)(3) to the Schedule TO filed by KBII Holdings, Inc.,
and KBII Acquisition Company on August 18, 2000.
10.7 Form of Separation Policy, to be entered into in substantially same
form at or prior to the consummation of the merger of the Company and
KBII Acquisition Company, as filed and incorporated by reference to
exhibit (d)(4) to the Schedule TO filed by KBII Holdings, Inc., and
KBII Acquisition Company on August 18, 2000.
10.8 Confidentiality Agreement between Kohlberg & Co., L.L.C. and the
Company, dated as of January 21, 2000, as filed and incorporated by
reference to exhibit (d)(5) to the Schedule TO filed by KBII
Holdings, Inc., and KBII Acquisition Company on August 18, 2000.
10.9 Amended and Restated Rights Plan dated December 1, 1999, as amended
August 9, 2000, as filed and incorporated by reference to the
Schedule 14D-9 filed by the Company on August 18, 2000.
10.10 Form of Stockholders' Agreement for KBII Holdings, Inc., to be
entered into in substantially same form at or prior to the
consummation of the merger of the Company and KBII Acquisition
Company, as filed and incorporated by reference to exhibit (d)(6) to
the Schedule TO filed by KBII Holdings, Inc., and KBII Acquisition
Company on August 18, 2000.
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of PriceWaterhouseCoopers LLP
___________
<PAGE>
* Filed herewith
In the event that you have received a copy of this Annual Report on Form 10-K
which does not contain exhibits, the Company will, upon written request directed
to Investor Relations at the Company's principal offices referred to on the 10-k
cover page, provide a copy of any exhibit filed as part of this report upon
payment of a reasonable fee.
