SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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|_| Preliminary Proxy Statement
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14a-6(e)(2))
|x| Definitive Proxy Statement
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|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
BEI MEDICAL SYSTEMS COMPANY, INC.
(Name of Registrant as Specified In Its Charter)
_______________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
|x| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
Title of each class of securities to which transaction applies:
__________________________________________________________________________
Aggregate number of securities to which transaction applies:
__________________________________________________________________________
Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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BEI MEDICAL SYSTEMS COMPANY, INC.
(formerly known as BEI ELECTRONICS, INC.)
83 Hobart Street
Hackensack, NJ 07601
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 26, 1998
TO THE STOCKHOLDERS OF BEI MEDICAL SYSTEMS COMPANY, INC.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of BEI
Medical Systems Company, Inc., a Delaware corporation (the "Company"), will be
held on Thursday, March 26, 1998 at 2:00 p.m. local time, at the Crowne Plaza
Hasbrouck Heights located at 650 Terrace Avenue, Hasbrouck Heights, New Jersey,
for the following purposes:
1. To elect a director to hold office until the 2001 Annual Meeting of
Stockholders.
2. To approve the Company's Amended 1987 Stock Option Plan, as amended to
increase the aggregate number of shares of Common Stock authorized for issuance
under such plan by 250,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent public
accountants of the Company for its fiscal year ending October 3, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on January 26, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Thomas W. Fry
Corporate Secretary
Hackensack, New Jersey
January 26, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT ATTENDANCE AT THE MEETING WILL NOT BY ITSELF REVOKE A PROXY.
FURTHERMORE, IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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BEI MEDICAL SYSTEMS COMPANY, INC.
(formerly known as BEI Electronics, Inc.)
83 Hobart Street
Hackensack, NJ 07601
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
March 26, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of BEI Medical Systems Company, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on March
26, 1998, at 2:00 p.m. local time (the "Annual Meeting"), or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at the
Crowne Plaza Hasbrouck Heights located at 650 Terrace Avenue, Hasbrouck Heights,
New Jersey. The Company intends to mail this proxy statement and accompanying
proxy card on or about February 19, 1998 to all stockholders entitled to vote at
the Annual Meeting.
Effective September 27, 1997 the Company distributed the outstanding stock
of its wholly-owned subsidiary, BEI Technologies, Inc. ("BEI Technologies" or
"Technologies"), to its stockholders in a spin-off of its sensors business (the
"Distribution"). As a result, the Company's sole remaining direct subsidiary was
a medical device business, BEI Medical Systems Company, Inc.("BMED"). In
November 1997, the Company merged BMED into the Company and changed the
Company's name to BEI Medical Systems Company, Inc. (the "Merger"). For further
information about the Distribution, see BEI Technologies' Form 10 General Form
for Registration of Securities as amended (File No. 0-22799), the Company's Form
10-K Annual Report for the fiscal year ended September 27, 1997 (the "10-K") and
Note 1 of "Notes to Consolidated Financial Statements" included in the 10-K.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on January
26, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on January 26, 1998, the Company had outstanding and entitled
to vote 7,556,535 shares of Common Stock. Each holder of record of Common Stock
on such date will be entitled to one vote for each share held on all matters to
be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 83 Hobart
Street, Hackensack, NJ 07601, a written notice of revocation or a duly executed
proxy bearing a later date, or it may be revoked by attending the meeting and
voting in person. Please note, however, that attendance at the meeting will not
by itself revoke a proxy. Furthermore, if the shares are held of record by a
broker, bank or other nominee and the stockholder wishes to vote at the meeting,
the stockholder must obtain from the record holder a proxy issued in the
stockholder's name.
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than October 22, 1998 in order to be included in the proxy statement
and proxy relating to that annual meeting.
Proposal 1
Election Of Director
The Company's Restated Certificate of Incorporation and By-Laws provide
that the Board shall be divided into three classes, each class consisting, as
nearly as possible, of one-third of the total number of directors, with each
class having a three-year term. Vacancies on the Board may be filled by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of Common Stock or by the affirmative vote of a majority of
the remaining directors. A director elected by the Board to fill a vacancy
(including a vacancy created by an increase in the authorized number of
directors on the Board) shall serve for the remainder of the full term of the
class of directors in which the vacancy occurred and until such Director's
successor is elected and has qualified or until his earlier death, resignation
or removal.
The Board of Directors is presently composed of five members. One director
is in the class whose term of office expires in 1998. The nominee for election
to this class, Lawrence A. Wan is a director of the Company who was appointed to
the Board to fill a vacancy caused by the resignation of directors as a result
of the Distribution. If elected at the Annual Meeting, the nominee would serve
until the 2001 annual meeting and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominee named below. In the event that the nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as the Board may
propose. The person nominated for election has agreed to serve if elected, and
the Board has no reason to believe that the nominee will be unable to serve.
Set forth below is biographical information for the nominee and each person
whose term of office as a director will continue after the Annual Meeting.
Nominee for Election for a Three-Year Term Expiring at the 2001 Annual Meeting
Lawrence A. Wan
Dr. Wan, age 59, has been a director of the Company since November 1997. He
is currently Vice President and Chief Technical Officer of BEI Technologies,
Inc. and President of SiTek, Inc., a Technologies' subsidiary. Dr. Wan served as
Vice President, Corporate Technology for the Company from April 1991 until his
resignation immediately prior to the Distribution in September 1997. From 1984
until 1990, he served as Vice President, Engineering of Systron Donner
Corporation, and also held various other technical and general management
positions with that company between 1979 and 1984. From 1968 through 1979, he
was founder and Chief Executive Officer of Sycom, Inc., a commercial electronics
company. Prior to that, he worked for Hughes Aircraft
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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 holds B.S., M.S. and Ph.D. degrees in Engineering and
Applied Sciences from Yale University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF THE NOMINEE
Directors Continuing in Office Until the 1999 Annual Meeting
Charles Crocker
Mr. Crocker, age 58, a founder of the Company, has served as Chairman of
the Board of Directors of the Company since October 1974, and served as
President and Chief Executive Officer of the Company from October 1995 until his
resignation immediately prior to the Distribution in September 1997. Mr. Crocker
is currently Chairman of the Board, President and Chief Executive Officer of BEI
Technologies, Inc. He served as President of Crocker Capital Corporation, a
Small Business Investment Company, from 1970 to 1985. He also served as a
general partner of Crocker Associates, a venture capital investment partnership,
from 1970 to 1990. He currently serves as a director of BEI Technologies,
Fiduciary Trust Company International, KeraVision, Inc. and Pope & Talbot, Inc.
Mr. Crocker holds a B.S. from Stanford University and an M.B.A. from the
University of California, Berkeley.
Ralph M. Richart
Dr. Richart, age 64, has been a director of the Company since the
Distribution in September 1997. Dr. Richart has been Professor of Pathology in
Obstetrics and Gynecology at the Columbia University College of Physicians and
Surgeons since 1963 and director of Gynecological Pathology and Cytology at the
Sloane Hospital for Women in New York City since 1963. He served as a Career
Research Development Awardee at the Medical College of Virginia from 1960
through 1962 before moving to Columbia-Presbyterian Medical Center in 1963. His
professional interests have centered around obstetrical and gynecological
pathology and cytology with particular emphasis on the study of cervical
neoplasia and, more recently, the relationship of the human papillomavirus to
lower genital tract neoplasia. He is a past President of the International
Gynecologic Cancer Society. He received an M.D. from the University of Rochester
School of Medicine and Dentistry, and completed his pathology residency in the
Harvard Hospitals system and The Medical College of Virginia.
Directors Continuing in Office Until the 2000 Annual Meeting
Richard W. Turner
Mr. Turner, age 52, a founder in 1991 of BMED, formerly a subsidiary of the
Company, served as its President, Chief Executive Officer and as a director
until its merger into the Company and the Company's name change in November
1997. Mr. Turner has served as the President, Chief Executive Officer and a
director of the Company since the Distribution in September 1997. Previously
President of the Healthcare Group for the Cooper Companies, Mr. Turner has held
executive leadership positions in the medical industry for over 20 years,
including President and a director of Cooper-LaserSonics, Inc., President of
CooperVision Inc., President and Chief Executive Officer and a director for
Pancretec, Inc. and President of Kay Laboratories. Mr. Turner holds a B.S. from
Old Dominion University and an M.B.A. from Pepperdine University.
Gary D. Wrench
Mr. Wrench, age 64, has been a director of the Company since February 1986.
Mr. Wrench has been Senior Vice President, Chief Financial Officer and a
director of BEI Technologies, Inc. since its formation in June 1997. He served
as Senior Vice President and Chief Financial Officer of the Company from July
1993 until his resignation immediately prior to the Distribution in September
1997. 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 BEI Technologies.
Previous experience includes twenty years with Hughes Aircraft Company including
an assignment as President of Spectrolab, Inc., a Hughes subsidiary.
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Mr. Wrench holds a B.A. from Pomona College and a M.B.A. from the University of
California, Los Angeles.
Board Committees and Meetings
During the fiscal year ended September 27, 1997, the Board held five
meetings. The Board has an Audit Committee and a Compensation Committee, but
does not have a Nominating Committee or any committee performing a similar
function.
The Audit Committee meets with the Company's independent accountants at
least annually to review the scope and results of the annual audit; recommends
to the Board the independent accountants to be retained; and receives and
considers the accountants' comments as to internal controls, accounting staff
and management performance and procedures in connection with audit and financial
controls. The Audit Committee met two times during fiscal 1997. During fiscal
1997, the Audit Committee was composed of four directors, each of whom resigned
immediately prior to the Distribution: Richard M. Brooks, Chairman of the
Committee, Peter G. Paraskos, William G. Howard, Jr. and C. Joseph Giroir, Jr.
The Audit Committee currently consists of two non-employee directors: Mr.
Wrench, Chairman of the Committee, and Dr. Richart.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation for the Company's executive officers, awards stock
options and restricted stock to eligible executives, employees and consultants
under the Company's stock option plan and restricted stock plan, administers the
Company's employee stock purchase plan, stock option plan and restricted stock
plan, and otherwise determines compensation levels and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee met once time during fiscal 1997. During fiscal 1997, the Compensation
Committee was composed of three non-employee directors, each of whom resigned
immediately prior to the Distribution: George S. Brown, Chairman of the
Committee, Richard M. Brooks and C. Joseph Giroir, Jr. The Compensation
Committee now consists of two non-employee directors: Mr. Crocker, Chairman of
the Committee, and Dr. Wan.
During fiscal 1997, each Board member attended at least 75% of the
aggregate of the meetings of the Board and of the committees on which he served
held during the period for which he was a director or committee member
respectively.
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PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE
AMENDED 1987 STOCK OPTION PLAN
The Board adopted the Company's 1987 Incentive Stock Option Plan (the
"Incentive Plan") and 1987 Supplemental Stock Option Plan (the "Supplemental
Plan," and collectively, the "Plans") in November 1987. The Plans were approved
by the stockholders in February 1988.
Amendments to the Plans by the Board in December 1989 and January 1997
approved by the shareholders on March 6, 1997 combined the Incentive Plan and
the Supplemental Plan into one plan, changed its name to the Amended 1987 Stock
Option Plan (the "Amended Plan"), increased the number of shares of the
Company's Common Stock authorized for issuance from 900,000 shares to 1,350,000,
allowed for the issuance of both incentive stock options and nonstatutory stock
options, allowed stock options to be granted to consultants, extended the term
of the Amended Plan to January 15, 2007, made changes to the Amended Plan in
response to the requirements of Code Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") and made conforming changes to the Amended Plan
in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
In November 1997, the Board approved an amendment to the Amended Plan,
subject to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increases the number of shares authorized for issuance under the
Amended Plan from a total of 1,350,000 to 1,600,000 shares. The Board adopted
this amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 2
The essential features of the Amended Plan are outlined below.
General
Options granted under the Amended Plan are intended to be incentive stock
options which qualify as "incentive stock options" as defined by Section 422 of
the Code or "nonstatutory stock options," options which do not qualify as such.
See "Federal Income Tax Information" for a discussion of the tax treatment of
incentive stock options and nonstatutory stock options.
Purpose
The purpose of the Amended Plan is to provide a means by which selected
employees of the Company and its affiliates and consultants to the Company can
be given the opportunity to acquire Common Stock of the Company, to assist the
Company in retaining the services of such persons, to secure the services of
such persons and to provide incentives for such persons to exert maximum efforts
for the success of the Company. Unless the context indicates otherwise, an
"affiliate" of the Company refers to any "parent" or "subsidiary" of the Company
as those terms are defined in Section 424 of the Code.
Administration
The Board is authorized to delegate, and had delegated, administration of
the Amended Plan to the Compensation Committee. The Compensation Committee is
currently comprised of two (2) members of the Board, and has the power to
construe and interpret the Amended Plan and, subject to the provisions of the
Amended Plan, to determine the persons to whom and the dates on which options
will be granted, the number of shares to be subject to each option, whether the
option is designated an incentive stock option or nonstatutory stock option, the
time or times during the term of each option within which all or a portion of
such option may be exercised, the exercise price, the type of consideration and
other terms of the option. The Board may at any time revest in itself
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administration of the Amended Plan. As used herein with respect to the Amended
Plan, the "Board" refers to Board of Directors, or as applicable, the
Compensation Committee.
Eligibility
Options may be granted under the Amended Plan to directors, key employees
(including officers) or consultants of the Company or any affiliates of the
Company.
No person may be granted options during any one fiscal year which are
exercisable for more than 250,000 shares of the Company's Common Stock.
No incentive stock option may be granted under the Amended Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. In addition, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under the Amended Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
Stock Subject to the Amended Plan
An aggregate of 1,600,000 shares are reserved for issuance under the
Amended Plan, including the 250,000 shares of this Proposal 2. Stock subject to
the Amended Plan may be unissued shares or reacquired shares, bought on the
market or otherwise. If options or rights granted under the Amended Plan expire,
lapse or otherwise terminate without being exercised, the Common Stock not
purchased under such options or rights again becomes available for issuance
under the Amended Plan.
Terms of Options
The following is a description of the option provisions permitted by the
Amended Plan. Individual option grants in any given case may be more restrictive
as to any or all of the provisions permitted by the Amended Plan as described
below.
Exercise Price; Payment. The exercise price for any option may not be
less than the fair market value of the stock subject to the option on the
date of grant for options granted under the Amended Plan, and in some cases
(see "Eligibility" above), options under the Amended Plan may not be
granted at an exercise price of less than 110% of such fair market value.
As of January 8, 1998, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market System was $4.125 per share.
The exercise price of options granted under the Amended Plan must be
paid either (i) in cash at the time the option is exercised or (ii) at the
discretion of the Board, (A) by delivery to the Company of other Common
Stock of the Company, (B) pursuant to a deferred payment arrangement (which
may include the use of other Common Stock of the Company), or (C) in any
other form of legal consideration that may be acceptable to the Board. In
the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
Option Exercise. Shares covered by currently outstanding options under
the Amended Plan typically vest over three years. Shares covered by options
granted in the future may be subject to different vesting terms, determined
by the Board in its sole discretion. The Amended Plan does not set forth
any minimum number of shares with respect to which an option may be
exercised; however, individual option agreements currently outstanding
typically provide that an option may be exercised with respect to a minimum
of 100 shares, with the exception of (i) an installment subject to exercise
which consists of fewer than 100 shares, or (ii) the last exercise, as to
which no minimum number is required.
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Term. Options granted under the Amended Plan may have a maximum term
of ten years, except that in certain cases (see "Eligibility" above) the
maximum term is five years. Under the Amended Plan, an option will
terminate three months after the optionee ceases to render services to the
Company or an affiliate, unless (i) the termination of employment is due to
such person's permanent and total disability (as defined in the Code), in
which case the option may, but need not, provide that it may be exercised
at any time within one year of such termination; or (ii) the optionee dies
while employed by the Company or an affiliate, or within three months after
termination of such employment, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable
at the time of the optionee's death) by the person or persons to whom the
rights of such option pass by will or the laws of descent or distribution
within eighteen months of the optionee's death; or (iii) the option by its
terms specifically provides otherwise.
Adjustment Provisions
If there is any change in the stock subject to the Amended Plan or subject
to any option granted under the Amended Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Amended Plan and
options outstanding thereunder will be appropriately adjusted as to the class
and the maximum number of shares subject to such plan and the class, number of
shares and price per share of stock subject to such outstanding options.
Effect of Certain Corporate Events
The Amended Plan provides that, in the event of a dissolution or
liquidation of the Company, or a specified type of merger or other corporate
reorganization, to the extent permitted by law, (i) any surviving corporation
will be required either to assume options outstanding under the Amended Plan or
to substitute similar options for those outstanding under such Plan, or (ii) the
time during which such options may be exercised shall be accelerated and the
options terminated if not exercised prior to such event, or (iii) such
outstanding options will continue in full force and effect.
Duration, Amendment and Termination
The Board may suspend or terminate the Amended Plan without stockholder
approval at any time. Unless sooner terminated, the Amended Plan will terminate
on January 15, 2007. The Board may also amend the Amended Plan at any time.
However, no amendment of the Amended Plan will be effective unless approved by
the stockholders of the Company within twelve months before or after its
adoption by the Board if the amendment would require stockholder approval in
order to comply with Rule 16b-3, Section 422 of the Code, or any Nasdaq or
securities exchange requirements. Subject to the foregoing, the Board may amend
the Amended Plan in any respect the Board deems necessary or advisable to
provide optionees with the maximum benefits available under the Code or to bring
the Amended Plan or the incentive stock options granted thereunder into
compliance with the Code.
Restrictions on Transfer
Under the Amended Plan, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an optionee, an option may be exercised only by the optionee.
Federal Income Tax Information
Incentive Stock Options. Incentive Stock options are intended to be
eligible for the favorable federal income tax treatment accorded "incentive
stock options" under Section 422 of the Code. Incentive stock options generally
have the following tax consequences:
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
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If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition the optionee will realize taxable
ordinary income equal to the lesser of (i) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (ii) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain or
any loss upon the disqualifying disposition will be a capital gain or loss which
will be long-term, mid-term or short-term depending on how long the stock was
held. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness, Section 162(m) of the Code and the satisfaction
of a withholding obligation) to a corresponding business expense deduction in
the tax year in which the disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options, or options not
intended to qualify as incentive stock options, generally have the following
federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, normally the optionee will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
exercise price. Generally, with respect to employees, the Company is required to
withhold from regular wages an amount based on the ordinary income recognized.
Generally, the Company will be entitled to a business expense deduction equal to
the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be long-term, mid-term or short-term depending on how
long the stock was held. Slightly different rules apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section 16(b)
of the Exchange Act.
Potential Limitation on Company Deductions. In 1993, the Code was amended
to add Section 162(m), which denies a deduction to any publicly-held corporation
for compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation", (as such term is defined in proposed Treasury regulations issued
under Section 162(m)) are disregarded for purposes of the deduction limitation.
In accordance with the proposed regulations, compensation attributable to stock
options will qualify as performance-based compensation, provided that the option
is granted by a compensation committee comprised solely of "outside directors"
and either: (i) the option plan contains a per-employee limitation on the number
of shares for which options may be granted during a specified period, the
per-employee limitation is approved by the stockholders, and the exercise price
of the option is no less than the fair market value of the stock on the date of
grant; or (ii) the option is granted (or exercisable) only upon the achievement
(as certified in writing by the compensation committee) of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, and the option is approved by stockholders.
To comply with provisions in the Treasury regulations promulgated under Section
162(m) related to qualifying compensation attributable to stock options as
"performance-based compensation", the Amended Plan provides that no employee may
be granted options to purchase more than 250,000 shares of Common Stock during
any one fiscal year. This limitation is not intended to affect the determination
of the Compensation Committee as to the size or frequency of grants made
pursuant to the Amended Plan.
8
<PAGE>
Proposal 3
Ratification Of Selection Of Independent Public Accountants
The Board of Directors has selected Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending October 3, 1998. Ernst
& Young LLP (including its predecessor, Ernst & Whinney) has audited the
Company's financial statements since 1975. A representative of Ernst & Young LLP
is expected to be present at the Annual Meeting, will have an opportunity to
make a statement if he or she so desires and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent public accountants is not required by the Company's
By-Laws or otherwise. However, the Board is submitting the selection of Ernst &
Young LLP to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit Committee
and the Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board at its discretion may direct the appointment of
a different independent accounting firm at any time during the year if it
determines that such a change would be in the best interests of the Company and
its stockholders.
The affirmative vote of the holders of a majority of the shares represented
and entitled to vote at the meeting will be required to ratify the selection of
Ernst & Young LLP as the Company's independent public accountants for the fiscal
year ending October 3, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 3
9
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of January 8, 1998 by: (i) each director; (ii)
each executive officer; (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership(l)
Number of Percent of
Beneficial Owner Shares Total(2)
<S> <C> <C>
Mr. Charles Crocker(3) 1,557,904 20.6%
One Post Street
Suite 2500
San Francisco, CA
Brinson Partners, Inc.(4) 611,400 8.1%
209 S. LaSalle Street
Chicago, IL
So Gen International Fund, Inc.(5) 420,000 5.6%
1221 Avenue of the Americas
8th Floor
New York, NY 10020
Dimensional Fund Advisors, Inc.(6) 489,400 6.5%
1299 Ocean Avenue
Penthouse
Santa Monica, CA
Hollybank Investment, LP (7) 545,000 7.2%
One Financial Center, Suite 1600
Boston, MA
Mr. Samuel Dickstein(8) 51,644 *
Mr. Thomas W. Fry(8) 49,645 *
Dr. Ralph M. Richart(8) 55,161 *
Mr. Richard W. Turner(8) 313,730 4.0%
Dr. Lawrence A. Wan(8) 19,250 *
Mr. Gary D. Wrench(8)(9) 82,705 1.1%
All executive officers and directors
as a group (7 persons)(10) 2,130,039 26.7%
</TABLE>
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders of the Company and upon any Schedules 13D or 13G
filed with the Securities and Exchange Commission (the "Commission").
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, the Company believes that each of
the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned.
(2) Applicable percentages are based on 7,556,534 shares outstanding on January
8, 1998, adjusted as required by rules promulgated by the Commission.
(3) Includes 400,000 shares held by Mr. Crocker as trustee for his adult
children, as to which Mr. Crocker disclaims beneficial ownership. Also
includes 54,936 shares held in a trust of which, Mr. Crocker is beneficiary
and sole trustee. Mr. Crocker, acting alone, has the power to vote and
dispose of the shares in each of these trusts.
(4) Represents shares held by Brinson Partners, Inc. ("Partners") which has the
sole power to vote and dispose
10
<PAGE>
of the shares held by it and shares held by Brinson Trust Company ("Trust")
which has the sole power to vote and dispose of the shares held by it.
Trust is a wholly-owned subsidiary of Partners which is a wholly-owned
subsidiary of Brinson Holdings, Inc. ("Holdings"). Holdings may be deemed
to share the power to vote and dispose of all shares held by Partners and
Trust, and Partners may be deemed to share the power to vote and dispose of
all shares held by itself or Trust. Therefore, both Holdings and Partners
each may be deemed a beneficial owner of all the shares held by Partners
and Trust.
(5) So Gen International Fund, Inc. shares with Societe Generale Asset
Management Corp. the power to vote and dispose of all shares held by it.
(6) Represents shares held by Dimensional Fund Advisors, Inc., DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company. Officers of
Dimensional Fund Advisors, Inc. have sole power to vote and dispose of
shares beneficially owned by it, including shares held by DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company.
(7) Represents shares held by Hollybank Investments, LP ("Hollybank") which has
the sole power to vote and dispose of the shares held by it and includes
40,000 shares held by Dorsey R. Gardner, general partner of Hollybank, who
has the sole power to vote and dispose of his shares. Mr. Gardner, as
general partner of Hollybank, may be deemed to beneficially own shares held
by Hollybank. Except to the extent of his interest as a limited partner in
Hollybank, Mr. Gardner disclaims such beneficial ownership.
(8) Includes shares which certain officers and directors have the right to
acquire within 60 days after the date of this table pursuant to outstanding
options as follows: Mr. Dickstein, 35,854 shares; Mr. Fry, 8,274 shares;
Dr. Richart, 55,161 shares; Mr. Turner, 313,730 shares; Mr. Wrench, 20,686
shares; and all executive officers and directors as a group, 433,705
shares. Also includes shares which certain officers and directors have the
right to vote pursuant to unvested portions of restricted stock awards as
follows: Dr. Wan, 18,014 shares; Mr. Wrench, 13,080 shares; and all
executive officers and directors as a group, 31,094 shares.
(9) Includes 45,276 shares held in a revocable trust of which Mr. Wrench and
his wife, Jacqueline Wrench, are beneficiaries and sole trustees. Mr. and
Mrs. Wrench, acting alone, each has the power to vote and dispose of such
shares. Also includes 16,743 shares which Mr. Wrench, acting alone, has
power to vote and dispose of.
(10) Includes the shares described in the Notes above.
11
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Company's
Common Stock, to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock of the Company. Officers,
directors and greater than ten percent stockholders are required by the
Commission's regulations to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 27, 1997, the
Company's officers, directors and greater than ten percent beneficial owners
complied with all applicable Section 16(a) filing requirements with the
exception of former director Peter G. Paraskos, who failed to timely file a Form
4 report disclosing one transaction and an initial report of ownership for Dr.
Mehrabian, a former director of the Company which was filed late.
EXECUTIVE COMPENSATION
Compensation of Directors
During fiscal 1997, each non-employee director of the Company received a
monthly fee of $1,000, with the exception of former director George Brown who
served as a consultant to the Company until the Distribution. Each non-employee
director of the Company received a fee of $500 for each Board meeting attended
and for each committee meeting attended by committee members and a fee of $250
for each telephone conference Board meeting in which such director participated.
In the fiscal year ended September 27, 1997, the total compensation paid to
non-employee directors for services as directors was $55,000. The members of the
Board are also eligible for reimbursement for their expenses incurred in
connection with attendance at Board meetings in accordance with Company policy.
Former director Mr. Brown provided consulting services to the Company
pursuant to an agreement under which he was paid a retainer of $3,000 per month
and a fee of $750 per day of service. His agreement expired June 30, 1997. In
the fiscal year ended September 27, 1997, the Company paid Mr. Brown $33,750
under the agreement. Pursuant to his agreement the payments included $6,606 in
life and health insurance premiums paid by the Company in fiscal year 1997 on
behalf of Mr. Brown.
Dr. Richart, currently a director of the Company, provided consulting
services to the Company pursuant to an agreement under which he was paid a fee
of $1,000 per day of service. In the fiscal year ended September 27, 1997, the
Company paid Dr. Richart $30,750 under the agreement.
Compensation of Executive Officers
Summary of Compensation
The following table shows, for the fiscal years ended September 27, 1997,
September 28, 1996 and September 30, 1995, compensation awarded or paid to or
earned by the Company's Chief Executive Officer and its four other most highly
compensated executive officers for fiscal 1997 the ("Named Executive Officers")
and the compensation earned in fiscal 1997 by the three individuals who became
executive officers at the beginning of fiscal 1998 as a result of the
Distribution. Messrs. Wrench, Madni, Wan and Corr resigned as officers and
employees of the Company immediately prior to the Distribution. Mr. Crocker
resigned as President and Chief Executive Officer immediately prior to the
Distribution, but continues to serve as Chairman of the Board of Directors of
the Company. Messrs. Crocker, Wrench, Madni, Wan and Corr now work with BEI
Technologies in the same principal positions identified below.
12
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation(1) Awards All Other
Restricted Stock
Name and Salary(2) Bonus Awards (3)(4) Compensation(5)
Principal Position Year ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Mr. Charles Crocker 1997 341,400 50,000 0 4,707
Chairman of the Board and 1996 260,775 35,000 0 3,252
Former President and Chief 1995 195,150 0 0 3,240
Executive Officer
Mr. Gary D. Wrench 1997 282,000 80,000 63,750 5,102
Former Senior Vice President and 1996 264,000 35,000 48,750 4,370
Chief Financial Officer 1995 264,000 0 0 4,223
Dr. Asad M. Madni 1997 290,239 65,000 315,000 5,823
President, Sensors & Systems 1996 239,312 95,000 65,000 5,488
Dr. Lawrence A. Wan 1997 217,043 33,000 53,125 8,463
Former Vice President, 1996 190,922 45,000 26,000 7,792
Corporate Technology 1995 182,100 45,000 15,000 6,920
Mr. Robert R. Corr 1997 159,600 45,000 31,875 4,400
Former Secretary, Treasurer 1996 149,600 16,000 13,000 3,681
and Controller 1995 139,600 12,000 7,875 3,635
Mr. Richard W. Turner 1997 229,290 0 0 7,193
Current President and
Chief Executive Officer
Mr. Thomas W. Fry 1997 149,133 13,500 0 6,912
Current Vice President,
Finance and Administration,
Treasurer and Secretary
Mr. Samuel Dickstein 1997 128,800 7,500 0 6,142
Current Vice President,
Business Development
</TABLE>
(1) As permitted by rules promulgated by the Commission, no amounts are shown
for "Other Annual Compensation" because no person listed received
"perquisites" in an amount exceeding the lesser of 10 % of bonus plus
salary or $50,000.
(2) Includes annual cash payments designated as automobile allowances, which
did not exceed $11,400 for any individual in any year; also includes
amounts earned but deferred at the election of the person listed pursuant
to the Company's Retirement Savings Plan and $36,027 of accrued vacation
pay deferred by Dr. Madni.
(3) Represents the dollar value of shares awarded, calculated by multiplying
the market value based on the closing sales price on the date of grant by
the number of shares awarded. At September 27, 1997, the aggregate holdings
and value of restricted stock of the Named Executive Officers (based on the
number of
13
<PAGE>
shares held at fiscal year-end multiplied by the closing sales price of the
Company's Common Stock as reported on the Nasdaq National Market on October
8, 1997, the date on which post-Distribution regular way trading of the
Company's Common Stock began) was as follows: Mr. Wrench, 24,419 shares,
valued at $320,499; Dr. Madni, 60,267 shares, valued at $791,004; Dr. Wan,
19,250 shares, valued at $252,656; Mr. Corr, 12,700 shares, valued at
$166,688. The restrictions on awards of restricted stock lapse with respect
to 15% of the total number of shares per year on the first, second, third,
fourth and fifth anniversaries of the date of grant and with respect to the
remaining shares subject to such award on the sixth anniversary of the date
of grant. Dividends are paid on shares of restricted stock when, as and if
the Board declares dividends on the Common Stock of the Company.
(4) During the past three fiscal years, the Company did not grant any stock
options or issue any stock appreciation rights to any of the persons
listed.
(5) Includes $3,253, $3,648, $3,675, $3,884, $3,549, $3,721, $2,482 and $2,519
paid in fiscal 1997 to Messrs. Crocker, Wrench, Madni, Wan, Corr, Turner,
Fry and Dickstein respectively; $2,098, $3,000, $2,999, $3,164 and $2,988
paid in fiscal 1996 to Messrs. Crocker, Wrench, Madni, Wan and Corr, and
$2,150, $2,655, $2,796 and $2,854 paid in fiscal 1995 to Messrs. Crocker,
Wrench, Wan and Corr, respectively, as a normal contribution pursuant to
the Company's Retirement Savings Plan. The remaining sum for each of the
persons listed is attributable to premiums paid by the Company for group
term life insurance and personal commuting expense paid by the Company.
Stock Option Grants and Exercises
The Company grants options to its executive officers and key employees under the
Amended Plan. In connection with the Distribution, unexercised options issued
under the Amended Plan and outstanding at the date of the Distribution were
converted into options to purchase BEI Technologies Common Stock. Thus,
immediately after the Distribution was effective, the Company had no options
outstanding. However, on November 4, 1997, with the completion of the merger
into the Company of BEI Medical Systems Company, Inc., a subsidiary of the
Company at the time, and the substitution of options to purchase Common Stock of
the Company for options to purchase Common Stock of BEI Medical Systems Company,
Inc. outstanding at that time, options were once again outstanding. As of
January 8, 1998, options to purchase a total of 704,228 shares had been granted
and were outstanding under the Amended Plan and options to purchase 88,687
shares remained available for grant thereunder. During the fiscal year ended
September 27, 1997, there were no stock options granted to the Named Executive
Officers. No Named Executive Officer held stock options to purchase the
Company's stock at the end of fiscal 1997. The Company has not issued any stock
appreciation rights. The following table shows, for fiscal 1997, certain
information regarding options exercised.
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Values(1)
Shares
Acquired on Exercise Value
Name (#)(2) Realized
($)
Mr. Crocker..... 0 0
Mr. Wrench...... 33,600 253,900
Dr. Madni....... 0 0
Dr. Wan......... 20,000 212,400
Mr. Corr........ 10,000 71,250
(1) No options to purchase the Company's Common Stock were granted in fiscal
1997 or outstanding at the end of fiscal 1997.
(2) The number of shares of the Company's Common Stock received upon exercise
of underlying options.
14
<PAGE>
Management Incentive Bonus Plan
In fiscal 1997 the Company had a Management Incentive Bonus Plan under
which members of management were eligible to receive cash bonuses based on the
achievement of specific operating results established at the beginning of the
fiscal year. BEI Technologies assumed responsibility for the payment of bonuses
to the named Executives Officers who resigned their positions with the Company
immediately prior to the Distribution.
For fiscal 1998 the Company's Board adopted a revised Management Incentive
Bonus Plan (MIB Plan) for management of the Company. On the basis of goals
related to achievement of certain business development, product development,
operational improvements and financial results, the Compensation Committee will
recommend a bonus fund to consist of a combination of cash and stock awards for
individual members of management subject to final approval by the Board. At its
November 1997 meeting the Compensation Committee and the Board approved
additional goals for the Chairman, the President and the Chief Financial Officer
that relate to building the financial strength of the Company.
Employment Agreements
The employment agreement between the Company and Mr. Turner, President,
Chief Executive Officer and a director of the Company, provide that if Mr.
Turner is terminated by the Company or terminates his employment with the
Company for good reasons as defined in the employment agreement, he will receive
from the Company his full-time then current compensation for 12 months after
such termination.
The employment agreement between the Company and Mr. Fry, Vice President,
Finance and Administration, Secretary and Treasurer of the Company, provide that
if Mr. Fry is terminated by the Company or terminates his employment agreement
with the Company for good reasons as defined in the employment agreement, he
will receive from the Company his full-time then current compensation for 12
months after such termination.
Compensation Committee Interlocks and Insider Participation
As noted above, during fiscal 1997, the Compensation Committee consisted of
Messrs. Brown, Brooks and Giroir. Mr. Brown retired in July 1990 as President of
the Company and continued to serve as a consultant to the Company until June
30,1997. Mr. Giroir served as Corporate Secretary of the Company until February
1995 for which he received no compensation in addition to that received as
director's fees.
15
<PAGE>
Report of the Compensation Committee of the Board of Directors
on Executive Compensation(1)
The Compensation Committee (the "Committee") is composed of two
non-employee directors. The current members of the Committee are Mr. Wrench and
Dr. Wan. The members of the Committee until their resignation in September 1997
as a result of the Distribution were Messrs. Brown, Brooks and Giroir. The
Committee is responsible for, among other things, setting the compensation of
executive officers, including any stock-based awards to such individuals under
the Amended Plan and 1992 Restricted Stock Plan (collectively, the "Plans").
Executive Compensation Principles
The Committee seeks to compensate executive officers in a manner designed
to achieve the primary goal of the Company's stockholders: increased stockholder
value. In furtherance of this goal, the Committee determines a compensation
package that takes into account both competitive and performance factors. Annual
compensation of Company executives is comprised of salary and bonus, an approach
consistent with the compensation programs of most electronics companies, which
is what the Company primarily was at that time. A substantial portion of the
cash compensation of each executive officer is contingent upon the Company's
performance. Bonuses, therefore, may be substantial, may vary significantly for
an individual from year to year, and may vary significantly among the executive
officers. In the past, another significant component of compensation of
executive officers is restricted stock grants which vest at approximately 15%
per annum over a six year period. In the past, incentive stock options also were
a significant part of the compensation of some of the executive officers.
Base Salary
The Committee determined salaries for fiscal 1997 in December 1996 for all
executive officers. In adjusting the base salary of the executive officers, the
Compensation Committee examines both competitive and qualitative factors
relating to corporate and individual performance. In connection with its
examination of competitive factors, because the Company was then primarily an
electronics company, the Committee reviewed an independent survey of base
salaries paid by other electronics companies of comparable size. In many
instances, assessment of qualitative factors necessarily involves a subjective
assessment by the Committee. In determining salary adjustments for executive
officers for fiscal 1997, the Committee relied primarily on the evaluation and
recommendation of Mr. Crocker of each officer's responsibilities for fiscal 1997
and performance during fiscal 1996.
At its meeting in December 1996 the Committee approved base compensation
increases effective at the beginning of fiscal 1997 for the Named Executive
Officers other than Mr. Crocker as follows: Mr. Corr by 6.9%, Dr. Madni by 8.7%,
Dr. Wan by 4.0%, Mr. Wrench by 7.1%. In a Compensation Committee meeting in
March 1997, Dr. Wan's salary was further increased by 18.0% effective April
1997. Additional base compensation increases were approved as follows: Mr.
Turner by 18.6% effective October 1996 and Mr. Fry by 3.4% and Mr. Dickstein by
9.9% effective February 1997.
Management Incentive Bonus
In fiscal 1997, the Company had a Management Incentive Bonus Plan under
which members of management were eligible to receive cash bonuses based on the
achievement of specific operating results established at the beginning of the
fiscal year. BEI Technologies assumed responsibility for the payment of bonuses
following the Distribution at the end of fiscal 1997 and no payments were made
to the "Named Executive Officers" by the Company. In November 1997 the Company's
Board awarded bonus payments to Mr. Fry of $13,500 and to Mr. Dickstein of
$7,500 for fiscal 1997.
- ----------
(1) This Section is not "soliciting material", is not deemed "filed" with the
Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
16
<PAGE>
Chief Executive Officer Compensation
In general, the factors utilized in determining Mr. Crocker's compensation
were similar to those applied to other executives officers in the manner
described in the preceding paragraphs: however, a significant percentage of his
potential earnings was subject to consistent, positive, long-term performance of
the Company.
In December 1996, Mr. Crocker's base compensation for fiscal 1997 was
increased by 4.7%. At the same time, the Company's Board of Directors approved a
separate incentive bonus plan for Mr. Crocker for fiscal 1997. Achievement of
all goals enumerated under the plan gave Mr. Crocker the opportunity to earn an
incentive bonus equal to his fiscal 1997 base pay. On September 27, 1997, as a
result of and immediately prior to the Distribution, Mr. Crocker resigned as
President and Chief Executive Officer of the Company. BEI Technologies assumed
responsibility for the payment after the end of fiscal 1997 of Mr. Crocker's
incentive bonus, as a result of the Distribution. Mr. Crocker continues to serve
as Chairman of the Board of Directors of the Company at an annual compensation
of $50,000 per year.
Long-Term Incentives
The Company uses the Plans to further align the interests of stockholders and
management by creating common incentives related to the possession by management
of a substantial economic interest in the long-term appreciation of the
Company's stock. In determining the size of a restricted stock award or
incentive stock option to be granted to an executive officer, the Committee
takes into account the officer's position, level of responsibility within the
Company, the officer's existing equity holdings, the potential reward to the
officer if the stock appreciates in the public market, the incentives to retain
the officer's services to the Company, the competitiveness of the officer's
overall compensation arrangements and the performance of the officer. Based on a
review of this mix of factors, during fiscal 1997 the Board made no grants of
incentive stock options or restricted stock to any "Named Executive Officers"
but in November 1997, the Committee awarded incentive stock options to Mr.
Turner (15,000 shares), Mr. Fry (8,750 shares) and Mr. Dickstein (7,265 shares).
Section 162(m) of the Code limits the Company to a deduction for federal income
tax purposes of no more than $1 million of compensation paid to certain Named
Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Committee has determined that stock options granted under the Amended
Plan with an exercise price at least equal to the fair market value of the
Company's Common Stock on the date of grant shall be rated as "performance-based
compensation".
George S. Brown Richard M. Brooks C. Joseph Giroir, Jr.
17
<PAGE>
Performance Measurement Comparison(1)
The following graph shows the value of an investment of $100 on October 3,
1992 in cash of (i) the Company's Common Stock, (ii) the Center for Research in
Securities Prices ("CRSP") Total Return Index for the Nasdaq Stock Market (U.S.
Companies) and (iii) the CRSP Total Return Industry Index for Nasdaq
Non-Financial Companies. All values assume reinvestment of the full amount of
all dividends and are calculated as of the last trading day of the applicable
fiscal year of the Company(2):
Comparison of Five Year-Cumulative Total Returns
[GRAPHIC OMITTED]
- ----------
(1) This Section is not "soliciting material", is not deemed "filed" with the
Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
(2) Fiscal year ending on the Saturday nearest September 30.
18
<PAGE>
CERTAIN TRANSACTIONS
The Company's By-Laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the extent not prohibited by Delaware law. Under the Company's
By-Laws, indemnified parties are entitled to indemnification for negligence,
gross negligence and otherwise to the fullest extent permitted by law. The
By-Laws also require the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification.
Dr. Richart has a 50% equity ownership position in GynHiTech Brasil Ltda
("GynHi"). In August, 1997, the Company and GynHi entered a three-year exclusive
distribution agreement allowing GynHi to market and sell the Company's products
in Brazil. Pursuant to this agreement GynHi purchased $35,404 worth of products
from the Company at wholesale prices in fiscal year 1997, and $125,876 in the
first quarter of fiscal 1998.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Thomas W. Fry
Corporate Secretary
January 26, 1998
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended September 27, 1997 is available without
charge upon written request to: Investor Relations, BEI Medical Systems Company,
Inc., 83 Hobart Street, Hackensack, NJ 07601.
<PAGE>
BEI MEDICAL SYSTEMS COMPANY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 26, 1998
The undersigned hereby appoints Richard W. Turner and Thomas W. Fry, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of BEI Medical Systems Company,
Inc. which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of BEI Medical Systems, Inc. to be held at the Crowne Plaza,
located at 650 Terrace Avenue, Hasbrouck Heights, New Jersey, on Thursday, March
26, 1998 at 2:00 p.m. (local time), and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would posses if personally present, upon and in respect of the following
materials and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEE LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR LISTED BELOW.
Proposal 1: To elect a director to hold office until the 2001 Annual Meeting of
Stockholders.
|_| FOR the nominee listed below |_| WITHHOLD AUTHORITY to vote for
the nominee listed below
Nominee: Lawrence A. Wan
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
Proposal 2: To approve the Company's Amended 1987 Stock Option Plan, as proposed
in the proxy statement.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 3: To ratify the selection of Ernst & Young LLP as independent public
accountants of the Company for its fiscal year ending October 3, 1998.
|_| FOR |_| AGAINST |_| ABSTAIN
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Dated: _____________, 1998
_____________________________________________
_____________________________________________
Signature(s)
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
