UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-17885
BEI ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
(415) 956-4477
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of November 29, 1996 was $59,704,975 (A). As
of November 29, 1996, 6,985,629 shares of Registrant's Common Stock, excluding
stock held in Treasury, were outstanding.
(A) Based upon the closing sale price of the Common Stock on November 29, 1996
as reported on the NASDAQ National Market System. Excludes 1,557,904 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 29, 1996.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of Registrant, or that such person is
controlled by or under common control with Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement with respect to its 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business................................................ 3
Item 2. Properties.............................................. 16
Item 3. Legal Proceedings....................................... 17
Item 4. Submission of Matters to a Vote of Security Holders..... 19
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters............................. 19
Item 6. Selected Financial Data................................. 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 21
Item 8. Financial Statements and Supplementary Data............. 25
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.................. 43
PART III
Item 10. Directors and Executive Officers
of the Registrant....................................... 43
Item 11. Executive Compensation.................................. 43
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................... 43
Item 13. Certain Relationships and Related Transactions.......... 43
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................. 44
Signatures ........................................................ 49
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PART I
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in Item 1, "Business" as well as Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 1. BUSINESS
Introduction
BEI Electronics, Inc. (the "Company") is a diversified manufacturer which
focuses its activity on two principal families of technology-oriented products.
These include:
1.) sensors, engineered subsystems and associated components which are
used for the control of precision machinery and equipment in
industrial, medical, automotive, aerospace and military applications
(Sensors and Systems segment); and
2.) proprietary medical instruments and supplies for diagnostic and
minimally invasive surgical procedures (Medical Systems segment).
The Company also produced rocket-propelled ordnance systems for military use
(Defense Systems segment) in fiscal 1996. (See Note C to Consolidated Financial
Statements regarding exit of the HYDRA 70 Rocket business).
The Company conducted its fiscal 1996 operations through BEI Sensors & Systems
Company (Sensors and Systems), BEI Medical Systems Company (Medical Systems) and
BEI Defense Systems Company (Defense Systems). The Company has major operations
in Arkansas, California, New Jersey and Texas. See Note N to Consolidated
Financial Statements for Business Segment Data. For a discussion of factors
relating to the Company's risks, see "Risk Factors" below.
The Company incorporated in Delaware in 1974, as a successor to Baldwin
Electronics, Inc., and became a publicly-owned company in 1989. BEI's principal
executive offices are located at One Post Street, Suite 2500, San Francisco,
California 94104 and its telephone number at that location is (415) 956-4477.
Unless the context indicates otherwise, "BEI" and the "Company" refer to BEI
Electronics, Inc. and its consolidated subsidiaries. BEI is a registered
trademark of the Company.
SENSORS AND SYSTEMS SEGMENT
BEI Sensors and Systems Company produces components and systems that provide
vital communication, information and control links between digital electronic
equipment and precision mechanisms. Supplemental or complementary products such
as motors are also manufactured. Sensors and Systems' products consist of
optical encoders and servo systems, precision potentiometers, mechanical
accelerometers, quartz rate sensors, pressure transducers, cryocoolers,
actuators, brushless motors, quartz accelerometers, inertial guidance components
and subsystems, and other control electronics which sense, drive and control the
motion of a wide variety of machinery and equipment with the high accuracy and
reliability required in modern industrial automation, space technology,
aviation, automotive components, health care, science and office automation
applications. Using standard designs, parts and subassemblies, the Company
typically manufactures products to meet the specifications of end users or
original equipment manufacturers (OEMs), who integrate these products into their
systems, machinery and equipment. The Company's technical expertise allows it to
offer its customers the flexibility to develop both customized components and
fully integrated sensor and control systems that satisfy their individual
requirements.
Products of Sensors and Systems Segment
The following products, which may be used alone or in combination, are produced
in the Sensors and Systems segment:
Shaft Encoders and Servo Systems. Shaft encoders, when mechanically connected to
rotating shafts, translate angular motion and velocity information into digital
electronic signals. These signals are then received by signal processing
electronics and
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used to control the operation of machinery and equipment. Shaft encoders, which
are sometimes called optical encoders (or, simply, encoders) include a light
source, a rotating slotted code disk through which the light passes, a
photoelectric sensor, which receives the light through the code disk, and a
signal processor to translate the pulses of light into digital information. The
Company offers a wide array of encoders to serve a variety of applications. The
most common applications are for factory automation, office automation, and
transportation equipment, but specialized versions are also used for military
and space hardware. Servo systems are closed-loop electronic systems that
control the position or velocity of rotating shafts or other moving parts by
accepting a desired rate or position input from computers or keyboards,
monitoring the position or rate of movement (using an appropriate encoder or
other sensor) and constantly providing feedback which indicates whether the
desired performance has been achieved.
Quartz Rate Sensors, Mechanical Accelerometers, Quartz Accelerometers and
Inertial Guidance Systems. These products provide precise and reliable
measurement of minute linear and angular motions for control, guidance and
instrumentation requirements in strategic systems, tactical aircraft and
missiles, space systems and in commercial, industrial and automotive
applications. In general, these devices operate without need for direct linkage
to the driving mechanisms. Such measurements are required for stabilization and
other functions of satellites, in-flight monitoring of military and commercial
aircraft antenna stabilization, navigation of oil well drill bit assemblies,
components used in intelligent vehicle dynamic control, and navigation systems
in the automotive industry.
Mechanical accelerometers and rate sensors using traditional technology (e.g.,
pivot and jewel sensing mechanisms) rely on the movement of complex machined
metallic parts to measure motion. The Company's miniature, solid state
accelerometers and rate sensors are based on its innovative quartz technology.
The Company developed the Quartz Rate Sensor (QRS) for military applications
such as a replacement for traditional rotating wheel gyroscopes. Unlike a
conventional gyroscope, which may contain several hundred individual parts in
the sensing assembly, the QRS uses only one single element as its sensor. This
element is chemically micro-machined from crystalline quartz using
photolithographic methods similar to those used in the manufacture of silicon
semiconductor chips. The advantages of quartz rate sensors and accelerometers
over traditional mechanical units are increased reliability, reduced size, and
lower production and life cycle cost. These factors led the automotive industry
to incorporate this technology into their intelligent vehicle dynamic control
systems.
GyroChip(TM) and Automotive Quartz Rate Sensors. The Company's GyroChip(TM)
sensors developed for commercial gyro applications, are lower cost versions of
the Quartz Rate Sensor. These products have found use in such varied
requirements as navigation of autonomous guided vehicles (robotics), ocean buoy
and sea-state monitoring, and stabilization of optical systems. Automotive
Quartz Rate Sensors (ARQS) are in use as yaw sensors in stability control or
anti-skid systems for automobiles. The GyroChip(TM) provides performance
suitable for commercial applications while offering ruggedness, long life and
small size at a lower cost than military versions of the product.
Precision Potentiometers. Potentiometers are used as position-sensing devices
for throttles, steering position, transmission controls, wiper delay and seat
and mirror positions in automobiles and heavy equipment such as earth movers,
construction equipment and farm machinery. They are also used as position
sensors in such applications as actuators on molding presses, saw mills and
numerous other types of industrial equipment and in oil well logging calipers.
Because of their resolution, durability and resistance to electronic noise,
these devices are well suited to function as control transducers (a device which
converts an input to another form of output; e.g., analog to digital).
Customized versions of some potentiometers make these sensors suitable for the
high acceleration, shock and vibration levels required for control and
instrumentation of missiles, satellites and space vehicles. Incorporating the
potentiometer technology with the Company's proprietary optical encoder
technology has resulted in a multisensor that could serve as a steering wheel
position sensor for intelligent vehicle dynamic control and braking system for
future automobiles.
Brushless DC Motors. Brushless DC motors permit high performance, drive
efficiency in lightweight packages, and ease of interface with microprocessors.
The motors, which feature high energy magnets, are characterized by long life
and low acoustic and electrical noise. They are well suited to high speed, high
reliability applications, such as in operating rooms where the risk of sparks
from a brush motor would be hazardous or where electrical noise could disrupt
computers or computer-controlled equipment.
Pressure Transducers. Pressure transducers monitor aircraft engine, oil, fuel
and cabin pressure and are capable of providing voltage or frequency output
proportional to pressure in the range from vacuum to 10,000 psi. These products
are produced
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to meet the requirements of low pressure ranges such as those needed for the
measurement of altitude, airspeed and Mach number. Other versions accommodate
higher pressure applications intended to provide accurate measurement, long life
and resistance to severe vibration and shock environments. BEI's pressure
transducers can be found on executive jets and turboprops, commercial and
military aircraft, missiles and torpedoes, and on the Space Shuttle. The Sensors
and Systems segment is currently developing a product line of silicon based
pressure sensors designed for high volume commercial/industrial applications.
Actuators. Actuators are used in place of motors to achieve precise control of
short stroke linear or limited rotary motion. Actuators using high energy
magnets are also produced for specialized applications requiring intense force,
torque or acceleration relative to the size of the device.
Cryogenic Coolers. This newly developed product line is a low cost, long life
Stirling cycle refrigerator for generating cryogenic temperatures required for
superconducting applications and infrared detection such as night vision and
surveillance cameras.
Significant Customers and Marketing for Sensors and Systems Segment
The Sensors and Systems segment sold its products during the past fiscal year to
approximately 6,400 commercial end users and OEMs, principally in the United
States, through its direct sales force. Sales to the U.S. Government (or prime
contractors to the U.S. Government) represented approximately 27% of Sensors and
Systems net sales in fiscal 1996 and 32% in fiscal 1995. No other customer
accounted for more than 10% of net sales in fiscal 1996 or fiscal 1995. While
the Company has received several large orders from non-government customers,
individual orders are typically less than $100,000. (See Note N to Consolidated
Financial Statements.) The Company's strategy is to place increased emphasis on
the development of non-government customers to offset the effects of reductions
in government programs. (See Risk Factors below.)
The Sensors and Systems segment is represented internationally by approximately
60 sales representatives and distributors.
Field sales engineers are trained to assist in product selection and system
design. Factory-based application engineers assist in defining performance
criteria and in prototype development. Customer service staff are also available
to coordinate after-sale service and support. Warranties on products typically
range from a period of one to two years. Historically, warranty costs have not
been significant.
Backlog for Sensors and Systems Segment
The segment's backlog at September 28, 1996 and September 30, 1995 was as
follows:
Backlog
(dollars in thousands)
September 28, 1996 September 30, 1995
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$39,832 $41,442
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the life of existing contracts. Some contracts undertaken by the
Company extend beyond one year. Accordingly, portions of such contracts are
carried forward from one year to the next as part of backlog. Not all of the
backlog as of September 28, 1996 is scheduled for shipment during fiscal 1997.
In the case of U.S. Government contracts, backlog includes only those contracts
that are fully funded by a procuring Government agency. All U.S. Government
contracts and subcontracts are subject to termination by the U.S. Government for
convenience. Year-to-year comparisons of backlog are not necessarily indicative
of future revenue or profitability trends, and management believes that backlog
as of any particular date may not be representative of actual sales for the
segment for any succeeding fiscal period.
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The Sensors and Systems segment has commercial operations that typically ship
standard products within 30 to 60 days after receipt of an order. The Company
believes that its competitive position in this segment depends in part on
minimizing the time between receipt and shipment of an order. Products which
require special analysis, design or testing, such as those produced for
customers in the aviation and defense or space technology markets, are generally
shipped from six to twelve months after receipt of the order.
Competition for Sensors and Systems Segment
The Company's principal competitors in the Sensors and Systems segment include
Dynapar Corporation and Veeder-Root, subsidiaries of Danaher Controls; Dynamics
Research Corporation; Renco Encoders Incorporated, a subsidiary of Heidenhain
Corporation; Encoder Products Company; Allied Signal; Litton; Northrop
Corporation; Rockwell International Corporation; Honeywell; CTS Corporation and
Kulite Semiconductor Products, Inc. In addition, the Company also may compete
with manufacturers of competing technologies, such as resolvers, inductosyns,
laser and fiber optic gyros and magnetic encoders.
Manufacturing for Sensors and Systems Segment
The Sensors and Systems segment manufacturing operations primarily consist of
the manufacture and assembly of encoders, accelerometers, rate sensors, pressure
sensors, potentiometers, motors, cryogenic coolers, actuators, servo systems and
other electronics. Special equipment developed by the Company generates and
replicates, with a high degree of accuracy, optical code disks, which are
components critical to the production of optical encoders. Production of
precision components for all systems requires accurate machining capabilities.
Because of the sensitivity of certain products to environmental contamination,
such as encoders, quartz rate sensors, cryo coolers and servo systems for space
and military applications, these products are assembled under strict clean room
conditions. The Company has initiated production engineering measures to support
fabrication, assembly and testing of new sensors in quantities appropriate for
the automotive industry.
Limited Manufacturing Experience; Scale-Up Risk; Product Recall Risk
The Company has only limited experience in manufacturing the AQRS. The Company
currently manufactures in moderate quantities the AQRS in its Concord, CA
facility and the steering sensor in its Tustin, CA facility. The Company does
not have extensive experience in manufacturing these products in the quantities
required to fulfill contracts covering 1997 and 1998. Manufacturers often
encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel. Difficulties encountered by the
Company in manufacturing scale-up could have a material adverse effect on its
business, financial condition and results of operations. There can be no
assurance that future manufacturing difficulties or product recalls, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations, will not occur.
Dependence Upon Key Suppliers
The Company purchases materials used in the AQRS from various suppliers and
relies on single sources for several components. Delays associated with any
future material shorages, particularly as the Company scales up its
manufacturing activities in support of commercial sales, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Research and Development for Sensors and Systems Segment
The major focus of this segment's R&D effort has been to improve performance,
yield and predictability of existing products, with special emphasis on the
quartz sensors used in yaw rate sensing in the automotive industry. Substantial
effort has also been devoted to the development of an automotive yaw rate sensor
and the manufacturing methods necessary to deliver competitive prices and
quality in this market. New applications are being targeted to utilize the
combined expertise of Sensors and Systems to achieve value-added subsystems in
the motion control market such as servo systems, platform stabilization and
pointing, along with intelligent sensor systems.
The Company has also produced prototypes of products incorporating silicon
micromachined pressure sensors geared toward
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next generation requirements for automotive, industrial and aerospace markets.
U.S. Government Contracts for Sensors and Systems Segment
Approximately 27%, 32% and 40% of the Sensors and Systems segment's net sales in
fiscal 1996, 1995 and 1994, respectively, were derived from contracts with the
U.S. Government or under subcontract to prime contractors to the Government.
Because a large portion of the segment's business is derived from contracts with
the Department of Defense ("DOD") or other agencies of the U.S. Government, the
Company's business is sensitive to changes in Government spending policies,
which can have significant variations from year to year. At various times, the
Company's results have been adversely affected by contract cutbacks and there
can be no assurance that the Company's results of operations will not in the
future be materially and adversely affected by changes in Government procurement
policies or reductions in Government expenditures for products manufactured by
the Company.
Under applicable regulations, various audit agencies of the U.S. Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. Because of the recurring nature of changes in laws and regulations
and related regulatory audits, the Company expects it will continue to incur
costs for monitoring and compliance efforts. The Government also has the right
to review retroactively the cost records of the Company under most U.S.
Government contracts. Contract prices may be adjusted in the event the Company
submits incomplete, inaccurate or obsolete cost or pricing data. U.S. Government
contracts and subcontracts generally provide for either a fixed price,
negotiated fixed price or cost-plus-fixed-fee basis for remuneration. The
majority of the contracts with the U.S. Government are competitive fixed price
or negotiated fixed price contracts, although cost-plus contracts were
approximately 18% of U.S. Government net sales of the segment in fiscal 1996.
For fixed price contracts, the Company bears the risk of cost overruns and
derives the benefits from cost savings. As a result, greater risks are involved
under fixed price contracts than under cost-plus contracts because failure to
anticipate technical problems, estimate costs accurately or control costs during
contract performance may reduce or eliminate the contemplated profit or may
result in a loss.
All U.S. Government contracts contain termination clauses that allow the
contract to be terminated either for contractor default or for the convenience
of the Government. In the event of termination for the convenience of the
Government, the clause typically provides that the contractor will receive
payment for work-in-progress, including profit. To date, actual terminations of
the Company's contracts by the Government have not had a significant effect on
the Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's results
of operations in the future. Portions of the Company's business are classified.
As a result, the Company is and will be prohibited from disclosing the substance
or status of such business.
MEDICAL SYSTEMS SEGMENT
BEI Medical Systems Company (hereafter Medical Systems) designs, manufactures,
and/or sells electrosurgery units, various endoscopes, surgical instruments and
surgical-procedure-specific intervention products and kits. It also assembles
endoscopic illuminators, video imaging systems and insufflators.
Products
The following products which may be used alone or in combination are produced
and/or sold by Medical Systems.
Electrosurgery Units. These products use radio frequency (RF) currents to cut
tissue and/or coagulate bleeding. Medical Systems produces a variety of
electrosurgical generators which are designed for use in various medical and
surgical procedures. These and associated supporting items are marketed under
the Meditron(TM) brand and the brands of OEM customers.
Devices, Instruments & Procedure Kits. Medical Systems has a line of surgical
instruments, procedure kits and devices which aid in or enable a physician to
apply various technologies to an array of medical/surgical requirements in the
field of gastroenterology, gynecology and reproductive health care. These
products come in a variety of disposable or reusable configurations, allowing
the caregiver's institution to select the most suitable option. Products include
ZUMI(TM) uterine manipulator/injectors, ZUI(TM) uterine injectors, Z-Clamps(TM)
and Z-Scissors(TM) for hysterectomy, cervical biopsy forceps, Corson-Myoma(TM)
grasping forceps, ZSI Miya Hook(TM), micro surgical instruments, hysterectomy
kits and other specialty
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instruments. Other products include endoscopic illuminators, cameras, various
types of endoscopes and an automatic electronic insufflator. These products are
used in laparoscopic procedures in gastrointestinal, orthopedic and general
surgery.
Significant Customers and Marketing for Medical Systems Segment
Medical Systems' products are sold to a variety of customers primarily for the
gynecology market. Other markets served include gastroenterology, orthopedics
and general surgery. In the U.S., Medical Systems utilizes a system of
independent manufacturer's representative organizations, direct sales
representatives, and telemarketers to market its products directly to end users,
hospitals, surgical centers and doctors' offices. Products are also sold through
a network of domestic and international distributors. Additionally, a variety of
products are private label manufactured under various OEM agreements. In fiscal
1996, OEM sales were 15% of Medical Systems sales, compared to 21% in fiscal
1995.
Backlog for Medical Systems Segment
Backlog is not a significant factor in the Medical Systems segment. The segment
has commercial operations that typically ship instruments within one to two
weeks of receipt of an order and electronic products within 30 days after
receipt of an order. Disposable products are normally shipped within one day of
receipt of order. Products which require special development, design, packaging
and testing are generally shipped within four to six months after an order is
received.
Competition for Medical Systems Segment
The Company's principal competitors in the Medical Systems segment include
Valleylab, a subsidiary of Pfizer, Microvasive, a subsidiary of Boston
Scientific, Circon-Cabot , Utah Medical, Leisegang, Wallach, and CooperSurgical,
Inc.
Manufacturing for Medical Systems Segment
Medical Systems segment manufacturing operations consist primarily of the
manufacture and assembly of equipment such as electrosurgery units, endoscopic
illuminators, endoscopes and electronic insufflators. Some component fabrication
and assembly of various non-electrical products, both disposable and reusable,
is performed by the manufacturing group. During fiscal 1996, Medical Systems'
manufacturing facilities received ISO 9001 certification from Lloyds Register
Quality Assurance. Additionally, the Company's facilities and documentation
procedures for the manufacture of medical devices are required to conform to the
Food and Drug Administration's ("FDA") Good Manufacturing Practices ("GMP"),
enforced by the FDA through its facilities inspection program. Withdrawal of GMP
status would have a material adverse effect on the Company's Medical Systems
segment.
Research and Development for Medical Systems Segment
The Company's principal development effort for this segment has focused on
proprietary devices for minimally invasive procedures in gynecology. Products
currently under development include the Hydro ThermAblator(R) technology as an
alternative to existing treatment for abnormal menstrual bleeding, the
GyneSys(R) DX Diagnostic Catheter System for the diagnosis and treatment of
fallopian tube obstruction, and the Flexible HysteroSys(TM) Diagnostic
Hysteroscope as a cost effective solution suitable for the physician's office.
Additionally, the Company continues development in monopolar and bipolar
electrosurgical generators and the Company is pursuing expansion of the surgical
illuminator and automatic insufflator product lines for general and laparoscopic
surgery as well as for outpatient and office applications. The Company has
continued to work with several OEM customers for the adaptation of its
proprietary technology to various private label requirements.
Government Regulation
Medical Systems manufactures and sells medical devices. In the U.S., the FDA
(among other governmental agencies) is responsible for regulating the
introduction of new medical devices and the manufacturing, labeling and
record-keeping for such devices. The FDA also reviews required reports of
adverse events involving such devices. The FDA has extensive enforcement
authority, including the power to seize products, restrain sales or prohibit the
operation of manufacturing facilities until the noted deficiencies are corrected
to the FDA's satisfaction. The FDA can also monitor recalls of products
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from consumer locations.
Recent developments such as the enactment of the Safe Medical Devices Act of
1990 and increased enforcement actions reflect a trend toward more stringent
product regulation by the FDA. One result is an increase in the typical time
elapsed between the filing of an application and the receipt of FDA clearance or
approval of commercial release of a medical device. In addition, the FDA now
requires more clinical data with such applications, which can increase the cost
of obtaining such clearance to market. Furthermore, rigorous regulatory action
may be taken in response to deficiencies noted in inspections or to any product
performance problems.
Medical device laws are also in effect in many of the countries outside the U.S.
in which Medical Systems does business. These range from comprehensive device
approval requirements to requests for product data or certifications. The number
and scope of these requirements are increasing. This trend toward increasing
product regulation is evident in the European Community, where efforts are under
way to harmonize the regulatory systems. Such regulatory systems include ISO
9000, IEC 601 and CE marks.
Uncertainty Related to Health Care Reform
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery and payment systems. Legislative debate is
expected to continue in the future, and the Company cannot predict what impact
the adoption of any federal or state health care reform measure or future
private sector reform may have on its Medical Systems business.
DEFENSE SYSTEMS SEGMENT
For fiscal 1996 and prior years, BEI Defense Systems Company (hereafter Defense
Systems) provided rocket systems, including weapons management systems, rocket
motors, and combat and training warheads primarily to the Department of Defense
(DOD), and also to allied foreign governments. For a number of years, Defense
Systems was the sole manufacturer and integrator of the HYDRA 70 (H 70), a
cost-effective, advanced free-flight rocket system employed in a variety of
combat and training roles. In September 1995, management of the Company reached
a decision to exit the rocket manufacturing line of business which made up a
substantial portion of the Company's Defense Systems segment. For fiscal 1996,
H 70 revenues represented 89% of Defense Systems' total sales. All H 70 contract
deliveries were completed during fiscal 1996. The Company anticipates no further
sales of H 70 rockets, fuzes or warheads.
Products of Defense Systems Segment
HYDRA 70 Rocket Systems.
The H 70 is a 2.75 inch free-flight rocket system which features a
microprocessor-based weapons management system that provides automatic control
of components such as rocket motors, fuzes and a variety of warheads, each of
which is specifically adapted for use as part of the system. The Company
completed production of rocket motors, fuzes and warheads in fiscal 1996 and
anticipates no further sales of H 70 rockets, fuzes or warheads.
Weapons Management System. Defense Systems developed and presently manufactures
an electronic, microprocessor-based weapons management system that controls
between seven and seventy-six 2.75 inch rockets. The systems may be programmed
to manage simultaneously up to five different warheads, to set fuzes remotely
and to display the inventory of warheads remaining. The weapons management
system product line is ongoing and represents all of Defense Systems backlog at
fiscal 1996 year end.
Significant Customers and Marketing for Defense Systems Segment
Defense Systems has marketed its products primarily to the DOD either directly
or indirectly as a subcontractor to prime contractors. Defense Systems also
marketed its products to allied foreign governments both through direct sales
and through foreign military sales programs funded by the U.S. Government.
Foreign sales constituted approximately 3% of Defense
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Systems' revenues in each of fiscal 1996, 1995 and 1994. (See Note N to
Consolidated Financial Statements.) Defense Systems completed its current
backlog of rocket and warhead production during fiscal 1996.
Backlog for Defense Systems Segment
The segment's backlog at September 28, 1996 and September 30, 1995 was as
follows:
Backlog
(dollars in thousands)
September 28, 1996 September 30, 1995
------------------ ------------------
$6,757 $35,836
Backlog includes aggregate contract revenues remaining to be earned by the
Company over the life of existing contracts. All of the backlog as of September
28, 1996 is for products other than H 70 rockets, fuzes and warheads. In the
case of U.S. Government contracts, backlog includes only those contracts that
are fully funded by a procuring Government agency. All U.S. Government contracts
and subcontracts are subject to termination by the U.S. Government for
convenience.
Many factors affect the scheduling of projects; therefore, no assurance can be
given as to when revenue will be realized on projects included in the Company's
backlog. Year-to-year comparisons of backlog are not necessarily indicative of
future revenue or profitability trends, and management believes that backlog as
of any particular date may not be representative of actual sales for the segment
for any succeeding fiscal period.
Manufacturing for Defense Systems Segment
Defense Systems' manufacturing operations consisted primarily of the production
and assembly of fuzes, rocket motors, warheads and explosive devices, as well as
the assembly of electronic products. Certain Defense Systems' operations were
subject to rigorous safety requirements which are normal to the handling of
munitions and explosives.
Research and Development for Defense Systems Segment
Company funding of R&D efforts was discontinued during fiscal 1995. New R&D
funding is not expected or required to support the weapons management product
line.
U.S. Government Contracts for Defense Systems Segment
Approximately 97% of the Defense Systems segment's net sales in each of fiscal
1996, 1995 and 1994 were derived from contracts with the U.S. Government or
under subcontract to other prime contractors to the Government. (See Note C to
Consolidated Financial Statements.)
Under applicable regulations, various audit agencies of the U.S. Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. Because of the recurring nature of changes in laws and regulations
and related regulatory audits, the Company expects to continually incur costs
for monitoring and compliance efforts. During fiscal 1996, these costs were
similar to 1995 but there can be no assurance that such costs will not be
material in fiscal 1997. The Government also has the right under most U.S.
Government contracts to review retroactively the cost records of the Company.
Contract prices may be adjusted in the event the Company submits incomplete,
inaccurate or obsolete cost or pricing data.
All U.S. Government contracts and subcontracts generally provide for either a
fixed price, negotiated fixed price or cost-plus-fixed-fee basis for
remuneration. The major part of the segment's contracts with the U.S. Government
are competitive fixed price or negotiated fixed price contracts. For fixed price
contracts, the Company bears the risk of cost overruns and derives the benefits
from cost savings. As a result, greater risks are involved under fixed price
contracts than under cost-plus contracts.
10
<PAGE>
Major Programs for Defense Systems Segment
Sales of HYDRA 70 systems and components represented approximately 26%, 27% and
31% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively. Sales
of the HYDRA 70 systems and components will be insignificant in 1997. The
failure of the Alliant-BEI team to win the 1995 competitive award for continued
HYDRA 70 production eliminated these sales for years beyond fiscal 1996, when
existing contract requirements were virtually 100% complete.
GENERAL - ALL SEGMENTS
Employees
As of September 28, 1996, the Company had 1,003 employees, including 126 in
research, development and engineering, 76 in administration, 108 in marketing
and sales, 679 in operations and 14 in corporate. The Company believes its
continued success depends on its ability to attract and retain highly qualified
personnel. The Company's employees are not presently represented by any
collective bargaining agreements. To date, the Company has not experienced any
work stoppages and considers its employee relations to be good.
Significant Customers
During fiscal 1996, 1995 and 1994, the U.S. Government and other Government
contractors accounted for approximately 45%, 50%, and 57%, respectively of the
Company's total net sales.
Competition
The Company operates in highly competitive industries. Many of the Company's
existing competitors in each market, and also a number of potential entrants
into these markets, have significantly greater financial resources and
manufacturing capabilities, are more established, have larger marketing and
sales organizations and larger technical staffs. There can be no assurance that
other companies will not develop more sophisticated, more cost-effective or
otherwise superior products.
In its principal markets, the Company believes that competition is based
primarily on design, performance, reliability, price, delivery, service and
support. The Company believes it competes favorably with respect to these
factors.
Research and Development
The Company believes that its future success will depend in part on its ability
to continue to enhance its existing products, and to develop and introduce new
products that maintain technological leadership, meet a wider range of customer
needs and achieve market acceptance. Accordingly, the Company's internally
funded research, development and related engineering expenditures were
approximately $4.9 million, $5.0 million, and $7.2 million in fiscal 1996, 1995
and 1994, respectively. In fiscal 1996, 1995 and 1994, customer funded research
and development expenditures charged to cost of sales were $3.5 million, $9.3
million and $10.4 million, respectively. The 1996 level represents less
government funding of quartz product development and advanced rocket systems and
is consistent with future funding expectations.
Patents and Licenses
The Company primarily relies upon trade secrets and know-how to develop and
maintain its competitive position. Retention of data rights by a U.S. Government
contractor is frequently difficult because the contractor is often compelled to
negotiate transfer of the data rights to the Government as part of the contract
for production of the product. In addition, under certain of the Company's U.S.
Government contracts, the Government may require that proprietary information be
disclosed directly to competitors, subject to certain restrictions upon its use.
The Company holds 106 U.S. patents and 57 foreign patents with expiration dates
ranging from March 1997 to August 2014. Because many of these patents relate to
technology that is important to certain of the Company's products, the Company
considers these patents to be significant to its business. There can be no
assurance, however, that any patent will provide adequate protection for the
technology or product it covers.
11
<PAGE>
The Company believes that, because of the rapid pace of technological change as
well as the impact of Government requirements, factors such as technical
expertise, frequent product enhancements, new product introductions and customer
service and support are generally more important to its business than patents.
The Company filed for several patents in the 1996 fiscal year; however, there
can be no assurance that patents will issue from any present or future
applications filed by the Company or, if patents issue, that any claims allowed
will be sufficiently broad to protect the Company's technology.
Environmental Matters
The Company uses certain hazardous materials in its research and manufacturing
operations and, as a result, is subject to stringent federal, state and local
regulations governing the storage, use and disposal of such materials. Although
the Company believes that it is currently in material compliance with such laws
and regulations, current or future laws and regulations could require the
Company to make substantial expenditures for remedial action, reduction of
chemical exposure, waste treatment or disposal. There can be no assurance that
the operations, business, competitive position, earnings or assets of the
Company will not be materially and adversely affected by the interpretation and
enforcement of current or future environmental laws and regulations.
Government Regulation
The Company is subject to significant regulation by the U.S. Government with
respect to a variety of matters affecting its business, including the matters
set forth below and as discussed in the U.S. Government Contracts sections
above.
Facility Security Clearance.
The Company has several facility security clearances from the U.S. Government. A
portion of the Company's net sales in fiscal 1996, 1995 and 1994 was derived
from work for which this clearance was required. Continuation of this clearance
requires that the Company remain free from foreign ownership, control or
influence (FOCI). In addition, the Company is required to comply with the
regulations promulgated by the Defense Investigative Service (DIS), which
relate, in large part, to the Company's control of classified documents and
other information. Loss of such security clearances and the related loss of U.S.
Government contracts would have a materially adverse effect on the Company's
results of operations. Management does not believe that there is presently any
substantial risk of FOCI or DIS noncompliance that would cause any of its
security clearances to be revoked.
Regulation of Foreign Sales.
All Defense Systems' and certain of Sensors and Systems' exports are subject to
restrictions contained in the U.S. Department of State's International Traffic
in Arms Regulations and require export licenses in order to be sold abroad.
Non-defense related foreign sales are generally governed by the Bureau of Export
Administration of the U.S. Commerce Department which also frequently requires
export licenses. The Company's net sales to foreign customers constituted
approximately 9%, 8% and 8% of revenues for fiscal 1996, 1995 and 1994,
respectively. To date, the Company has not experienced any significant
difficulties in obtaining the requisite licenses. In addition, the Company is
subject to the Foreign Corrupt Practices Act, which prohibits payments or offers
of payments to foreign officials for the purpose of influencing an act or
decision by a foreign government, politician or political party in order to
assist in obtaining, retaining or directing business to any person.
Risk Factors
Defense Spending and Government Contracting.
A significant portion of the Company's net sales has been derived from contracts
with departments and agencies of the U.S. Government and with other Government
contractors. In fiscal 1996, 1995 and 1994, such contracts accounted for
approximately 45%, 50% and 57%, respectively, of the Company's total net sales.
The completion of rocket contracts during 1996 makes it likely that the
percentage of net sales to the government will be lower in the foreseeable
future. The Company believes that the success of the Company's business will
continue to be dependent, in part, upon its ability to participate in various
Government programs. There can be no assurance that the U.S. Government will
continue its commitment to programs to which the Company's products are
applicable or that the Company will continue to be awarded contracts under such
programs. Please refer to the discussion regarding competition in the segment
discussion above. Reductions in the federal funds available for projects the
Company is performing have in the past, and may in the future have an adverse
impact on the Company's results of operations.
12
<PAGE>
The Company's contracts involving the U.S. Government are subject to various
other risks, including termination for the convenience of the Government;
potential disclosure of Company confidential information to competitors as part
of the establishment by the Government of second-source manufacturing
arrangements or competitive bidding; the failure or inability of prime
contractors or Government designated subcontractors to perform under their
contracts; and increased or unexpected costs causing losses or reduced profits
under fixed-price contracts.
Other Risk Factors.
For additional risk factors affecting the Sensors and Systems segment see:
Significant Customers and Marketing, Limited Manufacturing Experience,
Dependence on Key Suppliers, and U.S. Government Contracts in the segment
discussion above.
For additional risk factors affecting the Medical Systems segment see:
Government Regulation and Uncertainty Related to Health Care Reform in the
segment discussion above.
For additional risk factors affecting the Defense Systems segment see: U.S.
Government Contracts and Major Programs in the segment discussion above.
13
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company and their ages as of
December 1, 1996 are as follows:
Name Age Position
- -----------------------------------------------------------------------------
Charles Crocker 57 President, Chief Executive Officer &
Chairman of the Board of Directors
Gary D. Wrench 63 Senior Vice President, Chief
Financial Officer & Director
Dr. Lawrence A. Wan 58 Vice President of Corporate Technology
Robert R. Corr 50 Secretary, Treasurer & Controller
Richard M. Brooks (1) (2) 68 Director
George S. Brown (2) 75 Director
C. Joseph Giroir, Jr. (1) (2) 57 Director
William G. Howard, Jr. (1) 55 Director
Peter G. Paraskos (1) 68 Director
- -----------------------------------------------------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Crocker, a founder of the Company, has served as Chairman of the Board of
Directors of the Company since October 1974. Mr. Crocker assumed the positions
of President and Chief Executive Officer, effective October 1, 1995, following
the retirement of Mr. Paraskos. Mr. Crocker served as President of Crocker
Capital Corporation (a Small Business Investment Company), from 1970 to 1985,
and as General Partner of Crocker Associates, a venture capital investment
partnership, from 1970 to 1990. He currently serves as a director of Fiduciary
Trust Company International, Superconductor Technologies, Inc., Pope & Talbot,
Inc. and KeraVision. Mr. Crocker holds a B.S. from Stanford University and an
M.B.A. from the University of California, Berkeley.
Mr. Wrench has served as Senior Vice President and Chief Financial Officer of
the Company since July 1993 and as a Director of the Company since February
1986. From April 1985 to July 1993, he served as Vice President of the Company
and President and Chief Executive Officer of Motion Systems Company, Inc., then
a wholly owned subsidiary of the Company that is now a part of Sensors & Systems
Company. Other experience includes twenty years with Hughes Aircraft Company
including an assignment as President of Spectrolab, Inc., a Hughes subsidiary.
Mr. Wrench holds a B.A. from Pomona College and an M.B.A. from the University of
California, Los Angeles.
Dr. Wan was appointed Vice President, Corporate Technology for the Company in
April 1991. From 1984 until 1990, Dr. Wan served as Vice President, Engineering
for Systron Donner Corporation. Between 1979 and 1984, he held various technical
and general management positions with Systron Donner Corporation. From 1968 to
1979, he served as Chief Executive Officer for Sycom, Inc. a commercial
electronics company which he founded. From 1964 to 1968, he worked for Hughes
Aircraft Company, where he headed the Radar Systems Section of the Hughes Ground
Systems Group. In 1962, Dr. Wan and two other professors established an
Engineering School at University of California, Santa Barbara, where he also
taught Engineering. Dr. Wan has a B.S., M.S. and Ph.D in Engineering and Applied
Sciences from Yale University.
Mr. Corr was named Secretary of the Company in February 1995 and has served as
Controller since November 1989 and Treasurer since November 1987. From 1978 to
1987, he was employed by AMPEX Corporation, an electronics and magnetic media
company, in various financial positions. From 1975 to 1978, he was an Auditor
for Arthur Andersen & Co. Mr. Corr received a B.B.A. from Loyola University and
is a Certified Public Accountant in the State of California.
Mr. Brooks has been a director of the Company since November 1987. He is
currently an independent financial consultant. From 1987 to 1990, he served as
President of SFA Management Corporation, the managing general partner of St.
Francis Associates, an investment partnership. He currently serves as a director
of Longs Drug Store Corporation, Granite Construction Incorporated and the
Western Farm Credit Bank, a private company. Mr. Brooks holds a B.S. from Yale
University and an M.B.A. from the University of California, Berkeley.
Mr. Brown, a founder of the Company, has served as a director of the Company
since October 1974. Mr. Brown served as President and Chief Executive Officer of
the Company from October 1974, until his retirement from that position in July
14
<PAGE>
1990, when he became a consultant to the Company. Prior to founding the Company,
Mr. Brown served from 1971 until 1974 as Executive Vice President and General
Manager of Baldwin Electronics, Inc., a subsidiary of D.H. Baldwin Company and
the predecessor of the Company. Mr. Brown holds a B.S.E.E. from the University
of Oklahoma.
Mr. Giroir has served as a director of the Company since 1978. He served as the
Secretary of the Company from 1974 to early 1995. He is currently a member of
the law firm of Giroir & Gregory, a Professional Association. From 1965 to 1988,
Mr. Giroir was a member of Rose Law Firm, a Professional Association. Both law
firms have rendered services to the Company. Mr. Giroir holds a B.A. and an
L.L.B. from the University of Arkansas and an L.L.M. from Georgetown University.
Dr. Howard has been a director of the Company since December 1992. He is
currently an independent consulting engineer in microelectronics and
technology-based business planning. From 1987 to 1990, Dr. Howard served as
Senior Fellow of the National Academy of Engineering and, prior to that time,
held various technical and management positions with Motorola, Inc., most
recently as Senior Vice President and Director of Research and Development. Dr.
Howard holds a B.E.E. and an M.S. from Cornell University and a Ph.D. in
electrical engineering and computer sciences from the University of California,
Berkeley. He is a member of the National Academy of Engineering and a fellow of
the Institute of Electrical and Electronics Engineers and of the American
Association for the Advancement of Science.
Mr. Paraskos retired as President and Chief Executive Officer of the Company
effective October 1, 1995. He remains a Director of the Company and also serves
on the Board of Directors of the Company's Defense Systems subsidiary. Mr.
Paraskos served as President, Chief Executive Officer and a Director of the
Company from July 1990. Mr. Paraskos joined BEI in connection with the Company's
acquisition from Thorn EMI of substantially all the assets of four of the six
divisions of the Systron Donner Corporation. From 1986 to 1990, Mr. Paraskos
served as President and Chief Executive Officer of the Systron Donner
Corporation, a manufacturer of avionics and aerospace sensors and subsystems,
and served in positions as Executive Vice President and Chief Operating Officer
and in general management from 1983 to 1986. Mr. Paraskos holds two degrees in
Engineering from Columbia University and has served in the Marine Corps as an
infantry officer, fighter pilot and test pilot. He is a member of the Board of
Nominations of the Aviation Hall of Fame and a life member of the Society of
Experimental Test Pilots.
The Company has a classified Board of Directors, which may have the effect of
deterring hostile takeovers or delaying changes in control or management of the
Company. For purposes of determining their term of office, directors are divided
into three classes, with the term of office of the first class to expire at the
1997 annual meeting of stockholders, and the term of office of the second class
to expire at the 1998 annual meeting of stockholders and the term of office of
the third class to expire at the 1999 annual meeting of stockholders. Class I
consists of Mr. Brooks, Mr. Howard, and Mr. Paraskos; Class II consists of Mr.
Crocker and Mr. Brown; and Class III consists of Mr. Giroir and Mr. Wrench.
Directors elected to succeed those directors whose term expires will be elected
for a three year term of office. All directors hold office until the next annual
meeting of stockholders, at which their term expires, and until their successors
have been duly elected and qualified. Executive officers serve at the discretion
of the Board. There are no family relationships among any of the officers and
directors.
15
<PAGE>
<TABLE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased office space in
San Francisco, California, under a lease which expires in 1998. The Company owns
or operates 10 other facilities that relate to the Sensors and Systems, Defense
Systems and Medical Systems segments and maintains office space in various
locations throughout the United States for sales and technical support. None of
the owned principal properties is subject to any encumbrance material to the
consolidated operations of the Company. In addition to its executive offices,
the Company's principal facilities are as follows:
<CAPTION>
Location Description of Facility
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Sensors and Systems Segment
Maumelle, Arkansas Owned 50,000 square foot manufacturing, engineering,
administrative and research and development facility.
Concord, California Owned 101,000 square foot manufacturing, engineering and
administrative facilities.
Tustin, California Leased 80,000 square foot manufacturing, engineering and
administrative facility.
Goleta, California Owned 22,000 square foot manufacturing, engineering and
administrative facility.
Campbell, California Subleased 5,000 square foot manufacturing, administrative and
research and development facility.
San Marcos, California Leased 35,000 square foot manufacturing, engineering and
administrative facilities.
Sylmar, California Subleased 83,000 square foot manufacturing, engineering and
administrative facility.
- --------------------------------------------------------------------------------------------------------------------
Defense Systems Segment
Euless, Texas Owned 72,000 square foot manufacturing, engineering and
administrative facility and subleased 2,000 square foot warehouse
facility, used primarily for record storage.
- --------------------------------------------------------------------------------------------------------------------
Medical Systems Segment
Hackensack, New Jersey Leased 10,000 square foot manufacturing and engineering facility
and 2,000 square foot administrative and marketing facility.
Chatsworth, California Leased 6,000 and 1,600 square foot manufacturing, engineering
and administrative facilities.
</TABLE>
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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. 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 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. These conditions were
substantially met in fiscal 1996 and $1.0 million was accrued for these costs
and charged to operations in the fourth quarter of fiscal 1996. 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.
The second phase of the arbitration involved 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 April
1996 the panel issued a second interim ruling which will become final at the end
of the arbitration. In the ruling the panel asked both of the parties to
quantify royalties using guidance set forth by the panel. Both parties requested
clarification of several issues in the April decision. In July 1996, the panel
issued a clarification of the April decision and both parties agreed to royalty
amounts submitted to the panel in August 1996. These amounts were reflected in
the Company's fiscal 1996 results of operations and were not materially
different from the Company's previous estimates.
In November 1996 both parties presented their respective arguments as to why
they were the substantially prevailing party in the arbitration and thus
eligible to be awarded fees and costs at the discretion of the panel. The panel
unexpectedly ruled that the former shareholders may be entitled to recover the
costs and expenses incurred by them (including reasonable attorney's fees) in
connection with the arbitration. Based on presently available information, it is
not possible for the Company to estimate the amount of costs and expenses that
may awarded by the panel and ultimately payable by the Company. If the final
award is for all the costs and expenses of the former shareholders, the amount
would be substantial and would result in a one-time charge to operations in the
quarter in which it is recognized.
17
<PAGE>
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 its president Richard Turner, 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. On October 16, 1995 the Court clarified
that the partial summary judgment of its May 16, 1994 order remains in effect.
On January 31, 1996, the Court issued a ruling which affirmed the legal basis
for BEI Medical Systems to assert a counterclaim for damages against
CooperSurgical regarding the parties' electrosurgical generator contract.
In June 1996, more than one year after fact and expert discovery closed in May
1995, CooperSurgical's counsel sent to BEI's counsel a letter purporting to
supplement CooperSurgical's previous responses to interrogatories. The June 1996
letter indicated that CooperSurgical's damages for one particular aspect of the
claim were between $24 and $50 million with respect to a claim for which
CooperSurgical's experts had previously estimated damages of $3.4 million. BEI
will vigorously oppose any CooperSurgical attempt whatsoever to introduce at
trial any evidence of a damage claim based upon its June, 1996 purported
supplement.
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated. In
1995 expert witnesses for BEI prepared a formal response to the damage
computations CooperSurgical previously submitted. BEI's experts stated that if
CooperSurgical were entitled to damages, those damages would total less than
$100,000, and would be more than offset by BEI Medical Systems' counterclaims
against CooperSurgical, if BEI Medical Systems were successful in its
counterclaims. Several trial dates were set during 1996, all of which were
postponed by the court. The trial is currently scheduled for March 17, 1997.
BEI, after consultation with counsel, believes that the additional damage
figures stated in the June 1996 letter from CooperSurgical's counsel are
unfounded. 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 other legal actions arising in the normal course
of business. Management believes that none of these legal actions will have a
material impact on the Company's operating results or financial condition.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
BEI's common stock was initially offered to the public at $9 per share in July
1989. The Company's common stock has been traded on the NASDAQ National Market
System under the NASDAQ symbol "BEII" since August 1, 1989. Set forth below are
the high and low closing sale prices on the National Market System for the
periods indicated. Such quotations do not reflect retail markups, markdowns or
commissions.
1996 Fiscal Year Cash Dividend
(ended 9/28/96) High Low Declared
- --------------------------------------------------------------------------------
Fourth Quarter $ 11.00 $ 8.50 $ 0.02
Third Quarter $ 13.50 $ 8.55 $ 0.02
Second Quarter $ 9.00 $ 6.75 $ 0.02
First Quarter $ 7.63 $ 6.25 $ 0.02
- --------------------------------------------------------------------------------
1995 Fiscal Year
(ended 9/30/95)
- --------------------------------------------------------------------------------
Fourth Quarter $ 8.25 $ 6.50 $ 0.02
Third Quarter $ 7.25 $ 5.50 $ 0.02
Second Quarter $ 5.88 $ 5.00 $ 0.02
First Quarter $ 5.75 $ 5.00 $ 0.02
- --------------------------------------------------------------------------------
As of November 29, 1996, there were approximately 1,200 holders of record of the
Company's common stock. The Board of Directors has declared and the Company has
paid quarterly cash dividends of $.02 per share of common stock in each of
fiscal 1996 and 1995. The Board of Directors has declared a dividend of $.02 per
share of common stock to stockholders of record at December 6, 1996, payable
December 23, 1996 for the first quarter of fiscal 1997. Payment of dividends is
within the discretion of the Company's Board of Directors, will be subject to
continual review and will depend, among other factors, upon the earnings,
capital requirements, operating results and financial condition of the Company
from time to time. There are no restrictions on the Company's ability to pay
dividends provided the covenants set forth in its bank credit agreement and
Senior Note agreement are met (see Notes E and G to the Consolidated Financial
Statements). The covenants primarily concern certain operating ratios and
minimum balances of tangible net worth.
19
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five fiscal years presented below is derived
from the audited Consolidated Financial Statements of the Company. The data
should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information included herein.
<CAPTION>
(in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------
Years Ended
--------------------------------------------------------------------------------------
September 28 September 30 October 1 October 2 October 3
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $148,738 $144,903 $138,658 $146,719 $156,622
Net income (loss) 1,889 (4,391) (1,744) 3,778 7,180
Earnings (loss) per
common share and
common equivalent share 0.27 (0.65) (0.26) 0.56 1.05
Cash dividends per
common share $0.08 $0.08 $0.08 $0.08 $0.08
Weighted average shares
outstanding 7,108 6,759 6,657 6,783 6,836
Balance Sheet Data:
Working capital $38,102 $35,923 $40,189 $35,667 $16,036
Total assets 115,011 113,738 112,432 108,528 96,472
Long-term debt
(excluding current portion) 24,348 30,157 30,421 20,050 3,153
Stockholders' equity 55,972 53,319 57,829 59,606 55,560
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section.
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.
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.8 74.2 70.4
- --------------------------------------------------------------------------------
Gross profit 31.2 25.8 29.6
Operating expenses:
Selling, general and
administrative expenses 24.9 23.7 25.5
Provision for royalty and related
expenses -- 2.4 --
Research, development and
related expenses 3.3 3.4 5.2
- --------------------------------------------------------------------------------
Income (loss) from operations 3.0 (3.7) (1.1)
Other income 0.7 0.7 0.7
Interest expense 1.7 1.7 1.7
- --------------------------------------------------------------------------------
Income (loss) before income taxes 2.0 (4.7) (2.1)
Provision for income taxes (credit) 0.7 (1.7) (0.8)
Net income (loss) 1.3% (3.0)% (1.3)%
================================================================================
See Note N to the Consolidated Financial Statements for information on segment
data.
Fiscal Years 1996, 1995 and 1994
Net Sales
In fiscal 1996, the Company's net sales increased 2.6% to $148.7 million from
$144.9 million in fiscal 1995.
Sensors and Systems segment net sales increased 6.9% to $96.7 million from $90.5
million. This increase reflects the continued growth in sales of commercial
product lines, including those for industrial, automotive and medical markets.
Offsetting the increase from the Sensors & Systems segment, the Defense Systems
segment net sales decreased 6.5% to $42.6 million from $45.6 million. The
decline is primarily due to the decline in sales under a completed rocket
development contract for the Advanced Rocket System. This contract represented
approximately 1.2% of Defense Systems sales in fiscal 1996 compared to 6% in
fiscal 1995. This contract has no further funding beyond fiscal 1996. The
principal product of the Defense Systems segment was the HYDRA 70 (H 70) Rocket
produced under a competitively bid fixed price contract. No significant future
sales of H 70 are expected.
As discussed in detail at Note C to Consolidated Financial Statements, "HYDRA 70
Rocket Contract and Related Contingencies," the Defense Systems segment has
certain disputes pending with the U.S. Government. In September 1995, management
of the Company reached a decision to exit the rocket manufacturing line of
business which makes up a substantial portion of the Defense Systems segment.
The backlog of H 70 rockets existing at the end of fiscal 1995 was shipped in
fiscal 1996.
Medical Systems sales increased 6.8% to $9.4 million in fiscal 1996 from $8.8
million in fiscal 1995.
In fiscal 1995, the Company's net sales increased 4.5% to $144.9 million from
$138.7 million in fiscal 1994. Sensors and Systems segment net sales increased
9.9% to $90.5 million from $82.4 million primarily reflecting the continued
growth
21
<PAGE>
in sales of commercial product lines, including those for industrial, automotive
and medical markets.
Defense Systems segment net sales decreased 4.3% to $45.6 million in fiscal 1995
from $47.6 million in fiscal 1994, primarily due to the decline in sales under a
completed rocket development contract for the Advanced Rocket System. This
contract represented approximately 6% of Defense Systems sales in fiscal 1995
compared to 11% in fiscal 1994. The principal product of the Defense Systems
segment was the HYDRA 70 (H 70) Rocket produced under a competitively bid fixed
price contract. Fiscal 1995 sales of H 70 related products were consistent with
the prior year.
In fiscal 1995, Medical Systems sales remained relatively flat at $8.8 million ,
a 1.9% increase from $8.7 million in fiscal 1994.
The Company's sales to international customers were approximately 9.2%, 8.3% and
7.5% of the Company's net sales for fiscal 1996, 1995 and 1994, respectively.
International sales can vary significantly as a percentage of sales depending on
the timing of shipments and size of orders.
Cost of Sales and Gross Profit
Cost of sales as a percentage of net sales was 68.8%, 74.2%, and, 70.4% in
fiscal 1996, 1995 and 1994, respectively.
The decrease in cost of sales as a percentage of net sales in fiscal 1996 from
fiscal 1995 results from provisions for additional contract completion costs of
$1.5 million which were included in 1995 cost of sales to reflect the wind up of
rocket related business, and the settlement of claims relating to prior year
H 70 contracts, which increased fiscal 1996 sales by $3.6 million. (See Note C
to Consolidated Financial Statements, "HYDRA 70 Rocket Contract and Related
Contingencies").
During fiscal 1996, the Sensors & Systems segment cost of sales as a percentage
of sales remained relatively flat, decreasing 0.3% to 62.5% from 62.8% in fiscal
1995.
The increase in cost of sales as a percentage of net sales in fiscal 1995 from
fiscal 1994 primarily reflects substantial increases in the Defense Systems
segment cost of sales. The increase in fiscal 1995 resulted from a lower priced
product mix and from the Company's decision to exit the rocket manufacturing
line of business as described above.
Downward pressure on gross profit margins is expected to continue, especially
for military contracts. The Company's gross profit margins from sales to the
U.S. Government for military and space products are generally lower than gross
profit margins from sales of commercial and industrial products. Management is
continuing measures intended to reduce costs and improve average margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales were
24.9%, 23.7% and 25.5% in fiscal 1996, 1995 and 1994, respectively.
Fiscal 1996 selling, general and administrative expenses increased $2.6 million
from $34.3 million in fiscal 1995 to $36.9 million. The Defense Systems segment
expenses increased $1.7 million due primarily to incentive accruals related to
successful completion of outstanding contracts and related claim issues, and
higher than anticipated costs associated with government contract delays during
fiscal 1996. Medical Systems selling, general and administrative expenses
increased by $0.7 million primarily to support continuing trials of a product in
development in fiscal 1996. Sensors & Systems selling, general and
administrative expenses increased to support operations selling commercial
products with a portion of the increase offset by declines in operations selling
government products.
Fiscal 1995 selling, general and administrative expenses of $34.3 million
included $1.1 million for the settlement of a U.S. Government Administrative
contract claim. Spending was reduced in both the Defense and Medical segments as
well as Corporate headquarters consistent with efforts to reduce operating
losses. The Sensors and Systems segment experienced higher selling, general and
administrative expenses to support sales growth in commercial product lines. In
addition to selling, general and administrative expense, the Company recorded a
charge in the fourth quarter of fiscal 1995 in the amount of 2.4% of net sales
($3.5 million) for royalty and related costs incurred on the basis of an interim
arbitration ruling (see Note M to Consolidated Financial Statements,
"Contingencies and Litigation").
22
<PAGE>
Research, Development and Related Expenses
The Company's internally funded research, development and related expenses as a
percentage of net sales were 3.3%, 3.4% and 5.2% for fiscal 1996, 1995 and 1994,
respectively.
Research and Development expenses in fiscal 1996 were concentrated in the
Sensors and Systems segment. Overall research and development spending declined
slightly as engineering effort was shifted to manufacturing support as new
automotive sensors began to ramp up production. The Medical Systems segment
increased research and development efforts during fiscal 1996 primarily as a
result of continuing product trials.
Research and Development spending in fiscal 1995 was concentrated in the Sensors
and Systems segment to support the growth of the commercial product lines.
Consequently, certain programs were phased out while emphasis on development of
sensors for the automotive industry was increased.
The Company believes that the continued timely development of new products and
enhancements to its existing products is essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will increase in absolute amount, but may fluctuate as a percentage of sales
depending on the Company's success in acquiring customers or, in some cases,
U.S. Government funding.
Interest Expense and Other Income
Interest expense as a percentage of net sales in fiscal 1996 remained consistent
with fiscal 1995 at 1.7%. Interest is paid primarily on the Senior Note debt.
There was no new long term debt issued during fiscal 1996.
Other income in fiscal 1996, 1995, and 1994 is comprised of royalty income from
H 70 licenses and interest income earned on highly liquid investments. Total
other income in fiscal 1996 increased slightly from the prior year; however,
H 70 royalties from the Defense Systems segment declined while interest income
on invested cash increased due to positive inflows of cash primarily from
the conversion of assets to cash as a consequence of concluding H 70 operations.
Income Tax Provision
The Company's effective tax (benefit) rate was 35.8%, (35.7%), and (40.0%), for
fiscal 1996, 1995 and 1994, respectively. The effective tax rate reflects the
statutory federal tax rate and the weighted average tax rate of the states in
which the Company conducts business. The fiscal 1996 tax rate reflects
realization of additional federal and state tax credits for research and
development identified in 1996. The fiscal 1995 effective tax rate was lower
than the effective rate in fiscal 1994 due to losses in certain states where
realization of the benefits of the losses is uncertain. The effective tax
benefit for fiscal 1994 reflects a favorable settlement of an IRS examination.
Deferred Income Taxes
At September 28, 1996, the Company had net deferred tax assets of $1,652,000
composed of deferred tax assets of $6,452,000, net of the valuation allowance of
$1,023,000, and deferred tax liabilities of $3,777,000. The Company believes it
is likely that the benefits of the deferred tax assets will be realized through
the reduction of future taxable income.
Management has considered appropriate factors in assessing the probability of
realizing these deferred tax benefits. These factors include the deferred tax
liabilities of $3,777,000 and the presence of significant taxable income in
fiscal 1996.
The valuation allowance is established primarily for state net operating losses
of the Medical Systems segment which cannot be offset against income of the
Company or its subsidiaries in other states. These states have relatively short
loss carryover periods of five to seven years.
Management intends to evaluate the realizability of deferred tax assets on a
quarterly basis by assessing the need for any additional valuation allowance.
Liquidity and Capital Resources
During fiscal 1996, operating activities provided $8.4 million in cash.
Consolidated net income of $1.9 million plus non-cash charges for depreciation
and amortization of $4.8 million and $3.2 million, respectively, were partially
offset by increases in net current assets. Defense Systems net cash inflows from
the liquidation of H 70 inventories were more than
23
<PAGE>
offset by increases in accounts receivable and the payment of accrued
liabilities from fiscal 1995 related to the Sensors and Systems arbitration with
the former shareholders of GPI (see Note M to the Consolidated Financial
Statements, "Contingencies and Litigation").
Investing activities, which used approximately $2.3 million in cash, included
the purchase of $4.0 million in capital equipment, primarily by Sensors &
Systems, which is consistent with the growth of the segment. Investment spending
was partially offset by cash inflows from a third party investment of $1.5
million in Medical Systems' preferred stock.
Cash was used in financing activities to reduce long term debt in connection
with scheduled payments stemming from the acquisitions of Meditron
(Meditron(TM)) and Zinnanti Surgical Instruments in previous years. The Company
also used cash to pay dividends on common stock. Proceeds from the issuance of
stock included $0.8 million from the exercise of stock options.
The Company had no material capital or other commitments at September 28, 1996
except as discussed in Note M to the Consolidated Financial Statements,
"Contingencies and Litigation."
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 107
"Disclosures About Fair Value of Financial Instruments" in fiscal year 1996.
There was no material impact on the consolidated financial statements as a
result of adoption of SFAS 107.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" in fiscal year 1996. SFAS No. 121 was applied prospectively from
the date of adoption and the effect of adoption was not material to the
consolidated financial statements.
As of September 28, 1996, the Company was in compliance with all financial
covenants on outstanding debt.
Based on the financial condition of the Company at September 28, 1996,
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.
24
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 28 September 30
dollars in thousands except par values 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $17,329 $11,690
Trade receivables:
United States Government 5,335 5,054
Commercial customers, less allowance for doubtful
accounts (1996--$843; 1995--$451) 13,610 13,806
- --------------------------------------------------------------------------------------------------------------------
18,945 18,860
Inventories--Note D 22,911 20,482
Refundable income taxes 356 498
Other current assets 2,073 2,374
Deferred income taxes--Note H 3,051 3,106
Current assets of H 70 Rocket line of business, net--Note C 4,360 6,820
- --------------------------------------------------------------------------------------------------------------------
Total current assets 69,025 63,830
Property, plant and equipment--Notes G and L
Land 4,093 4,093
Structures 7,409 7,216
Equipment 40,080 33,814
Leasehold improvements 1,410 1,396
- --------------------------------------------------------------------------------------------------------------------
52,992 46,519
Less allowances for depreciation and amortization 29,687 23,062
- --------------------------------------------------------------------------------------------------------------------
23,305 23,457
Other assets
Tradenames, patents and related assets, less
amortization (1996--$6,107; 1995--$4,945) 6,577 6,662
Technology acquired under license agreements,
less amortization (1996--$3,269; 1995--$2,342)--Note M 6,939 8,125
Goodwill, less amortization (1996--$1,315; 1995--$1,024) 4,542 4,833
Non-current assets of H 70 Rocket line of business, net--Note C 1,629 3,428
Other 2,994 3,403
- --------------------------------------------------------------------------------------------------------------------
22,681 26,451
- --------------------------------------------------------------------------------------------------------------------
$115,011 $113,738
====================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 28 September 30
dollars in thousands except par values 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $6,672 $8,092
Accrued expenses and other liabilities--Note F 15,163 16,602
Current portion of long-term debt--Note G 5,809 259
Current liabilities of H 70 Rocket line of business--Note C 3,279 2,954
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 30,923 27,907
Long-term debt, less current portion--Note G 24,348 30,157
Deferred income taxes--Note H 1,399 886
Other liabilities 851 1,469
Commitments and contingencies--Notes C, K, L and M -- --
Minority interest in consolidated subsidiary--Note A 1,518 --
Stockholders' equity--Notes I, J and K
Preferred stock
($.001 par value; authorized 2,000,000 shares; none issued) -- --
Common stock
($.001 par value; authorized 20,000,000 shares; issued
and outstanding; 1996-9,469,008 shares; 1995--9,246,183 shares) 9 9
Additional paid-in capital 25,773 24,112
Retained earnings 43,055 41,721
- --------------------------------------------------------------------------------------------------------------------
68,837 65,842
Less: Treasury stock, at cost (1996--2,455,372 shares;
1995--2,440,372 shares) (11,947) (11,793)
Unearned restricted stock--Note J (918) (730)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 55,972 53,319
- --------------------------------------------------------------------------------------------------------------------
$115,011 $113,738
====================================================================================================================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
26
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
Years Ended
------------------------------------------------
September 28 September 30 October 1
dollars in thousands except per share amounts 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales -- Note C $148,738 $144,903 $138,658
Cost of sales -- Note C 102,400 107,542 97,565
- -----------------------------------------------------------------------------------------------------------------------
46,338 37,361 41,093
- -----------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 36,918 34,261 35,354
Provision for royalty and related expenses -- Note M -- 3,500 --
Research, development and related expenses 4,936 4,963 7,246
- -----------------------------------------------------------------------------------------------------------------------
41,854 42,724 42,600
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 4,484 (5,363) (1,507)
Other income 1,013 990 1,016
Interest expense (2,554) (2,457) (2,417)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,943 (6,830) (2,908)
Federal and state income taxes -- Note H
Current (credit) 486 61 (569)
Deferred (credit) 568 (2,500) (595)
- -----------------------------------------------------------------------------------------------------------------------
1,054 (2,439) (1,164)
- -----------------------------------------------------------------------------------------------------------------------
Net Income (loss) $1,889 ($4,391) ($1,744)
=======================================================================================================================
Earnings (loss) per common and common
equivalent share -- Note I $0.27 ($0.65) ($0.26)
=======================================================================================================================
Weighted average shares outstanding -- Note I 7,107,818 6,758,745 6,656,959
=======================================================================================================================
Dividends per common share -- Note I $0.08 $0.08 $0.08
=======================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
Years Ended
------------------------------------------------
September 28 September 30 October 28
dollars in thousands 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,889 ($4,391) ($1,744)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 4,753 5,390 5,449
Amortization 3,174 2,795 2,490
Provision for losses on trade receivables 321 145 95
Loss on sale of assets 814 86 84
Deferred income taxes 568 (2,500) (595)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Trade receivables (3,719) (1,170) 5,103
Inventories 20,307 9,234 (10,098)
Progress payments on U.S. Government contracts 6,984 29,496 35,480
Billings related to progress payments (24,154) (31,876) (28,201)
Other current assets (585) 198 (477)
Trade accounts payable, accrued expenses and other liabilities (2,122) 4,778 (2,273)
Federal and state income taxes 188 389 (1,803)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,418 12,574 3,510
Cash flows from investing activities:
Proceeds from sale of preferred stock of subsidiary 1,475 -- --
Proceeds from dispositions of property, plant and equipment 409 -- --
Purchases of property, plant and equipment (3,954) (3,075) (9,130)
Other (227) (100) (1,217)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,297) (3,175) (10,347)
Cash flows from financing activities:
Borrowings on short-term debt -- 6,000 9,500
Payments on short-term debt -- (6,000) (9,500)
Proceeds from long-term debt -- -- 11,200
Principle payments on long-term debt and other liabilities (782) (1,550) (1,513)
Proceeds from issuance of common stock 1,009 318 641
Purchase of treasury stock (154) (133) (333)
Payment of cash dividends (555) (541) (533)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (482) (1,906) 9,462
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,639 7,493 2,625
Cash and cash equivalents at beginning of year 11,690 4,197 1,572
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $17,329 $11,690 $4,197
========================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
28
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BEI Electronics, Inc. and Subsidiaries
<CAPTION>
Additional Unearned
Common paid-in Retained Treasury restricted
dollars in thousands stock capital earnings stock stock Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 2, 1993 $9 $22,797 $48,930 ($11,327) ($803) $59,606
Net loss for 1994 (1,744) (1,744)
Stock options exercised 290 290
Employee Stock Purchase Plan
offering--Note K 347 347
Restricted Stock Plan--Note J 99 97 196
Purchase of treasury stock-
(57,100 shares at $5.84 average
per share) (333) (333)
Cash dividends (533) (533)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at October 1, 1994 9 23,533 46,653 (11,660) (706) 57,829
Net loss for 1995 (4,391) (4,391)
Stock options exercised 65 65
Employee Stock Purchase Plan
offering--Note K 254 254
Restricted Stock Plan--Note J 260 (24) 236
Purchase of treasury stock-
(19,500 shares at $6.80 average
per share) (133) (133)
Cash dividends (541) (541)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1995 9 24,112 41,721 (11,793) (730) 53,319
Net income for 1996 1,889 1,889
Stock options exercised 842 842
Employee Stock Purchase Plan
offering--Note K 225 225
Restricted Stock Plan--Note J 594 (188) 406
Purchase of treasury stock-
(15,000 shares at $10.27
average per share) (154) (154)
Cash dividends (555) (555)
- ----------------------------------------------------------------------------------------------------------------------------
Balances at September 28, 1996 $9 $25,773 $43,055 ($11,947) ($918) $55,972
============================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
29
<PAGE>
Notes to Consolidated Financial Statements
BEI Electronics, Inc. and Subsidiaries
September 28, 1996
Note A
Acquisition and Investments
During the second quarter of fiscal 1996, BEI Medical Systems Co., Inc., a
subsidiary of the Company (BEI Medical), sold $1.5 million of its preferred
stock to an unrelated third party for $1,500,000 in cash. The costs of issuing
the stock were offset against the proceeds. No gain or loss was recognized on
the sale of the minority interest.
In February of 1996, BEI Medical acquired the stock of Ovamed Corporation
(OvaMed(R)) for the purpose of acquiring Ovamed's product lines. The total cost
of the trademarks and patents acquired was $1,371,000 which is being amortized
over lives of ten and seventeen years, respectively.
Note B
Summary of Significant Accounting Policies
Fiscal Year: The Company's fiscal year ends on the Saturday nearest September
30. Fiscal years 1996, 1995 and 1994 each contained 52 weeks.
Consolidation: The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk: For fiscal 1996 and prior years, the Company sold
a substantial portion of its products directly to the U.S. Government or to U.S.
Government prime contractors. Sales to the U.S. Government or prime contractors
will be less significant in future years. See Notes C and N. The Company's
remaining products are sold to commercial customers throughout the United States
and in various foreign countries. Substantially all foreign sales are
denominated in U.S. dollars. The Company performs ongoing credit evaluations of
its commercial customers and generally does not require collateral. The Company
maintains reserves for potential credit losses. Historically, such losses have
been within the expectations of management.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from these estimates.
U.S. Government and Long-Term Contracts: Fixed price contracts are accounted for
by the percentage of completion method, with percentage of completion determined
primarily by units delivered. Units are considered delivered when accepted by
the customer. Sales under cost reimbursement contracts are recognized as costs
are incurred and include a proportion of the fees expected to be realized on the
contracts. Amounts related to billed retainages, amounts not billed and amounts
of uncertain claims are immaterial.
Revenue Recognition: Revenue for products not sold under long term contracts is
recognized as units are shipped or as services are provided.
Inventories: Costs incurred under U.S. Government contracts in process are
carried at cost less anticipated losses, if any, on the contracts. The U.S.
Government has title to, or a security interest in, certain inventories as a
result of progress payments on contracts. Other inventories are carried
principally at the lower of cost (first-in, first-out method) or market.
Provisions for contract costs in excess of inventory are reflected as accrued
contract costs in current liabilities.
Property, Plant and Equipment: Property, plant and equipment are recorded at
cost. Depreciation and amortization are provided in amounts sufficient to
amortize the cost of such assets over their estimated useful lives by the
straight-line method
30
<PAGE>
for structures and leasehold improvements and by accelerated or straight-line
methods for equipment.
Tradenames, Patents and Related Assets: This category consists primarily of
patents, tradenames and related non-competition agreements acquired in purchase
acquisitions. Patents and non-competition agreements are being amortized over
their term. Tradenames are amortized over twenty-five years.
Goodwill and Acquired Technology: Goodwill consists of the excess of cost over
fair value of net tangible assets acquired in purchase acquisitions. Goodwill is
amortized by the straight-line method over 20 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may be
impaired.
Acquired technology consists primarily of exclusive rights under a license
agreement to make, use and sell products utilizing quartz rate sensing
technology. Acquired technology is amortized over the average remaining life of
the underlying patents at the date of acquisition, or the estimated useful life
of the technology, whichever is less.
Earnings Per Share: Earnings per share are computed based on the weighted
average number of shares of common stock (less treasury stock) outstanding
during the year, adjusted for the effect of common stock equivalents
attributable to dilutive stock options (using the treasury stock method).
Research and Development Costs: Company-sponsored research and development costs
include research and development efforts related to U.S. Government products and
services. U.S. Government contractual arrangements limit the amounts of research
and development and bid and proposal costs recoverable under U.S. Government
contracts. Company-sponsored product development costs are charged to expense
when incurred. Customer-sponsored research and development costs incurred
pursuant to contracts are accounted for as other contract costs.
Postretirement Benefits: The Company does not provide postretirement benefits
other than pensions under a plan. Liabilities for postretirement benefits under
individual contracts are recorded over the term of employment.
Stock-Based Compensation: In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Under the provisions of SFAS No. 123, companies can elect to
account for stock-based compensation plans using a fair value based method or
continue measuring compensation expense for those plans using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25). SFAS No. 123 requires
that companies electing to continue using the intrinsic value method must make
pro forma disclosures of net income and earnings per share in its annual
financial statements as if the fair value method of accounting had been applied.
SFAS No. 123 will be effective for the Company's fiscal year 1997. The Company
currently accounts for its stock-based compensation plans and intends to
continue to account for stock-based compensation using the intrinsic value
method, and accordingly, this pronouncement will not have an effect on the
Company's financial position or results of operations.
Impairment of Assets: The Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," on October 1, 1995. Under
SFAS No. 121, impairment losses are recognized when information indicates the
carrying amount of long-lived assets, identifiable intangibles and goodwill
related to those assets will not be recovered through future operations or sale.
Impairment losses for assets to be held or used in operations will be based on
the excess of the carrying amount of the asset over the asset's fair value.
Assets held for disposal, except for discontinued operations, will be carried at
the lower of carrying amount or fair value less cost to sell. SFAS No. 121 was
applied prospectively from the date of adoption and the effect of adoption was
not material.
Reclassifications: Certain reclassifications have been made to the fiscal 1995
and 1994 financial statements to conform to the fiscal 1996 presentation.
Note C
HYDRA 70 Rocket Contract and Related Contingencies
In September 1995, management of the Company reached a decision to exit the
rocket manufacturing line of business which made up a substantial portion of the
Company's Defense Systems segment. The principal product of the Defense Systems
31
<PAGE>
segment was the HYDRA 70 (H 70) Rocket produced under a competitively bid fixed
price contract. Contract production was conducted in Camden, Arkansas and
Euless, Texas. Rockets and components are subjected to various tests and
inspections by the U.S. Government. Production is based on "build to print"
technical data packages ("TDP") supplied by the U.S. Government for each
significant component.
As a result of the failure of certain fuze production lots to meet required
acceptance specifications, the Company, in 1995 and 1996, experienced delays in
production and delivery of rockets which contained the fuzes. As a result of
these delays, the Company incurred additional costs relating to materials, labor
and overhead. Based upon the lack of constructive response from the government
in addressing TDP issues, the Company reevaluated the estimated cost to complete
the H 70 contract and in September 1995 recorded a reduction in gross margin on
the contract of $1,468,000. Deliveries under the H 70 contract were completed by
September 28, 1996.
As a result of the decision to exit the rocket line of business, the Company has
and will incur costs relating to employee severance and the closure and
withdrawal from the leased facility in Camden, Arkansas and similar costs
related to its owned facility in Euless, Texas. The Company recorded costs of
sales of $1,250,000 as exit costs at September 30, 1995 consisting of employee
severance of $750,000, leasehold abandonment of $250,000 and owned facility
costs of $250,000. During fiscal 1996, the Company incurred $726,000 of costs
for employee severance and leasehold and facility costs of $350,000. Additional
amounts were accrued during fiscal 1996 for severance costs of $350,000 and
facility costs of $350,000. During fiscal 1996, the Company recorded net losses
of $640,000 on disposals of assets of the rocket business. At September 28,
1996, an additional charge of $313,000 was recorded to reflect management's
estimate of the fair value of the Euless facility based on current market
conditions. As of September 28, 1996, substantially all inventory and equipment
assets of the rocket business had been written off or disposed of except
remaining assets at the Euless facility which management expects to dispose of
in fiscal 1997.
Sales and cost of sales for the H 70 rocket system line of business were as
follows for the fiscal periods indicated.
(dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Sales $37,927 $38,517 $38,292
Cost of Sales 33,449 39,979 36,251
- --------------------------------------------------------------------------------
Non-H 70 sales in the Defense Systems segment include sales under a cost-plus
fee advanced rocket development contract which has no further funding beyond
1996. Sales under this contract were $521,000, $2,893,000 and $5,021,000 for
fiscal 1996, 1995 and 1994, respectively.
Sales for other non-H 70 products (weapons management systems) in the Defense
Systems segment were $4,187,000, $4,171,000 and $4,306,000 for fiscal 1996, 1995
and 1994, respectively.
In October 1995, the Company's Defense Systems subsidiary received notification
from the Procuring Contracting Officer for the H 70 Rocket Systems Contract that
the Government considered Defense Systems' "failure to maintain satisfactory
fuze production along with projected manufacturing cost overrun conditions
endangering performance of the subject contract." The notice further advised
that the Government may terminate the contract for default unless evidence was
provided showing that this condition could be cured. Counsel for Defense Systems
responded to the notification in early November 1995. The response set forth
Defense Systems' position that termination for default was not an appropriate
Government option due to Defense Systems' compliance with the contract and the
Government's responsibility for fuze technical difficulties, as a result of
defective technical data provided to Defense Systems. The Company received no
further communications regarding this issue and deliveries under the contract
were substantially completed in September 1996.
In August, 1995, Defense Systems filed a claim against the Government relative
to the fuze technical data problems experienced on previous contracts. The
amount of the claim was approximately $5 million. This claim was settled with
the Government in September 1996 for $3.6 million. The settlement was effected
through a contract modification to increase the selling price of the related
rockets by $3.6 million and was recorded as additional sales in September 1996.
Defense Systems also believes it has rights for additional claims against the
Government arising out of the H 70 contract and a substantial claim was filed in
1996. Due to the uncertainties inherent in the formal claims process, the
Company has not recorded any recoveries for unresolved claims in the
accompanying financial statements.
32
<PAGE>
During a vendor survey conducted by BEI Defense Systems Company in the first
quarter of fiscal 1994, a component used in the H 70 rocket motor was identified
as being produced by a process that differed from the one that the vendor had
certified. BEI's customer, the U.S. Government, was notified of the potentially
non-conforming material. The customer subsequently agreed to accept completed
but undelivered rocket motors and the Company agreed to replace the affected
parts under warranty. The Company provided for the cost of warranty replacement
of the affected parts in all undelivered rocket motors in 1994. This rework
effort was completed in fiscal 1995.
Note D
Inventories
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
Finished products $1,405 $1,607
Work in process 6,803 6,085
Materials 11,660 9,991
Costs incurred under long-term contracts,
including U.S. Government contracts 3,840 26,269
Unliquidated progress payments (451) (17,621)
- --------------------------------------------------------------------------------
23,257 26,331
Less inventories included in current
assets of H 70 Rocket line of business,
net of progress payments of
(1996 -- $451; 1995 -- $17,621) 346 5,849
- --------------------------------------------------------------------------------
Net inventories $22,911 $20,482
================================================================================
Note E
Bank Credit Agreements
At September 28, 1996 and September 30, 1995, the Company had a $15 million
unsecured credit line with a bank. There were no borrowings under the line at
these dates. Based on the borrowing capacity limitations contained in the Senior
Notes described in Note G, approximately $7.1 million could be borrowed under
the credit line at September 28, 1996. Interest on borrowings is based upon
either the Prime Commercial Lending Rate of Canadian Imperial Bank of Commerce
("CIBC") or the rate which would be offered by CIBC to prime banks in the
interbank Eurodollar market depending on the term of borrowing.
Under the line of credit, the bank will also issue standby letters of credit. At
September 28, 1996, $5.0 million was available to fund letters of credit issued
on behalf of the Company. There were no letters of credit outstanding under this
facility at September 28, 1996.
The credit agreement, if not further extended or renewed by the lender, expires
on February 28, 1997. The agreement has covenants concerning certain financial
ratios and minimum balances of net worth. At September 28, 1996, the Company was
in compliance with these financial covenants.
33
<PAGE>
<TABLE>
Note F
Accrued Expenses and Other Liabilities
<CAPTION>
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee compensation $1,946 $2,082
Vacation 1,880 2,176
Interest 1,165 939
Contract costs 830 1,348
Commissions 661 649
Payroll and other taxes 531 404
Royalties and related costs 4,049 4,066
Other 5,556 7,243
- --------------------------------------------------------------------------------------------------------------------
16,618 18,907
Less accrued expenses included in current liabilities of H 70 Rocket line of 1,455 2,305
business
- --------------------------------------------------------------------------------------------------------------------
Accrued Expenses and Other Liabilities $15,163 $16,602
=====================================================================================================================
</TABLE>
<TABLE>
Note G
Long-Term Debt
<CAPTION>
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6.73% Series A Senior Notes; due in annual installments of $3,360 from
October 1, 1996 through October 1, 2000 $16,800 $16,800
6.73% Series B Senior Notes; due in annual installments of $2,240 from
November 15, 1996 through November 15, 2000 11,200 11,200
Mortgage note payable with interest at 7.96%; due in monthly installments of
principal and interest of $14 until 1998 when the remaining balance of
approximately $1,700 is due; collateralized by property with a book value of
approximately $2,047 at September 28, 1996 1,762 1,785
Other notes payable with interest ranging from 5.0% to 8.0%; payable in
monthly installments through 1998 395 560
Capitalized equipment lease obligations -- 71
- --------------------------------------------------------------------------------------------------------------------
30,157 30,416
Less current portion 5,809 259
- --------------------------------------------------------------------------------------------------------------------
$24,348 $30,157
=====================================================================================================================
</TABLE>
Annual maturities of long-term debt are as follows: fiscal 1997--$5,809,000;
1998--$9,178,000; 1999--$7,330,000; 2000--$5,600,000; 2001--$2,240,000;
thereafter -- none.
Interest of approximately $2,328,000, $2,413,000 and $2,423,000 was paid during
fiscal 1996, 1995 and 1994, respectively.
The Senior Note Agreement contains covenants concerning certain financial
ratios, dividend payments and minimum balances of net worth. At September 28,
1996, the Company was in compliance with all covenants.
34
<PAGE>
Note H
Income Taxes
The Company files a consolidated federal income tax return which includes all
its eligible subsidiaries. In accordance with the tax allocation arrangement
between the Company and its subsidiaries, income taxes are allocated generally
as if the Company and its subsidiaries filed separate U.S. and state income tax
returns.
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of September 28, 1996 and September 30, 1995 are as follows (in thousands):
Deferred tax assets 1996 1995
- -----------------------------------------------------------------------------
Accrued expenses $3,871 $2,604
Inventory valuation 204 1,254
Contract reserves 420 565
State net operating loss carryovers 1,023 1,223
Other 934 1,678
- -----------------------------------------------------------------------------
Total deferred tax assets 6,452 7,324
Valuation allowance for deferred tax assets 1,023 1,220
- -----------------------------------------------------------------------------
Total deferred tax assets 5,429 6,104
- -----------------------------------------------------------------------------
Deferred tax liabilities
Depreciation and property basis difference 2,316 $2,422
Amortization of intangibles 260 179
Prepaid expenses 163 358
Accrued expenses 227 379
Other 811 546
- -----------------------------------------------------------------------------
Total deferred tax liabilities 3,777 3,884
- -----------------------------------------------------------------------------
Net deferred tax assets 1,652 $2,220
=============================================================================
The valuation allowance for deferred tax assets decreased by a net $197,000
during the year ended September 28, 1996. The valuation allowance was adjusted
due to the changing uncertainties in realizing net operating loss carryovers for
state income taxes. State net operating loss carryovers generally expire in five
to seven years.
Significant components of the provision for income taxes are as follows:
1996 1995 1994
- -----------------------------------------------------------------------------
Current (credit)
Federal $414 $148 $(835)
State 72 (87) 266
- -----------------------------------------------------------------------------
Total Current 486 61 (569)
Deferred (credit)
Federal 305 (2,199) (95)
State 263 (301) (500)
- -----------------------------------------------------------------------------
Total Deferred 568 (2,500) (595)
- -----------------------------------------------------------------------------
Total income tax expense (benefit) $1,054 ($2,439) ($1,164)
=============================================================================
35
<PAGE>
A reconciliation of the statutory federal income tax rate to the Company's
effective rate is presented below.
1996 1995 1994
- -------------------------------------------------------------------------------
Income tax (credit) at the statutory rate of 34% $1,001 ($2,322) ($989)
Federal income tax effect of state income taxes (113) 132 80
Goodwill amortization 100 100 92
R & D and related credits (246) -- --
Other (23) 39 (113)
- -------------------------------------------------------------------------------
Federal income taxes (credit) 719 (2,051) (930)
State income taxes (credit) 335 (388) (234)
- -------------------------------------------------------------------------------
Provision(credit) for income taxes $1,054 ($2,439) ($1,164)
================================================================================
Income taxes of approximately $1,000,000; $1,420,000 and $1,601,000 were paid
during fiscal 1996, 1995 and 1994 respectively. Refunds of approximately
$800,000 and $1,400,000 were received in fiscal 1996 and 1995, respectively.
Note I
Stockholders' Equity
The Company's preferred stock may be issued from time to time in one or more
series. The Board of Directors is authorized to establish from time to time the
number of shares to be included in each series, and to designate the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption, redemption price or prices and liquidation preferences.
During fiscal 1992 and 1990, the Board of Directors of the Company authorized
the purchase from time to time in open market transactions of up to 300,000 and
500,000 shares of common stock, respectively. During fiscal year 1996, the Board
approved an additional repurchase of up to 200,000 shares on the open market. As
of September 28, 1996, 799,424 shares had been repurchased at a cost of
$5,664,000. These shares are included as treasury stock at September 28, 1996.
Note J
Stock Option and Restricted Stock Plans
In 1982, the Company's stockholders voted to adopt an incentive stock option
plan. The plan provided for option prices based on the fair market value of the
stock on the date the option is granted. The Incentive Stock Option Plan of 1982
terminated December 15, 1991; no further shares can be granted and the options
outstanding at September 28, 1996 will expire if not exercised by 1998.
<TABLE>
Transactions relating to the Incentive Stock Option Plan of 1982 are summarized
as follows:
<CAPTION>
Number of common shares Price per share
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at October 2, 1993 36,000 $3.13 - $3.75
Exercised (8,000) $3.13
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at October 1, 1994 28,000 $3.75
Exercised --
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1995 28,000 $3.75
Exercised (4,000) $3.75
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at September 28, 1996 24,000 $3.75
======================================================================================================================
</TABLE>
In November 1987, the Company's stockholders voted to adopt an additional
incentive stock option plan and a supplemental (nonqualified) stock option plan.
The incentive stock option plan provides for option prices based on the fair
market value of the stock on the date the option is granted, as determined by
the Board of Directors. The supplemental stock option plan requires that the
exercise price of each option shall not be less than 50% of the fair market
value on the date the option is granted. Under both plans the options are
generally exercisable in three approximately equal installments commencing one
year from the date of grant with accumulation privileges.
36
<PAGE>
Shares issued pursuant to options granted under these two plans shall not exceed
1,250,000 in the aggregate.
<TABLE>
Transactions relating to the Incentive and Supplemental Stock Option Plans of
1987 are summarized as follows:
<CAPTION>
Number of common shares Price per share
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at October 2, 1993 820,327 $2.88 - $9.13
Granted 3,000 $6.13
Exercised (26,121) $2.88 - $7.25
Terminated (129,741) $3.75 - $9.13
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at October 1, 1994 667,465 $2.88 - $9.13
Granted 31,000 $5.00
Exercised (16,814) $2.88 - $4.38
Terminated (71,256) $4.38 - $9.13
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1995 610,395 $2.88 - $9.13
Granted 11,000 $6.00 - $7.13
Exercised (115,922) $2.88 - $9.13
Terminated (48,511) $1.72 - $9.13
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at September 28, 1996 456,962 $2.88 - $9.13
============================================================================================----======================
</TABLE>
As of September 28, 1996, options for 439,288 shares were exercisable and
373,819 shares were available for stock option grants under the 1987 plans.
In February 1992, the Company's Board of Directors approved the 1992 Restricted
Stock Plan, ratified by the Company's shareholders in February, 1993, and
authorized up to 350,000 shares to be issued to certain key individuals subject
to forfeiture if employment terminated prior to the end of prescribed periods.
The effective date of the plan was January 1, 1992. As of September 28, 1996,
341,426 shares had been granted and of these, 277,143 shares are outstanding. Of
the outstanding shares, 92,111 have fully vested. There are 72,857 shares
reserved for issue. The market value at the date of grant of shares awarded
under the plan is recorded as unearned restricted stock. The market value of
shares granted is amortized to compensation expense over the periods of vesting.
Compensation expense of $406,000, $236,000 and $196,000 was recorded in fiscal
1996, 1995 and 1994, respectively.
Note K
Employee Benefit Plans
The Company has a defined contribution retirement plan for the benefit of all
eligible employees. The plan qualifies under Section 401(k) of the Internal
Revenue Code thereby allowing eligible employees to make tax deductible
contributions to the plan. The plan provides for a minimum annual employer
contribution of 1% of total employee compensation and an employer matching
contribution equal to 25% of the participant's contribution to the plan up to a
maximum employer matching contribution of 1% of compensation. Additional
contributions are at the discretion of the Board of Directors. The Company's
contributions to the plan for fiscal 1996, 1995 and 1994 were approximately
$676,000, $736,000 and $777,000, respectively.
The Company also has an employee stock purchase plan. The purchase plan
qualifies as an employee stock purchase plan under Section 423 of the Internal
Revenue Code. Under the purchase plan, the Board of Directors may authorize the
participation by employees (excluding certain highly compensated employees) in
offerings of its common stock. Under the purchase plan, employees may have up to
10% of their salary withheld to be used to purchase shares of common stock at a
price equal to not less than 85% of the fair market value of the stock at
specified applicable dates. The purchase plan was suspended as of August 1,
1996, due to efforts to simplify the Company's equity accounts to support
analysis of various organization alternatives. At that date, 459,174 shares had
been issued and 140,826 shares were reserved for purchase over the ten year life
of the purchase plan.
37
<PAGE>
Note L
Lease Commitments
Operating leases consist principally of leases for structures and land. Certain
of the operating leases contain various options for renewal and/or purchase of
the related assets for amounts approximating their fair market value at the date
of exercise of the option. The future minimum payments for operating leases
consisted of the following at September 28, 1996:
(dollars in thousands)
- --------------------------------------------------------------------------------
1997 $1,541
1998 1,253
1999 732
2000 37
Thereafter --
- --------------------------------------------------------------------------------
Total minimum lease payments $3,563
================================================================================
There are no minimum capital lease payments beyond fiscal 1996.
Total rental expense attributable to property, plant and equipment amounted to
approximately $1,758,000, $2,436,000, and $3,082,000 for fiscal 1996, 1995 and
1994 respectively.
Note M
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. 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 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. These conditions were
substantially met in fiscal 1996 and $1.0 million was accrued for these costs
and charged to operations in the fourth quarter of fiscal 1996. 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
38
<PAGE>
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.
The second phase of the arbitration involved 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 April
1996 the panel issued a second interim ruling which will become final at the end
of the arbitration. In the ruling the panel asked both of the parties to
quantify royalties using guidance set forth by the panel. Both parties requested
clarification of several issues in the April decision. In July 1996, the panel
issued a clarification of the April decision and both parties agreed to royalty
amounts submitted to the panel in August 1996. These amounts were reflected in
the Company's fiscal 1996 results of operations and were not materially
different from the Company's previous estimates.
In November 1996 both parties presented their respective arguments as to why
they were the substantially prevailing party in the arbitration and thus
eligible to be awarded fees and costs at the discretion of the panel. The panel
unexpectedly ruled that the former shareholders may be entitled to recover the
costs and expenses incurred by them (including reasonable attorney's fees) in
connection with the arbitration. Based on presently available information, it is
not possible for the Company to estimate the amount of costs and expenses that
may awarded by the panel and ultimately payable by the Company. If the final
award is for all the costs and expenses of the former shareholders, the amount
would be substantial and would result in a one-time charge to operations in the
quarter in which it is recognized.
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 its president Richard Turner, 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. On October 16, 1995 the Court clarified
that the partial summary judgment of its May 16, 1994 order remains in effect.
On January 31, 1996, the Court issued a ruling which affirmed the legal basis
for BEI Medical Systems to assert a counterclaim for damages against
CooperSurgical regarding the parties' electrosurgical generator contract.
In June 1996, more than one year after fact and expert discovery closed in May
1995, CooperSurgical's counsel sent to BEI's counsel a letter purporting to
supplement CooperSurgical's previous responses to interrogatories. The June 1996
letter indicated that CooperSurgical's damages for one particular aspect of the
claim were between $24 and $50 million with respect to a claim for which
CooperSurgical's experts had previously estimated damages of $3.4 million. BEI
will vigorously oppose any CooperSurgical attempt whatsoever to introduce at
trial any evidence of a damage claim based upon its June, 1996 purported
supplement.
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated. In
1995 expert witnesses for BEI prepared a formal response to the damage
computations CooperSurgical previously submitted. BEI's experts stated that if
CooperSurgical were entitled to damages, those damages would total less than
$100,000, and would be more than offset by BEI Medical Systems' counterclaims
against CooperSurgical, if BEI Medical Systems were successful in its
counterclaims. Several trial dates were set during 1996, all of which were
postponed by the court. The trial is currently scheduled for March 17, 1997.
BEI, after consultation with counsel, believes that the additional damage
figures stated in the June 1996 letter from CooperSurgical's counsel are
unfounded. 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. Management believes that none of these legal actions will have a
material impact on the Company's operating results or financial condition.
39
<PAGE>
Note N
Business Segment Data
The Company operates principally in three business segments, the Sensors &
Systems segment, the Defense Systems segment and the Medical Systems segment.
The Sensors & Systems segment includes precision sensors, control devices and
systems used in a wide variety of equipment and machinery for aerospace,
industrial, automotive and medical applications requiring high accuracy and
reliability. These products are produced by BEI Sensors and Systems Company. The
Defense Systems segment produces primarily rocket motors, combat and training
warheads, special ordnance components and rocket control systems. See Note C
regarding the Company's decision to exit the rocket manufacturing line of
business. These systems are produced by BEI Defense Systems Company. The Medical
Systems segment consists primarily of electrosurgical units and instruments used
in minimally invasive surgery and procedures. These products are either
manufactured by BEI Medical Systems Company or purchased from the manufacturer
and marketed by BEI Medical Systems Company.
Intersegment sales are not significant. Identifiable assets by business segment
include both assets directly identified with those operations and an allocable
share of jointly used assets. General corporate assets consist primarily of
cash.
<TABLE>
The following information reflects business segment data:
<CAPTION>
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Sensors & Systems $96,746 $90,475 $82,361
Defense Systems 42,635 45,581 47,619
Medical Systems 9,357 8,847 8,678
- -----------------------------------------------------------------------------------------------------------------------
Net sales $148,738 $144,903 $138,658
=======================================================================================================================
Segment operating profit (loss)
Sensors & Systems $10,897 4,729 8,557
Defense Systems 2,277 (2,358) (210)
Medical Systems (4,437) (3,068) (3,710)
- -----------------------------------------------------------------------------------------------------------------------
Segment operating profit (loss) $8,737 $(697) $4,637
=======================================================================================================================
Corporate expenses $(4,253) $(4,666) $(6,144)
Other income 1,013 990 1,016
Interest expense (2,554) (2,457) (2,417)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $2,943 ($6,830) ($2,908)
=======================================================================================================================
Identifiable assets
Sensors & Systems $73,057 $74,028 $68,199
Defense Systems 10,933 18,198 28,790
Medical Systems 13,692 12,944 14,854
General corporate assets 17,329 8,568 589
- -----------------------------------------------------------------------------------------------------------------------
Total assets $115,011 $113,738 $112,432
=======================================================================================================================
Depreciation and amortization expense
Sensors & Systems $5,835 $5,850 $5,462
Defense Systems 457 894 1,127
Medical Systems 1,635 1,441 1,350
- -----------------------------------------------------------------------------------------------------------------------
$7,927 $8,185 $7,939
=======================================================================================================================
Capital expenditures for property plant and equipment
Sensors & Systems $3,636 $2,635 $8,080
Defense Systems -- 51 830
Medical Systems 318 389 220
- -----------------------------------------------------------------------------------------------------------------------
$3,954 $3,075 $9,130
=======================================================================================================================
</TABLE>
Net sales to customers in foreign countries amounted to $13,641,000, $11,961,000
and $10,436,000 in fiscal 1996, 1995 and 1994, respectively. In fiscal 1996,
1995 and 1994, foreign sales did not exceed 10% of consolidated net sales in any
individual geographic area.
40
<PAGE>
Net sales to the U.S. Government for the Sensors & Systems segment's products
amounted to $25,986,000, $28,930,000 and $32,718,000 in fiscal 1996, 1995 and
1994, respectively. Net sales to the U.S. Government for the Defense Systems
segment's products amounted to $41,219,000, $44,012,00 and $46,043,000 in fiscal
1996, 1995 and 1994, respectively.
Note O
Quarterly Results of Operations (Unaudited)
<TABLE>
The tables below present unaudited quarterly financial information for fiscal
1996 and 1995:
<CAPTION>
(dollars in thousands except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
Three months ended
- -------------------------------------------------------------------------------------------------------------------------
Dec 30, Mar 30, Jun 29, Sep 28,
1995 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $34,666 $39,995 $35,172 $38,905
Gross profit 10,119 11,229 11,918 13,072
Net income 353 609 776 151
Earnings per common share 0.05 0.09 0.11 0.02
- -------------------------------------------------------------------------------------------------------------------------
Dec 31, Apr 1, Jul 1, Sep 30,
1994 1995 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
Net sales $36,698 $36,531 $36,634 $35,040
Gross profit 9,912 8,690 10,858 7,901
Net income(loss) (445) (402) 403 (3,947)(1)
Earnings(loss) per common share (0.07) (0.06) 0.06 (0.58)
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Net loss for the fourth quarter of fiscal 1995 includes after tax charges
of $2.1 million related to the GPI arbitration (see Note M to Consolidated
Financial Statements) and $750,000 related to the Company's decision to
exit the rocket manufacturing line of business and $910,000 related to an
adjustment for the estimated cost to complete the H 70 contract (see Note
C to Consolidated Financial Statements).
</FN>
</TABLE>
Note P
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("Statement 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. Whenever
possible, quoted market prices were used to develop fair values. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets, and, in many cases, could
not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The following methods and
assumptions were used by the Company in estimate its fair value disclosures for
financial instruments as of September 28, 1996, and as of September 30, 1995.
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Long-Term Debt: The fair value of these liabilities has been estimated based
upon the discounted future cash flows. The discount rate used included a risk
free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position. The fair value of the
Company's long-term debt is approximately $23,620,00 and $28,756,000 compared
with the carrying amounts of $24,348,000 and $30,157,000 at September 28, 1996
and September 30, 1995, respectively.
41
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
BEI Electronics, Inc.
We have audited the accompanying consolidated balance sheets of BEI Electronics,
Inc. and subsidiaries as of September 28, 1996 and September 30, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BEI Electronics, Inc. and
subsidiaries at September 28, 1996 and September 30, 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 28, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Francisco, California
November 20, 1996
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to directors and executive
officers is set forth in Part I of this Report. Additional
information required by this Item is incorporated herein by
reference to the section entitled "Compliance with Section
16(a) of the Securities and Exchange Act of 1934" of the Proxy
Statement related to the Company's 1997 Annual Meeting of
Stockholders to be filed by the Company with the Securities
and Exchange Commission (the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the sections entitled "Executive Compensation"
and "Certain Transactions" of the Company's Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein
by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Company's
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the sections entitled "Certain Transactions"
and "Compensation Committee Interlocks and Insider
Particpation" of the Definitive Proxy Statement.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<TABLE>
The following documents are filed as part of this Form 10-K.
<CAPTION>
Form 10-K
Page
Number
-------
<S> <C> <C>
(a)(1) Index to Consolidated Financial Statements.
The following Consolidated Financial Statements of BEI Electronics,
Inc. and its subsidiaries are filed as part of this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors 42
Consolidated Balance Sheets -
September 28, 1996 and September 30, 1995 25
Consolidated Statements of Operations -
Years ended September 28, 1996, September 30, 1995
and October 1, 1994 27
Consolidated Statements of Cash Flows -
Years ended September 28, 1996, September 30, 1995
and October 1, 1994 28
Consolidated Statements of Stockholders' Equity -
Years ended September 28, 1996, September 30, 1995
and October 1, 1994 29
Notes to Consolidated Financial Statements -
September 28, 1996 30
(a)(2) Index to Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of BEI
Electronics, Inc. and its subsidiaries for each of the years ended
September 28, 1996, September 30, 1995 and October 1, 1994 is filed
as part of this Form 10-K:
Schedule II Valuation and Qualifying Accounts S-1
Report of Ernst & Young LLP, Independent Auditors as S-2
to Schedule
Consent of Ernst & Young LLP, Independent Auditors S-3
</TABLE>
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
44
<PAGE>
<TABLE>
(a)(3) Listing of Exhibits
<CAPTION>
Exhibit Numbers Description Footnote
--------------- ----------- --------
<S> <C> <C>
3.1 Restated Certificate of Incorporation (i)
3.2 Amended by-laws of the Company as of April 1, 1996
4.1 Reference is made to exhibits 3.1, 3.2, 10.14, 10.17 and
10.19
10.1 * Registrant's 1982 Incentive Stock Option Plan, as (iii)
amended and standard option grant form used in
connection with the plan.
10.2 * Registrant's 1987 Incentive Stock Option Plan, as (iii)
amended and standard option grant form used in
connection with the plan
10.3 * Additional standard option grant form used in connection (ii)
with Registrant's 1987 Incentive Stock Option Plan, as
amended
10.4 * Registrant's 1987 Supplemental Stock Option Plan, as (v)
amended November 12, 1990, and standard option grant
form used in connection with the plan
10.5 * Option grant forms used in connection with options (i)
granted to certain employees on May 1, 1989
10.6 * Description of Management Incentive Bonus Plan (i)
10.7 * Consulting Agreement, dated July 3, 1990, between BEI (iv)
Electronics, Inc. and George S. Brown
10.8 * Registrant's 1992 Restricted Stock Plan and standard (vi)
form of restricted stock agreement used in connection
with the plan
10.9 HYDRA 70 Rocket Systems Contract, dated April 20, (vii)
1992
10.10 Credit Agreement, dated June 1, 1993, between BEI (viii)
Electronics, Inc., Defense Systems Company, Inc.,
Motion Systems Company, Inc., New SD, Inc., BEI
Medical Systems Company, Inc. and Canadian Imperial
Bank of Commerce
10.11 Personal Service Contract, dated June 14, 1993, between (viii)
BEI Electronics, Inc. and William G. Howard, Jr.
45
<PAGE>
10.12 First Amendment to Credit Agreement, dated September (ix)
23, 1993, between BEI Electronics, Inc., Defense
Systems Company, Inc., Motion Systems Company, Inc.,
New SD, Inc., BEI Medical Systems Company, Inc. and
Canadian Imperial Bank of Commerce
10.13 Note Agreement, dated August 15, 1993, between BEI (ix)
Electronics, Inc. and Principal Mutual Life Insurance
Company, Principal National Life Insurance Company,
Berkshire Life Insurance Company and TMG Life
Insurance Company
10.14 * 1989 Employee Stock Purchase Plan, adopted June 1, (ix)
1989, as Amended through November 18, 1993
10.15 Second Amendment to Credit Agreement, dated April 1, (x)
1994, between BEI Electronics, Inc., Defense Systems
Company, Inc., Motion Systems Company, Inc., New SD
Inc., BEI Medical Systems Company, Inc. and Canadian
Imperial Bank of Commerce
10.16 First Amendment to Note Agreement, dated April 1, (x)
1994, between BEI Electronics, Inc. and Principal Mutual
Life Insurance Company, Principal National Life
Insurance Company, Berkshire Life Insurance Company
and TMG Life Insurance Company
10.17 Third Amendment to Credit Agreement, dated September (xi)
30, 1994, between BEI Electronics, Inc., Defense
Systems Company, Inc., BEI Sensors & Systems
Company, Inc., BEI Medical Systems Company, Inc. and
Canadian Imperial Bank of Commerce
10.18 Second Amendment to Note Agreement, dated September (xi)
30, 1994, between BEI Electronics, Inc. and Principal
Mutual Life Insurance Company, Principal National Life
Insurance Company, Berkshire Life Insurance Company
and TMG Life Insurance Company
10.19 Fourth Amendment to Credit Agreement, dated June 1, (xii)
1995, between BEI Electronics, Inc., BEI Sensors &
Systems Company, Inc., Defense Systems Company, Inc.,
BEI Medical Systems Company, Inc. and Canadian
Imperial Bank of Commerce
10.20 Fifth Amendment to Credit Agreement, dated June 1, (xvi)
1996 between BEI Electronics, Inc., BEI Sensors &
Systems Company, Inc., Defense Systems Company, Inc.,
BEI Medical Systems Company, Inc. and Canadian
Imperial Bank of Commerce.
10.21 * Extension to Consulting Agreement, effective June 30,
1996, between BEI Electronics, Inc. and George S.
Brown.
46
<PAGE>
10.22 Sixth Amendment to Credit Agreement, dated October
31, 1996, between BEI Electronics, Inc., BEI Sensors &
Systems Company, Inc., Defense Systems Company, Inc.,
BEI Medical Systems Company, Inc. and Canadian
Imperial Bank of Commerce.
11.1 Statement regarding computation of per share earnings
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (EDGAR only)
<FN>
* Indicates management contracts or compensatory plans or arrangements
filed pursuant to Item 601(b)(10) of regulation S-K.
(i) Incorporated by reference. Previously filed as an exhibit to
the Registrant's Registration Statement on Form S-1 (File No.
33-29032).
(ii) Incorporated by reference. Previously filed as an exhibit to
Amendment No. 1 to the Registrant's Registration Statement on Form
S-1 (File No. 33-29032).
(iii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated December 30, 1989.
(iv) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated June 30, 1990.
(v) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated September 29, 1990.
(vi) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-8 (File No. 33-46766).
(vii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 3, 1992.
(viii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated July 3, 1993.
(ix) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 2, 1993.
(x) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated April 2, 1994.
(xi) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated October 1, 1994.
(xii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated July 1, 1995.
(xiii) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-K, dated September 30, 1995.
(xiv) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Report on Form 10-Q, dated June 29, 1996.
</FN>
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 28, 1996.
47
<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 December 9, 1996.
By: /S/ Robert R. Corr
-----------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
(Principal Accounting Officer)
BEI ELECTRONICS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Crocker and Gary D. Wrench, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
48
<PAGE>
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/S/Charles Crocker President, Chief Executive December 9, 1996
- -------------------------------------- Officer and Chairman of the Board of
(Charles Crocker) Directors (Principal Executive Officer)
/S/Gary D. Wrench Senior Vice President, Chief December 9, 1996
- -------------------------------------- Financial Officer and Director
(Gary D. Wrench)
/S/Peter G. Paraskos Director December 9, 1996
- --------------------------------------
(Peter G. Paraskos)
/S/William G. Howard, Jr. Director December 9, 1996
- --------------------------------------
(William G. Howard, Jr.)
/S/Richard M. Brooks Director December 9, 1996
- --------------------------------------
(Richard M. Brooks)
/S/George S. Brown Director December 9, 1996
- --------------------------------------
(George S. Brown)
/S/C. Joseph Giroir, Jr. Director December 9, 1996
- --------------------------------------
(C. Joseph Giroir, Jr.)
/S/Robert R. Corr Secretary, Treasurer, Controller December 9, 1996
- -------------------------------------- and Principal Accounting Officer
(Robert R. Corr)
</TABLE>
49
<PAGE>
SCHEDULE II
<TABLE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
----------------
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
---------- -------- -------------------------- -------- --------
Additions
-------------------------- Balance
Balance at Charged to Charged to at
Beginning Costs and Other Accounts Deductions End of
Description of Period Expenses --Describe --Describe Period
- ----------- --------- -------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended September 28, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 451 $ 525 $ -- $ 122(C) $ 843
11(D)
Valuation allowance for deferred
tax assets 1,220 (197)(E) -- 1,023
-------- ------ -------- -------- --------
Total $ 1,671 $ 525 $ (197) $ 133 $ 1,866
======== ====== ======== ======== ========
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 398 $ 145 $ -- $ 92(B) $ 451
Valuation allowance for deferred
tax assets 603 617 -- -- 1,220
-------- ------ -------- -------- --------
Total $ 1,001 $ 762 -- $ 92 $ 1,671
======== ====== ======== ======== ========
Year ended October 1, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 303 $ 95 $ -- $ -- $ 398
Valuation allowance for deferred
tax assets 428 430 -- 255(A) 603
-------- ------ -------- -------- --------
Total $ 731 $ 525 $ -- $ 255 $ 1,001
========= ====== ======== ======== ========
<FN>
(A) Allowance adjustment resulting from evaluation of the realizability of
the related deferred tax assets
(B) Uncollectible accounts written off, net of recoveries ($2)
(C) Uncollectible accounts written off, net of recoveries ($4)
(D) Miscellaneous adjustments to the allowance
(E) Adjustment based on evaluation of uncertainties in the realization of
state net operating loss carryovers
</FN>
</TABLE>
S-1
50
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Shareholders
BEI Electronics, Inc.
We have audited the consolidated financial statements of BEI Electronics, Inc.
and subsidiaries as of September 28, 1996 and September 30, 1995, and for each
of the three years in the period ended September 28, 1996, and have issued our
report thereon dated November 20, 1996. Our audits also included the financial
statement schedule listed in Item 14(a) of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
Ernst & Young LLP
San Francisco, California
November 20, 1996
S-2
51
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-31459), as amended, pertaining to the 1982 Incentive Stock Option
Plan, the 1987 Incentive Stock Option Plan, the 1987 Supplemental Stock Option
Plan, and the 1989 Employee Stock Purchase Plan of BEI Electronics, Inc. and
subsidiaries, of our reports dated November 20, 1996, with respect to the
consolidated financial statements and schedule of BEI Electronics, Inc., and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
September 28, 1996.
Ernst & Young LLP
San Francisco, California
December 6, 1996
S-3
52
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
4.1 Reference is made to exhibits 3.1 and 3.2
3.2 Amended by-laws of the Company
10.21 Extension to consulting agreement
10.22 Sixth amendment to credit agreement
11.1 Statement regarding computation of per share earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
Independent Auditors (Reference is made on
on Page 52 within the 10-K)
24.1 Power of Attorney (Reference is made on Page 48
within the 10-K)
27.1 Financial Data Schedule
53
BY-LAWS
OF
BEI ELECTRONICS, INC.
(as amended through April 1, 1996)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Offices.......................................... 1
Section 1. Registered Office...................................... 1
Section 2. Other Offices.......................................... 1
ARTICLE II Corporate Seal................................... 1
Section 3. Corporate Seal......................................... 1
ARTICLE III Stockholders' Meetings........................... 1
Section 4. Place of Meetings...................................... 1
Section 5. Annual Meeting......................................... 1
Section 6. Special Meetings....................................... 3
Section 7. Notice of Meetings..................................... 4
Section 8. Quorum................................................. 4
Section 9. Adjournment and Notice of Adjourned Meetings........... 4
Section 10. Voting Rights......................................... 5
Section 11. Beneficial Owners of Stock............................ 5
Section 12. List of Stockholders.................................. 5
Section 13. Action without Meeting................................ 6
Section 14. Organization.......................................... 6
ARTICLE IV Directors........................................ 7
Section 15. Number and Term of Office............................. 7
Section 16. Powers................................................ 7
Section 17. Classes of Directors.................................. 7
Section 18. Newly Created Directorships and Vacancies............. 8
Section 19. Resignation........................................... 8
Section 20. Removal............................................... 8
Section 21. Meetings.............................................. 8
Section 22. Quorum and Voting..................................... 9
Section 23. Action without Meeting................................ 10
Section 24. Fees and Compensation................................. 10
Section 25. Committees............................................ 10
Section 26. Organization.......................................... 11
ARTICLE V Officers......................................... 12
Section 27. Officers Designated................................... 12
Section 28. Tenure and Duties of Officers......................... 12
Section 29. Delegation of Authority............................... 13
Section 30. Resignations.......................................... 13
Section 31. Removal............................................... 14
i.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VI Execution of Corporate Instruments and
Voting of Securities Owned by the Corporation....................... 14
Section 32. Execution of Corporate Instruments..................... 14
Section 33. Voting of Securities Owned by the Corporation.......... 14
ARTICLE VII Shares of Stock.................................. 15
Section 34. Form and Execution of Certificates..................... 15
Section 35. Lost Certificates...................................... 15
Section 36. Transfers.............................................. 15
Section 37. Fixing Record Dates.................................... 16
Section 38. Registered Stockholders................................ 16
ARTICLE VIII Other Securities of the Corporation.............. 17
Section 39. Execution of Other Securities.......................... 17
ARTICLE IX Dividends........................................ 17
Section 40. Declaration of Dividends............................... 17
Section 41. Dividend Reserve....................................... 17
ARTICLE X Fiscal Year...................................... 18
Section 42. Fiscal Year............................................ 18
ARTICLE XI Indemnification.................................. 18
Section 43. Indemnification of
Directors, Officers, Agents......................................... 18
ARTICLE XII Notices.......................................... 22
Section 44. Notices................................................ 22
ARTICLE XIII Amendments....................................... 23
Section 45. Amendments............................................. 23
ARTICLE XIV Loans to Officers................................ 24
Section 46. Loans to Officers...................................... 24
ii.
<PAGE>
BY-LAWS
OF
BEI ELECTRONICS, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent. (Del.
Code Ann., tit. 8, ss. 131)
Section 2. Other Offices. The corporation shall also have and maintain
an office or principal place of business in San Francisco, California, at such
place as may be fixed by the Board of Directors, and may also have offices at
such other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require. (Del. Code Ann., tit. 8, ss. 122(8))
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, ss. 211(a))
Section 5. Annual Meeting. (a) The annual meeting of the stockholders
of the corporation, for the purpose of election of Directors and for such other
business as may lawfully
1.
<PAGE>
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date of the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholders' meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities and Exchange Act of
1934, as amended. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted. (Del. Code Ann., tit. 8: P. 211(b))
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing
2.
<PAGE>
to the Secretary of the corporation in accordance with the provisions of
paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i)
as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting
and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8,
ss.ss. 212, 214).
Section 6. Special Meetings. (a) Special meetings of the stockholders
of the corporation may be called, for any purpose or purposes, by (i) the
Chairman of the Board, (ii) the President, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption), and shall be held at such place, on such date, and at such time as
the Board of Directors shall fix.
(b) If a special meeting is called by any person other than the Board
of Directors, the request shall be in writing, specifying the general nature of
the business proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board of Directors, the President, or the Secretary of the
corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The Board of Directors shall determine the time
and place of such special meeting, which shall be held not less than thirty five
(35) nor more than one hundred twenty (120) days after the date of the receipt
of the request. Upon determination of the time and place of the meeting, the
officer receiving the request shall cause notice to be given to the stockholders
entitled to vote, in accordance with the provisions of Section 7 of these
Bylaws. If the notice is not given within sixty (60) days after the receipt of
the request, the person requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when
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a meeting of stockholders called by action of the Board of Directors may be
held. (April 1, 1996)
Section 7. Notice of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, ss.ss. 222, 229)
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
is required, a majority of the outstanding shares of such class or classes,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote on that matter and the affirmative vote of
the majority (plurality, in the case of the election of Directors) of shares of
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class. (Del. Code Ann., tit. 8, ss. 216)
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have
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been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
ss. 222(c))
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Except
as may be otherwise provided in the Certificate of Incorporation or these
Bylaws, each stockholder shall be entitled to one vote for each share of capital
stock held by such stockholder. Every person entitled to vote or execute
consents shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or his duly authorized
agent, which proxy shall be filed with the Secretary at or before the meeting at
which it is to be used. An agent so appointed need not be a stockholder. No
proxy shall be voted after three (3) years from its date of creation unless the
proxy provides for a longer period. All elections of Directors shall be by
written ballot, unless otherwise provided in the Certificate of Incorporation.
(Del. Code Ann., tit. 8, ss.ss. 211(e), 212(b))
Section 11. Beneficial Owners of Stock. (a) If shares or other
securities having voting power stand of record in the names of two (2) or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows that
any such tenancy is held in unequal interests, a majority or even-split for the
purpose of this subsection (c) shall be a majority or even-split in interest.
(Del. Code Ann., tit. 8, ss. 217(b))
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
(Del. Code Ann., tit. 8, ss. 217(a)).
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary
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business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not specified, at the
place where the meeting is to be held. The list shall be produced and kept at
the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present. (Del. Code Ann., tit. 8, ss.
219(a))
Section 13. Action without Meeting.
(a) Any action required by statute to be taken at any annual
or special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. (Del. Code Ann., tit. 8, ss. 228)
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Section 14. Organization. (a) At every meeting of stockholders, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or, if the President is absent, the most senior Vice
President present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if
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any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies, and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless, and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
Directors
Section 15. Number and Term of Office. The authorized number of
directors of the corporation shall be fixed from time to time by the Board of
Directors either by a resolution or a bylaw duly adopted by the Board of
Directors. The number of directors presently authorized is seven (7). Directors
need not be stockholders unless so required by the Certificate of Incorporation.
If for any cause, the Directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws. No reduction of the authorized number of Directors shall have the
effect of removing any Director before the Director's term of office expires,
unless such removal is made pursuant to the provisions of Section 20 hereof.
(Del. Code Ann., tit. 8, ss.ss. 141(b), 211(b), (c))
Section 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation (Del. Code Ann., tit. 8, ss. 141(a))
Section 17. Classes of Directors. The Board of Directors shall be
divided into three classes: Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a term ending
on the date of the third annual meeting of stockholders following the annual
meeting at which the director was elected; provided, however, that each initial
director in Class I shall hold office until the annual meeting of stockholders
in 1990; each initial director in Class II shall hold office until the annual
meeting of stockholders in 1991; and each initial director in Class III shall
hold office until the annual meeting of stockholders in 1992. Notwithstanding
the foregoing provisions of this section, each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. (Del. Code Ann., tit. 8, ss.141(d))
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Section 18. Newly Created Directorships and Vacancies. In the event of
any increase or decrease in the authorized number of directors, the newly
created or eliminated directorships resulting from such increase or decrease
shall be apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal in number as possible.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled either (i) by the affirmative vote of the holders
of a majority of the voting power of the then-outstanding shares of the
Company's capital stock; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
authorized Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successors shall have been elected and
qualified.
Section 19. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
ss.ss. 141(b), 223(d))
Section 20. Removal. Any director, or the entire Board of Directors,
may be removed from office, (a) with cause by the affirmative vote of the
holders of a majority of the voting power of all of the then-outstanding shares
of the Company's capital stock, voting together as a single class; or (b)
without cause, by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of the Company's capital stock.
(Del. Code Ann., tit. 8, ss. 141(k))
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be
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maintained pursuant to Section 2 hereof. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may
also be held at any place within or without the State of Delaware which has been
determined by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(g))
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors. (Del. Code Ann., tit. 8,
ss. 141(g))
(d) Telephone Meetings. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, ss. 141(i))
(e) Notice of Meetings. Written notice of the time and place
of all special meetings of the Board of Directors shall be given at least one
(1) day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, ss. 229)
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present and if, either before
or after the meeting, each of the Directors not present signs a written waiver
of notice, or a consent to holding such meeting, or an approval of the minutes
thereof. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in any
written waiver of notice or consent unless so required by the Certificate of
Incorporation or these Bylaws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
(Del. Code Ann., tit. 8, ss. 229)
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of
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Directors, without notice other than by announcement at the meeting. (Del. Code
Ann., tit. 8, ss. 141(b))
(b) At each meeting of the Board of Directors at which a
quorum is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, ss.
141(b))
Section 23. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, ss. 141(f))
Section 24. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, ss. 141(h))
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have and may exercise when
the Board of Directors is not in session all powers of the Board of Directors in
the management of the business and affairs of the corporation, including,
without limitation, the power and authority to declare a dividend or to
authorize the issuance of stock, except such committee shall not have the power
or authority to amend the Certificate of Incorporation, to adopt an agreement of
merger or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
to recommend to the stockholders of the corporation a dissolution of the
corporation or a revocation of a dissolution or to amend these Bylaws. (Del.
Code Ann., tit. 8, ss. 141(c))
(b) Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors, and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, ss. 141(c))
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(c) Term. The members of all committees of the Board of
Directors shall serve a one (1) year term. The Board of Directors, subject to
the provisions of subsections (a) or (b) of this Section 25, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason remove
any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. (Del. Code Ann., tit. 8, ss.141(c))
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
ss.ss. 141(c), 229)
Section 26. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
Officers
Section 27. Officers Designated. The officers of the corporation shall
be the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint one or more Assistant
Secretaries, Assistant Treasurers, and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the corporation shall be fixed by or in
the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, ss.ss.
122(5), 142(a), (b))
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(b), (e))
(b) Duties of Chairman of the Board of Directors. The Chairman
of the Board of Directors, if appointed and present, shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board of Directors shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, ss. 142(a))
(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(Del. Code Ann., tit. 8, ss. 142(a))
(d) Duties of Vice Presidents. The Vice Presidents, in the
order of their seniority, may assume and perform the duties of the President in
the absence or disability of the
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President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss.
142(a))
(e) Duties of Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary may give notice in conformity with these Bylaws of all meetings of the
stockholders, and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a))
(f) Duties of Chief Financial Officer or Treasurer. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a))
Section 29. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.(Del. Code Ann., tit. 8, ss. 142(b))
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Section 31. Removal. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a majority
of the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, ss.ss. 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, promissory notes, deeds of trust,
mortgages and other evidences of indebtedness of the corporation, and other
corporate instruments or documents requiring the corporate seal, and
certificates of shares of stock owned by the corporation, shall be executed,
signed or endorsed by the Chairman of the Board of Directors, or the President
or any Vice President, and by the Secretary or Chief Financial Officer or
Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors. (Del. Code Ann., tit. 8, ss.ss. 103(a),
142(a), 158)
All checks and drafts drawn on banks or other depositaries on
funds to the credit of the corporation or in special accounts of the corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
Unless authorized or ratified by the Board of Directors or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
(Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158).
Section 33. Voting of Securities Owned by the Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
(Del. Code Ann., tit. 8, ss. 123)
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ARTICLE VII
Shares of Stock
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Where such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued. (Del. Code Ann., tit. 8, ss. 158)
Section 35. Lost Certificates. A new certificate or certificates may be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, ss. 167)
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, ss. 201, tit. 6, ss. 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, ss. 160 (a))
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Section 37. Fixing Record Dates.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, ss. 213)
Section 38. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive
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dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8,
ss.ss. 213(a), 219)
ARTICLE VIII
Other Securities of the Corporation
Section 39. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
Dividends
Section 40. Declaration of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, ss.ss. 170, 173)
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of
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Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created. (Del. Code Ann., tit. 8, ss. 171)
ARTICLE X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall end
on the nearest Saturday to the 30th day of September of each year and begin on
the following day or at such other times as may be fixed by resolution of the
Board of directors.
ARTICLE XI
Indemnification
Section 43. Indemnification of Directors, Officers, Employees and Other
Agents.
(a) Directors. The corporation shall indemnify its Directors
and executive officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may limit the
extent of such indemnification by individual contracts with its Directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any Director or executive officer in connection with any
proceeding (or part thereof) initiated by such person or any proceeding by such
person against the corporation or its Directors, officers, employees or other
agents unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors of the corporation
or (iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law.
(b) Officers, Employees and Other Agents. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) Good Faith.
(1) For purposes of any determination under this
Bylaw, a Director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
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unlawful, if his action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or
other persons as to matters which the Director or executive officer believed to
be within such person's professional competence; and
(iii) with respect to a Director, a
committee of the Board upon which such Director does not serve, as to matters
within such Committee's designated authority, which committee the Director
believes to merit confidence;
so long as, in each case, the Director or executive officer acts without
knowledge that would cause such reliance to be unwarranted.
(2) The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal proceeding, that he had reasonable cause to believe that his conduct
was unlawful.
(3) The provisions of this paragraph (c) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the Delaware General Corporation Law.
(d) Expenses. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
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(e) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(g) Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
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(j) Saving Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(k) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
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ARTICLE XII
Notices
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
ss. 222)
(b) Notice to Directors. Any notice required to be given to
any Director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such Director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such Director.
(c) Address Unknown. If no address of a stockholder or
Director be known, notice may be sent to the office of the corporation required
to be maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stock- holder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained. (Del. Code Ann., tit. 8, ss. 222)
(e) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by facsimile, telex or telegram shall be deemed to have been
given as of the sending time recorded at time of transmission.
(f) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
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(h) Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(i) Notice to Person with Undeliverable Address. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, ss. 230)
ARTICLE XIII
Amendments
Section 45. Amendments. Except as otherwise set forth in paragraph (i)
of Section 43 of these Bylaws, these Bylaws may be amended or repealed and new
Bylaws adopted by the stockholders entitled to vote. The Board of Directors
shall also have the power, if such power is conferred upon the Board of
Directors by the Certificate of Incorporation, to adopt, amend or repeal Bylaws
(including, without limitation, the amendment of any Bylaw setting forth the
number of Directors who shall constitute the whole Board of Directors). (Del.
Code Ann., tit. 8, ss.ss. 109(a), 122(6))
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ARTICLE XIV
Loans to Officers
Section 46. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Section 46 shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute. (Del. Code Ann., tit. 8, ss. 143)
24.
CONSULTING AGREEMENT EXTENSION
This will further extend the term of that Consulting Agreement entered into as
of July 3, 1990 by BEI Electronics, Inc. and George S. Brown from June 30, 1996
to June 30, 1997, except that during this extension period the compensation for
consulting activities will be paid as follows: $3,000.00 each month as a
retainer fee, plus an additional fee of $750.00 for each day of consulting
activity performed on authorized travel away from the Santa Barbara area;
further, the entire agreement will be subject to cancellation by either party on
30 days notice.
CONSULTANT
/s/ George S. Brown
George S. Brown
ACCEPTED:
BEI ELECTRONICS, INC.
By /s/ Charles Crocker
-----------------------
Title Chairman
-----------------------
BEI ELECTRONICS, INC.
SIXTH AMENDMENT TO CREDIT AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of October 31, 1996 and entered into by and among BEI Electronics, Inc., a
Delaware corporation, BEI Sensors & Systems Company, Inc., a Delaware
corporation, Defense Systems Company, Inc., a Delaware corporation, and BEI
Medical Systems Company, Inc., a Delaware corporation (each a "Borrower" and
collectively the "Borrowers"), the financial institutions listed on the
signature pages hereof (each a "Lender" and collectively the "Lenders"), CIBC
Inc., as agent for the Lenders (the "Agent"), and Canadian Imperial Bank of
Commerce, as the Designated Issuer, and is made with reference to that certain
Credit Agreement dated as of June 1, 1993, as amended by the First Amendment to
Credit Agreement dated as of September 3, 1993, as amended by the Second
Amendment to Credit Agreement and Limited Waiver dated as of April 1, 1994, as
amended by the Third Amendment to Credit Agreement dated as of September 30,
1994, as amended by the Fourth Amendment to Credit Agreement dated as of June 1,
1995, and as amended by the Fifth Amendment to Credit Agreement dated as of June
1, 1996 (as so amended, the "Credit Agreement") by and among the Borrowers, the
Lenders, the Agent and the Designated Issuer. Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.
RECITALS
WHEREAS, the Borrowers have requested an extension of the Maturity Date
of the Credit Agreement, and the Lenders, the Agent and the Designated Issuer
have so agreed;
WHEREAS, the Borrowers, the Lenders, the Agent and the Designated
Issuer desire to amend the Credit Agreement as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1. Amendments to the Credit Agreement.
1.1 Amendments to Section 1.01: Defined Terms.
1.1.1 The following definitions in Section 1.01 of
the Credit Agreement are hereby amended in to read in their entirety as follows:
"'Maturity Date': February 28, 1997, or, if earlier, the day
immediately prior to the distribution date of a tax free spin-off of
any of the Borrowers' Subsidiaries."
1
<PAGE>
2. Conditions to Effectiveness.
This Amendment shall be deemed effective as of October 31,
1996 (the "Sixth Amendment Effective Date") upon the satisfaction of all of the
following conditions precedent:
2.1 The Agent shall have received for each Lender and the
Designated Issuer counterparts hereof duly executed on behalf of the Borrowers,
the Agent and the Lenders (or notice of the approval of this Amendment by the
Lenders satisfactory to the Agent shall have been received by the Agent).
2.2 The Agent shall have received a closing fee in the amount
of $2,500.00.
2.3 All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incidental thereto not previously found acceptable by the Agent, acting on
behalf of the Lenders, and its counsel shall be satisfactory in form and
substance to the Agent and such counsel, and the Agent and such counsel shall
have received all such counterpart originals or certified copies of such
documents as the Agent may reasonably request.
3. Borrowers' Representations and Warranties.
In order to induce the Lenders to enter into this Amendment
and to amend the Credit Agreement in the manner provided herein, the Borrowers
represent and warrant to each Lender that the following statements are true,
correct and complete:
3.1 Corporate Power and Authority. The Borrowers have all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform their respective
obligations under, the Credit Agreement as amended by this Amendment (the
"Amended Agreement"). The Certificate of Incorporation and Bylaws of each of the
Borrowers have not been amended since September 30, 1994, except for the bylaws
of BEI Electronics, Inc. which were amended as of April 1, 1996 (a copy of the
amended bylaws have been delivered to Agent).
3.2 Authorization of Agreements. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Borrowers.
3.3 No Conflict. The execution and delivery by the Borrowers
of this Amendment and the performance by the Borrowers of the Amended Agreement
do not and will not contravene (i) any law or regulation binding on or affecting
any of
2
<PAGE>
the Borrowers or any of their respective Subsidiaries, (ii) the Certificate of
Incorporation or Bylaws of any of the Borrowers, (iii) any order, judgment or
decree of any court of other agency of government binding on any of the
Borrowers or any of their respective Subsidiaries or (iv) any contractual
restriction binding on or affecting any of the Borrowers or any of their
respective Subsidiaries.
3.4 Governmental Consents. The execution and delivery by the
Borrowers of this Amendment and the performance by the Borrowers of the Amended
Agreement do not and will not require any authorization or approval of, or other
action by, or notice to or filing with any governmental authority or regulatory
body.
3.5 Binding Obligation. This Amendment and the Amended
Agreement have been duly executed and delivered by the Borrowers and are the
binding obligations of the Borrowers, enforceable against the Borrowers in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to
or affecting creditors' rights.
3.6 Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transactions contemplated
by this Amendment that would constitute an Event of Default or a Potential Event
of Default.
4. Miscellaneous.
4.1 Reference to and Effect on the Credit Agreement and the
Other Loan Documents.
4.1.1 On and after the Sixth Amendment Effective
Date, each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
4.1.2 Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
4.1.3 Without limiting the generality of the
provisions of Section 10.01 of the Credit Agreement, nothing in this Amendment
shall be deemed to (a) constitute a waiver of compliance by the Borrowers with
respect to any term, provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein or (b) prejudice any right or remedy
that the Agent or any Lender
3
<PAGE>
may now have or may have in the future under or in connection with the Credit
Agreement or any other instrument or agreement referred to therein.
4.2 Fees and Expenses. The Borrowers acknowledge that all
costs, fees and expenses as described in Section 10.05 of the Credit Agreement
incurred by the Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Borrowers.
4.3 Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
4.4 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
4.5 Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BEI ELECTRONICS, INC.
By: /s/ Robert R. Corn
---------------------------------------------
Title: Treasurer
-------------------------------------------
BEI SENSORS & SYSTEMS
COMPANY, INC.
By: /s/ Robert R. Corn
---------------------------------------------
Title: Treasurer
-------------------------------------------
EXHIBIT 11.1
<TABLE>
BEI ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
YEAR ENDED
September 28 September 30 October 1
(in thousands except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding 6,926 6,759 6,657
Net effect of dilutive stock options
based on the treasury stock
method using fair market value 182 -- --
---------------------------------------------------------------
Total weighted average shares outstanding 7,108 6,759 6,657
===============================================================
Net income $1,889 $(4,391) $(1,744)
---------------------------------------------------------------
Earnings per common share and common
equivalent share $0.27 $(0.65) $(0.26)
===============================================================
</TABLE>
EXHIBIT 22.1
BEI ELECTRONICS, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES
1. Defense Systems Company, Inc., a Delaware company, doing business in Texas
as BEI Defense Systems Company.
2. BEI Sensors & Systems Company, Inc., a Delaware company, doing business in
California and Arkansas as BEI Sensors & Systems Company.
3. BEI International, Inc., a Delaware company.
4. BEI Export Sales Co., Inc., a U.S. Virgin Islands company.
5. BEI Properties, Inc., an Arkansas company.
6. BEI Medical Systems Company, Inc., a Delaware company, doing business in
California and New Jersey.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> SEP-28-1996
<CASH> 17,329
<SECURITIES> 0
<RECEIVABLES> 18,945
<ALLOWANCES> 843
<INVENTORY> 22,911
<CURRENT-ASSETS> 69,025
<PP&E> 52,992
<DEPRECIATION> 29,687
<TOTAL-ASSETS> 115,011
<CURRENT-LIABILITIES> 30,923
<BONDS> 24,348
<COMMON> 9
0
0
<OTHER-SE> 55,972
<TOTAL-LIABILITY-AND-EQUITY> 115,011
<SALES> 148,738
<TOTAL-REVENUES> 148,738
<CGS> 102,400
<TOTAL-COSTS> 102,400
<OTHER-EXPENSES> 41,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,554
<INCOME-PRETAX> 2,943
<INCOME-TAX> 1,054
<INCOME-CONTINUING> 1,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,889
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
