UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 30, 1995
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
------- -------
Commission file number 0-17885
B E I E L E C T R O N I C S, I N C.
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
- -------------------------------- --------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
-------------------------------
(Address of principal executive offices)
(415) 956-4477
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 6,889,957 shares as of January 26, 1996
Page 1 of 14
<PAGE>
BEI ELECTRONICS , INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--December 30, 1995 3
and September 30, 1995
Condensed Consolidated Statements of Operations--Quarter 4
ended December 30, 1995 and December 31, 1994
Condensed Consolidated Statements of Cash Flows--Quarter 5
ended December 30, 1995 and December 31, 1994
Notes to Condensed Consolidated Financial Statements-- 6
December 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third Amendment to Note Agreement dated
December 29, 1995 between BEI
Electronics, Inc. and Principal Mutual
Life Insurance Company, Berkshire Life
Insurance Company and TMG Life Insurance
Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended December 30, 1995.
SIGNATURES 14
Page 2 of 14
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 30, September 30,
1995 1995
(Unaudited) (Note)
(dollars in thousands)
- --------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $7,685 $11,690
Trade receivables, net 17,244 18,860
Inventories, net -- Note B 20,376 20,482
Other current assets 5,876 5,978
Current assets of Hydra 70 Rocket line of business, net --
Note C 8,328 6,820
--------------------- ---------------------
Total current assets 59,509 63,830
Property, plant and equipment, net 23,351 23,457
Acquired technology -- Note E 7,870 8,125
Goodwill 4,759 4,833
Other assets, net 9,746 10,065
Non-current assets of Hydra 70 Rocket line of business --
Note C 3,228 3,428
--------------------- ---------------------
$108,463 $113,738
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $4,173 $8,092
Accrued expenses and other liabilities 14,801 16,602
Current portion of long-term debt 5,829 259
Current liabilities of Hydra 70 Rocket line of business --
Note C 3,139 2,954
--------------------- ---------------------
Total current liabilities 27,942 27,907
Long-term debt, less current portion 24,519 30,157
Deferred income taxes and other liabilities 2,342 2,355
Stockholders' equity less treasury stock 53,660 53,319
--------------------- ---------------------
$108,463 $113,738
===================== =====================
<FN>
See notes to condensed consolidated financial statements.
Note: The balance sheet at September 30, 1995 has been derived from the audited consolidated balance sheet at that
date.
</FN>
</TABLE>
Page 3 of 14
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
----------------------------------------------------
December 30, December 31,
1995 1994
(dollars in thousands except per share amounts)
- --------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
Net sales $34,666 $36,698
Cost of sales 24,547 26,786
--------------------- ---------------------
10,119 9,912
Selling, general and administrative expenses 7,813 8,667
Research, development and related expenses 1,220 1,282
--------------------- ---------------------
Income (loss) from operations 1,086 (37)
Interest expense 647 655
Other income 112 42
--------------------- ---------------------
Income (loss) before income taxes 551 (650)
Provision (benefit) for income taxes 198 (205)
--------------------- ---------------------
Net income (loss) $353 ($445)
===================== =====================
Earnings (loss) per common share and common
share equivalents -- Note D $0.05 ($0.07)
===================== =====================
Weighted average shares outstanding 7,074 6,690
===================== =====================
Dividends per common share $0.02 $0.02
===================== =====================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 4 of 14
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
----------------------------------------------------
December 30, December 31,
1995 1994
(dollars in thousands)
- --------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
Net cash used in operating activities ($2,908) ($1,429)
Cash flows from investing activities:
Purchases of property, plant and
equipment (970) (994)
(Increase) decrease in other assets (11) 107
--------------------- ---------------------
Net cash used in investing activities (981) (887)
Cash flows from financing activities:
Borrowings from line of credit agreement -- 1,500
Payments on line of credit -- (1,500)
Payments on long-term debt (40) (37)
Proceeds from issuance of common stock 62 7
Payment of cash dividends (138) (133)
--------------------- ---------------------
Net cash used in financing activities (116) (170)
--------------------- ---------------------
Net decrease in cash and cash equivalents (4,005) (2,486)
Cash and cash equivalents at beginning of period 11,690 4,197
--------------------- ---------------------
Cash and cash equivalents at end of period $7,685 $1,718
===================== =====================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 5 of 14
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 30, 1995
NOTE A -- BASIS OF PRESENTATION
<TABLE>
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
September 28, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's annual report on Form 10-K for
the year ended September 30, 1995.
NOTE B--INVENTORIES
<CAPTION>
December 30, September 30,
1995 1995
(dollars in thousands)
- --------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
Finished products $1,609 $1,607
Work in process 5,866 6,085
Materials 9,246 9,991
Costs incurred under long-term contracts,
including U.S. Government contracts 23,274 26,269
Unapplied progress payments (12,574) (17,621)
--------------------- ---------------------
Net inventories $27,421 $26,331
Inventories included in current assets of Hydra 70 rocket
line of business, net of progress payments of $12,574 and
$17,621 $7,045 $5,849
--------------------- ---------------------
$20,376 $20,482
===================== =====================
</TABLE>
Page 6 of 14
<PAGE>
NOTE C -- HYDRA 70 ROCKET CONTRACT
In September 1995, management of the Company reached the decision to exit the
rocket manufacturing line of business which makes up a substantial portion of
the Defense Systems segment. The principal product comprising this line of
business is the HYDRA 70 (H 70) Rocket. For further information, see Note C to
Consolidated Financial Statements for the fiscal year ended September 30, 1995.
At September 30,1995, the Company accrued a total of $1.2 million to provide for
shut down costs such as employee severance and facilities closure. There were no
additional amounts accrued during the quarter ended December 30, 1995.
Defense Systems segment total sales of $10.1 million for the quarter ended
December 30, 1995 consisted of $9.0 million of H 70 sales and $1.1 million in
sales of other products. Net sales for the comparable period in fiscal 1995 was
$13.5 million, including H 70 sales of $12.3 million and other sales of $1.2
million.
<TABLE>
Operating profit for the segment was $0.4 million and $0.5 million for the
quarters ended December 30, 1995 and December 31, 1994, respectively.
NOTE D--EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
<CAPTION>
Quarter Ended
----------------------------------------------------
December 30, December 31,
1995 1994
(dollars in thousands except per share amounts)
- --------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
Weighted average shares outstanding 6,831 6,690
Net effect of dilutive stock options
based on the treasury stock method 243 --
--------------------- ---------------------
Total weighted average shares outstanding 7,074 6,690
===================== =====================
Net income (loss) $353 ($445)
===================== =====================
Earnings (loss) per common share and common
share equivalents $0.05 ($0.07)
===================== =====================
</TABLE>
Earnings per common share and common share equivalents are computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Loss per common share is based
on the weighted average number of common shares only, as any assumption of
conversion of options would be antidilutive.
Page 7 of 14
<PAGE>
NOTE E--CONTINGENCIES AND LITIGATION
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In connection with the acquisition of assets from Systron Donner Corporation
during fiscal 1990, a subsidiary of the Company assumed an obligation to pay
former shareholders of General Precision Industries (GPI) $4.3 million if
certain levels of confirmed orders and shipments are achieved for products
developed using technology acquired from GPI in 1986 under a license agreement
which expires in 2003. The technology acquired was assigned a value of $5.6
million for the purchase price allocation for the acquisition.
In September of 1991, the Licensor of the patent on which the Company's quartz
technology is based advised the Company that royalties in excess of the amounts
previously paid by the Company were due. The amount of royalties involved was
approximately $400,000. The Company advised the Licensor that based on its
understanding of the license agreement no additional amounts were due. The
Licensor alleged that nonpayment of the royalties due would give the Licensor
the right to terminate the license agreement. The parties were unable to resolve
these differences. Accordingly, the Company elected to exercise the provision of
the license agreement which required arbitration of any disputes between the
parties to the agreement.
In June of 1993, the Company and the Licensor filed briefs with the arbitration
panel. The Licensor alleged in its brief that the amount of royalties, milestone
payments and accrued interest due as of September 30, 1992 was approximately
$10.0 million (including the $4.3 million described above), and asked the
arbitration panel to rule that the license could be terminated based on
noncompliance by the Company with the terms of the license agreement.
The Company asked the arbitration panel to rule that the amounts of the
royalties paid by the Company had been properly determined by the Company, that
the original license agreement should be reformed to reduce the royalties due on
future sales as a result of failure by the Licensor to disclose certain matters
which significantly impacted the Company's timely ability to employ the licensed
patent on production units and that the license was not subject to termination.
The arbitration process is ongoing. The arbitration panel bifurcated the issues
in the arbitration, and issued an interim ruling in February 1995. In that
interim ruling, which will become final at the close of the arbitration, the
Panel concluded that the license agreement was not subject to termination, that
non-recurring engineering revenues were not royalty-bearing, and that $1 million
of the $4.3 million discussed above is due only if certain conditions are met in
the future. The Panel also concluded that the Company is entitled to ownership
of an accelerometer patent that the former Shareholders developed. Further, in
September 1995, the panel ruled that certain development costs incurred by the
Company could not be used to offset accrued royalties. As a result, in September
1995, the Company accrued $3.5 million for royalties and related costs based on
its understanding of the amounts due under the panel's September ruling. The
estimate of royalties and related amounts due under the license agreement are
based on the Company's proposal to the panel and are significantly less than
amounts proposed by the Licensor. Under the panel's February ruling, $3.3
million of the $4.3 million became due. This amount, which is considered part of
the original acquisition cost of the technology, was accrued in February 1995,
paid in October 1995, and is being amortized over the remaining term of the
license.
Page 8 of 14
<PAGE>
The second phase of the arbitration continues with further arguments having
occurred in December 1995. This phase involves the final determination of
royalty amounts due for unit sales of product using the acquired technology and
other matters including the parties' respective claims for attorneys' fees. In
the event that the arbitration panel rules that the Company's liability is more
or less than the $3.5 million accrued, an adjustment to the September 30, 1995
estimate will be required. While the final outcome of this matter cannot be
determined with certainty, management believes, taking all factors into account
and after consultation with legal counsel, that this matter will not result in a
material adverse impact on the financial position of the Company.
Hydra-70 Rocket Contract Related Contingencies
In October 1995, the Company's Defense Systems subsidiary received notification
from the Procuring Contracting officer for the Hydra 70 (H 70) Rocket Systems
Contract that the Government considered that Defense Systems had failed to
maintain satisfactory fuze production which was endangering performance of the
subject contract. More recently, Defense Systems has received Government
acceptance on subsequent fuze lot production and has received additional
progress payments and the Government has accepted deliveries under the contract.
Based on the information available, management of the Company believes, after
consultation with legal counsel specializing in government procurement law, that
the outcome of this matter will not have a material impact on the financial
position or the results of operations of the Company.
State of California Department of Toxic Substance Control vs. Southland Oil,
Inc. et al.
In October 1993, the State of California filed a first amended complaint against
a division of the Company and fifty-two other defendants. The complaint seeks
recovery of response costs incurred by the State at a waste oil recycling
facility in Commerce, California (the"Site"). The litigation with the State was
settled in principle in 1995, requiring a dismissal of the action following the
payment by defendants to the State of $2.6 million to settle all past and future
response costs at the Site (as well as all other alleged damages). The
defendants believe that there are additional parties that should be liable for
the settlement amount, and some of the defendants (including the Company) have
filed a third party claim against these other parties. There has not yet been an
allocation of the $2.6 million settlement amount either among the defendants or
between the defendants and the third party defendants. Recent formulas that have
been proposed for settlement and that have been discussed by the defendants and
the third party defendants would result in the Company's share of the settlement
amount being set at less than $20,000. While the outcome of this matter cannot
be determined with certainty, management believes, after consultation with legal
counsel, that the ultimate resolution will not have a material adverse impact on
the financial position of the Company.
CooperSurgical Inc., vs. BEI Medical Systems Company, Inc. et al.
In October 1993, CooperSurgical, Inc. a subsidiary of the Cooper Companies,
filed a claim for unspecified damages alleging unfair competition due to actions
by BEI Medical Systems and Richard Turner, its president, a former employee of
the Cooper Companies, and others. On May 16, 1994, the Chancery Division for the
Superior Court of New Jersey granted a partial summary judgment in favor of the
plaintiff and issued an injunction against the defendants restraining them from
selling certain products until June 20, 1996. In September 1994, BEI Medical
Systems filed a motion to vacate the May 16, 1994 order. On November 28, 1994,
the Court vacated the restraint order.
Page 9 of 14
<PAGE>
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated.
Expert witnesses for BEI have prepared a formal response to the CooperSurgical
damage claims which was submitted in February 1995. While the outcome of this
matter cannot be determined at this time, management believes, taking known
factors into account and after consultation with legal counsel, that this matter
will not result in a material adverse impact on the financial position of the
Company.
Other
The Company has pending various legal actions arising in the normal course of
business. None of these legal actions is expected to have a material effect on
the Company's operating results or financial condition.
Page 10 of 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Consolidated
Statements of Operations.
<CAPTION>
Quarter Ended
-------------------------------------------------------
December 30, December 31,
1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 70.8 73.0
------------------ -------------------
Gross profit 29.2 27.0
Operating expenses
Selling, general and administrative expenses 22.5 23.6
Research, development and related expenses 3.5 3.5
------------------ -------------------
Income (loss) from operations 3.2 (0.1)
Interest expense 1.9 1.8
Other income 0.3 0.1
------------------ -------------------
Income (loss) before income taxes 1.6 (1.8)
Provision for income taxes (credit) 0.6 (0.6)
------------------ -------------------
Net income (loss) 1.0% (1.2)%
================== ===================
</TABLE>
QUARTER ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
Net sales for the first quarter of fiscal 1996, ended December 30, 1995,
decreased $2.0 million or 5.5% from the same period in fiscal 1995.
Defense Systems segment net sales decreased $3.4 million or 24.9% in the first
quarter of fiscal 1996 compared to the same period in the prior year. The
decrease was primarily the result of the expected decline in the volume of
rocket motors and warheads associated with the completion of existing backlog,
prior to shut down of the rocket line of business later in FY 1996. The backlog
of orders for the H 70 rocket related sales of the Defense Systems segment at
the end of December 1995 was $23.6 million.
Sensors & Systems segment sales volume increased $1.5 million or 7.3% from the
first quarter of 1995. The sales increase reflects a 20% improvement in
commercial sales, specifically in the industrial and automotive markets. This
was offset, in part, by a 3.9% decline in government sales.
Consolidated cost of sales as a percentage of net sales was lower in the first
quarter of fiscal 1996 versus the comparable period of fiscal 1995 primarily due
to Defense Systems segment experiencing
Page 11 of 14
<PAGE>
a decline in cost of sales as a percentage of sales due to shipments of higher
margin products on contracts dating prior to the Hydra 70 Rocket Systems
Contract.
Selling, general and administrative expenses as a percentage of net sales
decreased in the first quarter of fiscal 1996 versus the comparable period of
fiscal 1995, due to reduced levels of spending in the Sensors and Systems
segment and in Corporate.
Research, development and related expenses as a percentage of net sales for the
first quarter of fiscal 1996 remained flat due to an increase in the Medical
Systems segment partially offset by reduced levels of spending in the Sensors
and Systems segment.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1996, total cash used by operations was $2.9
million, including net income of $0.4 million and the positive impact of
non-cash charges to income from depreciation of $1.2 million and amortization of
$0.7 million. Cash generated from operating activities included receivables
collections of $1.6 million. Gross inventory was reduced by $4.0 million which
was offset by a corresponding decline in progress payments received of $5.0
million resulting in a net cash outflow of $1.0 million. Trade payables and
accrued expenses decreased using $5.7 million in cash, including a $3.3 million
deferred payment for acquisition of the quartz rate sensor technology, which was
accrued in fiscal 1995 due to the GPI arbitration (see discussion under Note
E--Contingencies and Litigation).
Cash used for investing activities of $ 1.0 million was primarily composed of
capital expenditures. The level of capital expenditures for fiscal 1996 is
consistent with the current volume of business.
Cash flows for financing activities consisted of $0.1 million used to pay
dividends on common stock.
The Company had no material capital commitments at December 30, 1995.
The Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective October 1, 1995. The effect of the adoption was not
material.
Based on the financial condition of the Company at December 30, 1995, management
believes that the existing cash balances, cash generated from operations, and
available lines of credit will be sufficient to meet the Company's planned needs
for the foreseeable future. If the Company requires additional capital, it
anticipates that such capital will be provided by bank or other borrowings,
although there can be no assurances that funds will be available on terms as
favorable as those applicable to the Company's currently outstanding debt.
EFFECTS OF INFLATION
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
Page 12 of 14
<PAGE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third Amendment to Note Agreement dated December 29,
1995 between BEI Electronics, Inc. and Principal
Mutual Life Insurance Company, Berkshire Life
Insurance Company and TMG Life Insurance Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 30, 1995.
Page 13 of 14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San
Francisco, County of San Francisco, State of California, on February 6, 1996.
BEI ELECTRONICS, INC.
By: /s/ Robert R. Corr
-------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
(Principal Accounting Officer)
Page 14 of 14
THIRD AMENDMENT TO NOTE AGREEMENT
This Third Amendment to Note Agreement (the "Third Amendment") is entered into
as of the 29th day of December, 1995 between BEI Electronics, Inc., a Delaware
corporation (the "Company"), having its principal place of business at One Post
Street - Suite 2500, San Francisco, California 94104, and Principal Mutual Life
Insurance Company, Berkshire Life Insurance Company and TMG Life Insurance
Company (each a "Holder" and together the "Holders").
RECITALS
The Company entered into a Note Agreement dated as of August 15, 1993 (the
"Original Note Agreement") with the Holders and Principal National Life
Insurance Company. In accordance with the terms of the Original Note Agreement
the Company issued its 6.73% Series A Senior Notes due October 1, 2000 (the
"Notes") in the original principal amount of $16,800,000 and its 6.73% Series B
Senior Notes due November 15, 2000 in the original principal amount of
$11,200,000. The Holders are the owners and registered holders of the entire
outstanding principal balance of Notes. Capitalized terms used but not defined
in this Third Amendment have the meanings set forth in the Note Agreement.
The Original Note Agreement was amended by First Amendment to Note Agreement
dated as of April 1, 1994 (the "First Amendment") and by Second Amendment to
Note Agreement dated as of September 30, 1994 (the "Second Amendment"). The
Original Note Agreement as amended by the First Amendment and the Second
Amendment is hereinafter referred to as the "Note Agreement".
The Company has requested, and the Holders have agreed, that the Note Agreement
be amended in certain particulars as set forth in this Third Amendment.
Capitalized terms used but not defined in this Third Amendment have the meanings
set forth in the Note Agreement.
NOW, THEREFORE, in consideration of the premises set forth above, and in
consideration of the sum of $21,000 paid by the Company ratably to the Holders,
the receipt and sufficiency of which is hereby acknowledged, the Company and the
Holders agree as follows:
1. Recitals Incorporated. The Recitals set forth above are incorporated
herein by reference.
2. Amendments to the Note Agreement.
2.1 Section 5.11 of the Note Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
Section 5.11. Restricted Payments. The Company will not
except as hereinafter provided:
<PAGE>
Page 2
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any
class (except dividends or other distributions
payable solely in shares of capital stock of the
Company);
(b) directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of
its capital stock of any class or any warrants,
rights or options to purchase or acquire any shares
of its capital stock (other than in exchange for or
out of the net cash proceeds to the Company from the
substantially concurrent issue or sale of other
shares of capital stock of the Company or warrants,
rights or options to purchase or acquire any shares
of its capital stock);
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in
respect of its capital stock;
(d) make, or permit any Restricted Subsidiary to
make, any Restricted Investment; or
(e) permit any Restricted Subsidiary to declare any
dividends, either in cash or property, on any shares
of the capital stock of such Restricted Subsidiary
(except for dividends which are payable solely to the
Company or to the Company and one or more
Wholly-owned Restricted Subsidiaries);
(such declarations or payments of dividends, purchases,
redemptions or retirements of capital stock and warrants,
rights or options and all such other payments or distributions
and such Restricted Investments being herein collectively
called "Restricted Payments"), if after giving effect thereto
any Event of Default shall have occurred and be continuing or
the sum of the aggregate amount of Restricted Payments made
during the period from and after September 30, 1995 to and
including the date of the making of the Restricted Payment in
question would exceed the sum of (i) $1,500,000 plus (ii) 50%
of Consolidated Net Income (less 100% thereof in case of a
deficit) for each fiscal year commencing after September 30,
1995, plus (iii) the aggregate net cash proceeds received by
the Company from the sale of its capital stock or warrants,
rights or options to purchase or acquire any shares of its
capital stock during said period, plus (iv) the aggregate net
proceeds from the sale of any Restricted Investments during
such period up to but not exceeding the original cost thereof.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after the date of
declaration thereof.
For the purposes of this ss. 5.11, the amount of any
Restricted Payment declared, paid or distributed in property
shall be deemed to be the greater of the book value or fair
market value (as determined in good faith by the Board of
Directors of the
<PAGE>
Page 3
Company) of such property at the time of the making of the
Restricted Payment in question.
2.2 Section 5.13(b) of the Note Agreement is deleted in its entirety and
the following inserted in lieu thereof:
(b) The Company will not permit any Restricted Subsidiary
to issue or sell any shares of stock of any class (including
as "stock" for purposes of this ss.5.13, any warrants, rights
or options to purchase or otherwise acquire stock or other
Securities exchangeable for or convertible into stock) of such
Restricted Subsidiary to any Person other than the Company or
a Wholly Owned Restricted Subsidiary, except (i) the sale of
stock described in Section 5.13(b) and Section B-1 of the
Disclosure Letter, (ii) for the purpose of qualifying
directors, (iii) in satisfaction of the validly pre-existing
rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a
Restricted Subsidiary whereby the Company and/or such
Restricted Subsidiary maintain their same proportionate
interest in such Restricted Subsidiary, or (iv) the issuance
and sale of stock of BEI Medical Systems, Inc., provided,
however, the Company and/or one or more Wholly-owned
Restricted Subsidiaries will at all times own not less than
80% of the Voting Stock of BEI Medical Systems, Inc.
2.3 Section 8.1 of the Note Agreement is hereby amended by deleting the
definition of "Adjusted Funded Debt" and inserting the following in lieu
thereof:
"Adjusted Funded Debt" shall mean the sum of (i) all
Indebtedness of the Company and its Restricted Subsidiaries
for borrowed money or which has been incurred in connection
with the acquisition of assets in each case having a final
maturity of one or more than one year from the date of origin
thereof (or which is renewable or extendible at the option of
the obligor for a period or periods more than one year from
the date of origin) including all payments in respect thereof
that are required to be made within one year from the date of
any determination of Adjusted Funded Debt, and (ii) Deemed
Funded Debt.
2.4 Section 8.1 of the Note Agreement is hereby amended by deleting the
definition of "Net Income Available for Fixed Charges" and inserting the
following in lieu thereof:
"Net Income Available for Fixed Charges" for any
period shall mean (I) the sum of (w) Consolidated Net Income
during such period, plus ( to the extent deducted in
determining Consolidated Net Income) (x) all provisions for
any Federal, state or other income taxes made by the Company
and its Restricted Subsidiaries during such period, plus (y)
Fixed Charges of the Company and its Restricted Subsidiaries
during such period, and (z) amortization as reported in the
published financial statements of the Company and its
Restricted Subsidiaries prepared using GAAP; provided,
however, that for any period which includes the fourth quarter
of fiscal year 1995 of the Company, "Net Income Available for
Fixed Charges" shall be calculated without regard for
non-recurring charges taken
<PAGE>
Page 4
during such quarter as a result of (x) a preliminary
arbitration ruling regarding a royalty payment dispute, (y)
related to ending the HYDRA 70 rocket business of the Company,
and (z) a settlement with the U.S. government relating to the
testing of accelerometers from 1986 to 1992.
3. Representations and Warranties. The Company represents and warrants to
each Holder as of the date of this Agreement that, upon execution of this
Agreement, all of the following statements will be true and correct:
3.1 As of the date of this Agreement, no Default or Event of Default
under the Note Agreement, as amended, or under any other agreement for
borrowed money to which the Company is subject, exists or is continuing,
after giving effect to the waivers set forth herein.
3.2 Except as set forth in a letter dated December 21,1995 from the
Company to the Holders relating to certain legal proceedings and to
certain matters affecting the Company's HYDRA 70 rocket contract and
related contingencies, the representations and warranties of the Company
referred to in Section 3.1 of the Note Agreement are true and correct and
complete in all material respects as if made on the date hereof, except
as to those representations and warranties made as of a specific date,
which are true and correct and materially complete as of such date.
3.3 No dissolution proceedings with respect to the Company have been
commenced or are contemplated, and, except as previously disclosed in 10Q
or 10K reports delivered to each holder of the Notes, there has been no
material adverse change in the business, condition or operations
(financial or otherwise) of the Company, taken as a whole, since August
15, 1993.
3.4 This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company.
3.5 The Company has not made any modification of any material agreement
with any creditor of the Company, other than by this Agreement, unless
the Company has disclosed the terms of such modification to each Holder
in writing.
3.6 The Company has not paid or caused to be paid and will not pay or
cause to be paid, directly or indirectly, any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, to any
Holder as consideration for or as an inducement to entering into by such
Holder of this Third Amendment, except as set forth herein.
4. Effective Date. This Agreement shall become effective as of the date
first written above upon receipt by each of the Holders of a counterpart of this
Agreement duly executed by the Company and the other Holders.
<PAGE>
Page 5
5. Miscellaneous
5.1 Except as specifically amended in this Agreement all of the terms,
conditions and covenants of the Note Agreement and the Notes shall remain
unaltered and in full force and effect and shall be binding on the
Company. The Note Agreement is hereby ratified, confirmed and approved.
5.2 Except as expressly set forth in this Agreement the terms of this
Agreement shall not operate as a waiver by the Holders of any provisions
of, or otherwise prejudice the rights or remedies of the Holders under
the Note Agreement, the Notes or applicable law and shall not operate as
a waiver of or otherwise prejudice any rights the Holders may have
against any other Person. This Agreement shall not be construed as
establishing a course of conduct on the part of the Holders upon which
the Company may rely in the future.
5.3 All headings and captions preceding the text of the several
sections of this Agreement are intended solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall
they alter its meaning, construction or effect.
5.4 This Agreement embodies the entire agreement and understanding
between the Company and the Holders with regard to the matters set forth
herein, and supersedes all prior agreements and undertakings relating to
such matters.
5.5 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed an original
and all of which taken together shall constitute one and the same
agreement.
5.6 This Agreement shall be governed by, and construed and enforce in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
by their authorized officers as of the date first above written.
BEI ELECTRONICS, INC.
By /s/ Gary D. Wrench
-------------------
Gary D. Wrench, Sr. Vice President & CEO
By /s/ Robert R. Corr
-------------------
Robert R. Corr, Treasurer & Controller
<PAGE>
Page 6
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/ Austin Ramzy
-----------------
Austin Ramzy
Assistant Director
Securities Investment
By: /s/ Donald D. Brattabo
-----------------------
Donald D. Brattabo
Second Vice President-Securities Investment
BERKSHIRE LIFE INSURANCE COMPANY
By:__________________________________
TMG LIFE INSURANCE COMPANY
By: THE MUTUAL GROUP, its Agent
By:___________________________________
By:____________________________________
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> BEI ELECTRONICS
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-30-1995
<EXCHANGE-RATE> 0
<CASH> 7,685
<SECURITIES> 0
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