SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
BEI MEDICAL SYSTEMS COMPANY, INC.
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(Name of Registrant as Specified In Its Charter)
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(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.
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BEI MEDICAL SYSTEMS COMPANY, INC.
100 Hollister Road
Teterboro, New Jersey 07608
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 25, 1999
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 25, 1999 at 2:00 p.m. local time, at the Company's
facility located at 100 Hollister Road, Teterboro, New Jersey, for the following
purposes:
1. To elect two directors to hold office until the Annual Meeting of
Stockholders in 2002.
2. To approve the Company's Amended 1987 Stock Option Plan, as amended to
increase the aggregate number of shares of stock options authorized
for issuance under such plan by 500,000 shares.
3. To approve the Company's 1992 Restricted Stock Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 200,000 shares.
4. To ratify the selection of Ernst & Young LLP as independent public
accountants of the Company for its fiscal year ending October 2, 1999.
5. 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 25, 1999,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting of Stockholders and at any adjournment or
postponement thereof.
By Order of the Board of Directors
Thomas W. Fry
Corporate Secretary
Teterboro, New Jersey
January 26, 1999
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.
100 Hollister Road
Teterboro, New Jersey 07608
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
March 25, 1999
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
25, 1999, 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
Company's facility located at 100 Hollister Road, Teterboro, New Jersey. The
Company intends to mail this proxy statement and accompanying proxy card on or
about February 18, 1999, to all stockholders entitled to vote at the Annual
Meeting.
Effective September 27, 1997, the Company, formerly known as BEI
Electronics, Inc. ("Electronics"), 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 October 3, 1998 (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.
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Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on January
25, 1999, will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on January 25, 1999, the Company had outstanding and
entitled to vote 7,778,296 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.
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, 100
Hollister Road, Teterboro, New Jersey 07608, 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
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 Annual
Meeting of Stockholders pursuant to Rule 14a-8, of the Securities and Exchange
Commission is October 21, 1999. Unless a stockholder who wished to bring a
matter before the stockholders at the Company's 2000 Annual Meeting of
Stockholders notifies the Company of such matter prior to January 25, 2000,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter. Stockholders are also advised to review
the Company's By-laws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations.
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Proposal 1
Election of Directors
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. Two directors
are in the class whose term of office expires in 1999. The nominees for election
to this class are, Mr. Charles Crocker who is currently Chairman of the Board of
Directors and Dr. Ralph M. Richart, a current director of the Company. If
elected at the Annual Meeting, a nominee would serve until the 2002 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 two nominees 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 management may
propose. The persons nominated for election have agreed to serve if elected, and
the Board has no reason to believe that the nominees will be unable to serve.
Set forth below is biographical information for the nominees and each
person whose term of office as a director will continue after the Annual
Meeting.
Nominees for Election for a Three-Year Term Expiring at the 2002 Annual Meeting
Charles Crocker
Mr. Crocker, age 59, a founder of the Company, has served as Chairman of
the Board of Directors of the Company since October 1974. Mr. Crocker served as
President and Chief Executive Officer of the Company from October 1995 until the
Distribution. Mr. Crocker is President and Chief Executive Officer of
Technologies. He 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 Technologies, Fiduciary Trust
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Company International, Pope & Talbot, Inc. and KeraVision, 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 65, has been a director of the Company since November 1997
and was a director of BEI Medical Systems Company, Inc. from 1996 until that
Company's merger into Electronics in September 1997. Dr. Richart is a Professor
of Pathology in Obstetrics in Gynecology at the Columbia University College of
Physicians and Surgeons and Director of Gynecological Pathology and Cytology at
the Sloane Hospital for Women in New York City. He served as a Career Research
Development Awardee at the Medical College of Virginia 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
the past President of the International Gynecologic Cancer Society. He received
his medical training at the University of Rochester School of Medicine and
Dentistry, and completed his pathology residency in the Harvard Hospitals
system.
The Board Of Directors Recommends A Vote
In Favor Of The Nominees
Directors Continuing in Office Until the 2000 Annual Meeting
Richard W. Turner
Mr. Turner, age 53, founded in 1991 what is now the Company as a subsidiary
of Electronics. Mr. Turner served as President of that subsidiary from 1991
until it merged into the Company in November 1997, and then as President of the
Company until April 1998. He has served as a director of the Company since
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 director of
Cooper-LaserSonics, Inc., President of CooperVision Inc., President and Chief
Executive Officer/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 65, has been a director of the Company since 1986. He
served as Senior Vice President and Chief Financial Officer of Electronics from
July 1993 to September 1997. From April 1985 to July 1993, he served as Vice
President of Electronics and President and Chief Executive Officer of Motion
Systems Company, Inc., then a wholly owned subsidiary of Electronics that is now
a part of Technologies. Previous experience includes 20 years with Hughes
Aircraft Company including an assignment as President of Spectrolab, Inc., a
Hughes subsidiary. He currently serves as a director of Technologies.
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Mr. Wrench holds a B.A. from Pomona College and an M.B.A. from the University of
California, Los Angeles.
Director Continuing in Office Until the 2001 Annual Meeting
Lawrence A. Wan
Dr. Wan, age 60, has been a director of the Company since November 1997. He
served as Vice President and Chief Technical Officer of Electronics from July
1990 to September 1997, and is currently Vice President and Chief Technical
Officer of Technologies, and President of SiTek, Inc., a Technologies
subsidiary. 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 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 the
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.
Board Committees and Meetings
During the fiscal year ended October 3, 1998, the Board held three
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 year 1998. 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 during fiscal year 1998. The Compensation Committee consists
of two non-employee directors: Mr. Wrench, Chairman of the Committee, and Dr.
Wan.
During fiscal year ended October 3, 1998, all directors except Dr. Wan and
Dr. Richart attended 75% or more of the aggregate of the meetings of the Board
and committees on which they served which were 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 stockholders
approved the Plans in February 1988.
Amendments to the Plans by the Board in December 1989 and January 1997
approved by the stockholders 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
shares, 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").
The Board amended the Amended Plan in November 1997, which amendment was
approved by the stockholders in March 1998, by increasing the number of shares
of the Company's Common Stock authorized for issuance under the Amended Plan
from a total of 1,350,000 shares to 1,600,000 shares.
In December 1998, the Board approved an amendment to the Amended Plan,
subject to stockholder approval, to increase the number of shares of the
Company's Common Stock authorized for issuance under the Amended Plan from a
total of 1,600,000 shares to 2,100,000 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.
Stockholders are requested in this Proposal 2 to approve the Amended Plan,
as amended by the Board in December 1998. The affirmative vote of the holders of
a majority of the shares present in person or represented by proxy and entitled
to vote at the meeting will be required to approve the Incentive Plan, as
amended. Abstentions will be counted toward 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 this matter has been approved.
The Board Of Directors Recommends A Vote
In Favor Of Proposal 2
The essential features of the Amended Plan are outlined below.
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General
Options granted under the Amended Plan are intended to be incentive stock
options that 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
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.
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Stock Subject to the Amended Plan
An aggregate of 2,100,000 shares are reserved for issuance under the
Amended Plan, including the 500,000 shares provided under 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. 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, 1999, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market System was $1.75 per share.
Payment. 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.
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
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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.
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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.
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 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 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
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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.
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 maximum number of shares for which grants may be made and the exercise price
of those grants are approved by the stockholders. Accordingly, to comply with
the performance-based compensation exception described in (i), 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; however, 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.
11
<PAGE>
Proposal 3
Approval of Amendments to the 1992 Restricted Stock Plan
In February 1992, the Board adopted the 1992 Restricted Stock Plan (the
"Restricted Stock Plan") and reserved for issuance 350,000 shares of the
Company's Common Stock under such plan. The stockholders approved the Restricted
Stock Plan at the 1993 Annual Meeting.
In January 1997, the Board amended the Restricted Stock Plan to (i)
increase the share reserve to an aggregate of 700,000 shares; (ii) impose a
limit on the number of shares which any one participant may receive under the
Restricted Stock Plan during any one fiscal year, (iii) extend the term of the
Restricted Stock Plan to January 15, 2007, and (iv) make conforming changes to
the Restricted Stock Plan in accordance with Rule 16b-3.
In December 1998, the Board approved an amendment to the Restricted Stock
Plan, subject to stockholder approval, to increase the number of shares of the
Company's Common Stock authorized for issuance under the Restricted Stock Plan
from 700,000 shares to 900,000 shares.
As of January 8, 1999, and assuming passage of this proposal, 517,850
shares of the Company's Common Stock had been issued pursuant to awards of
restricted stock granted under the Restricted Stock Plan and 182,150 shares
(plus any shares that might in the future be returned to the Restricted Stock
Plan as a result of termination or forfeiture) remained available for future
issuance under the Restricted Stock Plan. During the last fiscal year, under the
Restricted Stock Plan, the Company issued 120,000 shares of restricted stock to
current Executive Officers; no shares to employees that were not executive
officers and to all current directors who are not officers, 50,000 shares of
restricted stock; and no shares to consultants .
Stockholders are requested in this Proposal 3 to approve the December 1998
amendment to the Restricted Stock Plan. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the Annual Meeting will be required to approve the amendment to the
Restricted Stock Plan. Abstentions will be counted toward 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 this matter has been
approved.
The Board Of Directors Recommends A Vote
In Favor Of Proposal 3
The essential features of the Restricted Stock Plan are outlined below.
Purpose
The purpose of the Restricted Stock Plan is to promote the long-term growth
and profitability of the Company and the value of its Common Stock by
12
<PAGE>
providing certain key employees of the Company with increased incentive to
contribute to the success of the Company and enabling the Company to attract,
retain and reward persons of exceptional skill for positions of substantial
responsibility.
Administration
The Restricted Stock Plan is administered by the Compensation Committee.
The Compensation Committee has the power to construe and interpret the
Restricted Stock Plan and, subject to the provisions of the Restricted Stock
Plan, to determine the persons to whom and the dates on which restricted stock
will be granted, the number of shares to be granted, the provisions of each
grant of restricted stock (which need not be identical), including the
conditions and restrictions, if any, to which such shares will be subject, and
the time or times when a person is permitted to purchase or receive stock
pursuant to a grant made under the Restricted Stock Plan. The Board may at any
time revest in itself administration of the Incentive Plan. As used herein with
respect to the Incentive Plan, the "Board" refers to Board of Directors, or as
applicable, the Compensation Committee.
Eligibility
Participation in the Restricted Stock Plan is limited to directors,
officers and other employees of the Company or its subsidiaries (including
directors who are officers or employees of the Company) and consultants, who the
Committee has determined, are in a position to make substantial contributions to
the success of the Company. The Committee may require that a participant in the
Restricted Stock Plan surrender for cancellation any or all outstanding stock
options held by such participant in order to receive a grant of restricted stock
under the Restricted Stock Plan.
No one individual may be granted during any one fiscal year more than
120,000 shares of the Company's Common Stock under the Restricted Stock Plan.
Stock Subject to the Restricted Stock Plan
Subject to certain adjustments, the stock that may be issued pursuant to
awards of restricted stock granted under the Restricted Stock Plan may not
exceed in the aggregate 900,000 shares of Company's Common Stock. This number
includes the 200,000 share reserve increase under this Proposal 3. Shares issued
pursuant to the Restricted Stock Plan may be authorized but unissued shares,
shares held in the treasury of the Company or shares purchased on the open
market. In the event that any grant of shares of restricted stock expires or
otherwise terminates or is forfeited, such shares of Common Stock again become
available for issuance under the Restricted Stock Plan.
Terms of Grants of Restricted Stock
General. The Committee has the authority to grant restricted stock awards
under the Restricted Stock Plan in the form of stock bonuses or through the sale
of restricted stock. The terms of the stock bonus or restricted stock purchase
agreements may change from time to time, and may vary among participants;
however, each stock bonus or restricted stock purchase agreement will include
the substance of the following provisions:
13
<PAGE>
Consideration. The purchase price under each stock purchase agreement will
be an amount determined by the Committee and designated in the stock purchase
agreement. Stock bonuses may, at the discretion of the Committee, be awarded in
consideration of past services actually rendered to or for the benefit of the
Company. The purchase price for restricted stock acquired pursuant to a stock
purchase agreement will be paid either in cash at the time of purchase (or, at
the discretion of the Committee, within 60 days thereafter) or in any other form
of legal consideration that may be acceptable to the Committee.
Restrictions. Each stock bonus or restricted stock purchase agreement will
specify the restrictions applicable to the restricted stock award made
thereunder, the duration of such restrictions and the time or times at which
such restrictions lapse with respect to all or a specified number of shares that
are subject to such stock bonus or restricted stock purchase agreement. Unless
otherwise determined by the Committee, the restrictions on awards of restricted
stock will typically 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. The Committee may accelerate the rate at
which such restrictions lapse in the event certain stockholder value improvement
goals established in the stock bonus or restricted stock purchase agreement have
been met. Shares of restricted stock granted pursuant to a stock bonus or
restricted stock purchase agreement will be held in escrow by the Company during
the period such shares are subject to restriction. During such period, the
participant will have all of the rights of a stockholder of the Company with
respect to such shares of restricted stock unless otherwise determined by the
Committee.
Nontransferability. Rights under a stock bonus or restricted stock purchase
agreement are not assignable by any participant under the Restricted Stock Plan
otherwise than by will or the laws of descent and distribution during the period
when such stock remains subject to restrictions under the terms of the
applicable stock bonus or restricted stock purchase agreement.
Termination. Under the Restricted Stock Plan, in the event of termination
of a participant's employment (other than termination of employment resulting
from such participant's death, retirement or permanent and total disability, as
defined in the Company's long-term disability insurance plan or the Code) during
the period in which such shares remain subject to restriction under the stock
bonus or restricted stock purchase agreement pursuant to which such shares were
awarded, all shares as to which restrictions have not lapsed will be forfeited
and subject to repurchase by the Company at the price per share paid by the
participant for such shares. In the event of termination of a participant's
employment as a result of such participant's death, retirement or permanent and
total disability during such period, all remaining restrictions will lapse.
Adjustment Provisions
If any change is made in the stock subject to the Restricted Stock Plan or
subject to any award granted under the plan (through reorganization,
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, spin-off or any other change in the corporation
structure of the Company or the Common Stock), the Committee will make
appropriate adjustments in the classes and maximum number of shares subject to
14
<PAGE>
the plan and the classes, number of shares and price per share of stock subject
to outstanding awards granted under the Restricted Stock Plan.
Subject to certain limitations, in the event of a Change in Control of the
Company, to the extent permitted by applicable law, any remaining restrictions
on all shares of restricted stock granted under the Restricted Stock Plan will
immediately terminate, and the Committee, as constituted before such Change of
Control, may take any one or more of the following actions with respect to any
outstanding award: (a) provide for the repurchase of such restricted stock by
the Company at the request of the participant at the fair market value as of the
date of such repurchase (which shall be the closing price of the Common Stock as
reported in the Nasdaq National Market for the date in question, or if no sales
of the Common Stock were reported as of such date, the closing price of the
Common Stock on the most recent preceding day on which sales occurred); (b) make
additional grants of restricted stock under the Restricted Stock Plan as the
Committee deems appropriate to reflect such Change of Control; or (c) cause any
grant of restricted stock then outstanding to be assumed by the acquiring or
surviving corporation upon such Change in Control. A Change in Control is
defined in the Restricted Stock Plan to include (1) the acquisition of 50% or
more of the then outstanding shares of Common Stock in a transaction or series
of transactions by any entity, person or group of persons other than the Company
or its subsidiaries, (2) a merger or consolidation of the Company with or into
another entity in which the Company's stockholders own less than 50% of the
Company's voting power immediately after the merger or consolidation, (3) a
sale, lease or other disposition of all or substantially all of the assets of
the Company, (4) a contested election of directors of the Company which results
in a majority of the members of the Board recommended for election by the
Company not being elected, (5) a change in the composition of a majority of the
Board within a sixty-day period, or (6) any other event which results in change
of voting power sufficient to elect a majority of the Board.
Duration, Amendment and Termination
The Board may suspend or terminate the Restricted Stock Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Restricted Stock Plan will terminate on January 15, 2007.
The Board may also amend the Restricted Stock Plan at any time or from time
to time. However, no amendment 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 change any provision of the Restricted Stock
Plan in any way if such modification requires stockholder approval in order to
comply with Rule 16b-3 of the Exchange Act or any Nasdaq or securities exchange
requirements. The Compensation Committee may amend or modify any outstanding
grant of restricted stock to the extent that the Committee would have had the
authority to make such grant as so modified or amended, except that any
modification or amendment that would materially adversely affect any grant
previously made under the Restricted Stock Plan may not be made unless the
participant to whom such grant was made consents in writing to such modification
or amendment.
15
<PAGE>
Federal Income Tax Information
Upon acquisition of stock under the Restricted Stock Plan, the recipient
normally will recognize taxable ordinary income equal to the excess of the
stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages an amount
based on the ordinary income recognized. The Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the recipient. Upon disposition of the stock, the recipient 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 acquisition (or vesting) of the stock. Such gain or loss will be
long or short-term depending on whether the stock was held for more than one
year from the date ordinary income is measured. Slightly different rules may
apply to persons who acquire stock subject to forfeiture or who are subject to
Section 16(b) of the Exchange Act.
16
<PAGE>
Proposal 4
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 2, 1999. 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 interest 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 2, 1999. Abstentions will be counted toward 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 more in determining whether this matter has been approved.
The Board Of Directors Recommends A Vote
In Favor Of Proposal 4
17
<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, 1999 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.
Beneficial Ownership(l)
---------------------------
Number of Percent of
Beneficial Owner Shares Total(2)
---------------- --------- ----------
Mr. Charles Crocker(3) 1,557,904 20.0%
One Post Street
Suite 2500
San Francisco, CA
Brinson Partners, Inc.(4) 588,300 7.6%
209 S. LaSalle Street
Chicago, IL
SoGen International Fund, Inc.(5) 420,000 5.4%
1221 Avenue of the Americas
8th Floor
New York, NY 10020
Dimensional Fund Advisors, Inc.(6) 492,700 6.3%
1299 Ocean Avenue
Penthouse
Santa Monica, CA
Hollybank Investment, LP (7) 655,500 8.4%
One Financial Center, Suite 1600
Boston, MA
Mr. Samuel Dickstein(8) 53,550 *
Mr. Thomas W. Fry(8) 51,833 *
Dr. Ralph M. Richart(8) 105,161 1.4%
Mr. Richard W. Turner(8) 344,371 4.2%
Mr. Herbert H. Spoon(8) 120,000 1.5%
Dr. Lawrence A. Wan(8) 24,250 *
Mr. Gary D. Wrench(8)(9) 93,047 1.2%
All executive officers and directors
as a group (8 persons)(10) 2,350,116 28.6%
* 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
18
<PAGE>
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 8,206,917 shares outstanding on January
8, 1999, 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 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) SoGen 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, 37,760 shares; Mr. Fry, 10,462 shares;
Mr. Turner, 344,371 shares; Dr. Wan, 5,000 shares; Mr. Wrench, 31,028
shares; and all executive officers and directors as a group, 428,621
shares. Also includes shares which certain officers and directors have the
right to vote pursuant to unvested portions of restricted stock awards as
follows: Mr. Spoon, 120,000 shares; Dr. Richart, 20,008 shares; Dr. Wan,
5,188 shares; Mr. Wrench, 8,325 shares; and all executive officers and
directors as a group, 153,521 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
19
<PAGE>
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, as applicable.
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 October 3, 1998, 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 Mr. Fry, who inadvertently filed a Form 4 late when, as a result of
the merger of BMED with and into the Company in November 1997, he was issued
41,371 shares of the Company's Common Stock in exchange for shares of the Common
Stock of BMED held by him.
20
<PAGE>
Executive Compensation
Compensation of Directors
During the fiscal year ended October 3, 1998, Messrs. Wan and Wrench, as
non-employee directors, each received a monthly fee of $1,000. In addition,
Messrs. Wan and Wrench, as non-employee directors, each received a fee of $500
for each Board meeting attended and for each Committee meeting attended by the
committee member and a fee of $250 for each telephonic Board or Committee
meeting in which such director participated. In the fiscal year ended October 3,
1998, the total compensation paid to non-employee directors for services as
directors was $23,750. 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.
A nonstatutory stock option to purchase 20,000 shares of the Company's
Common Stock was issued to Dr. Wan in connection with his agreement to serve as
a director of the Company. The shares subject to the option have an exercise
price of $4.00 per share and were granted on November 20, 1997. The closing
price of the Company's Common Stock on the Nasdaq National Market System on that
day was $4.00.
In March 1998, the Company entered into a consulting agreement with Dr.
Richart under which he would assist with medical research and clinical
information. In consideration for these services, the Company granted Dr.
Richart 50,000 shares of the Company's Common Stock pursuant to the terms of the
Company's 1992 Restricted Stock Plan, as amended. Of the shares granted, 19,996
vested immediately upon issuance with the balance vesting ratably from October
1998 through March 2000. Unvested shares are forfeited by the recipient should
he cease to render services to the Company for any reason other than due to
retirement, disability or death. The fair market value of the shares at October
3, 1998, was $90,625, based upon the closing price of the stock as reported by
the Nasdaq National Market System on that date. The agreement also provides for
commissions to be paid to Dr. Richart on sales of the HTA in the Far East and
Latin America territories at the rate of $1,000 per unit and for a 2% commission
to be paid on certain disposable units sold. No commissions were paid in fiscal
year 1998 to Dr. Richart; however, $2,057 is payable for shipments made in
fiscal year 1998. In addition, Dr. Richart provides consulting services to the
Company pursuant to an agreement under which he is paid a fee of $1,000 per day
of service. In the fiscal year ended October 3, 1998, Dr. Richart provided no
services and the Company was not obligated to pay any fees under this agreement.
Mr. Crocker serves as Chairman of the Board of Directors of the Company at
an annual compensation of $50,000 per year.
Compensation of Executive Officers
Summary of Compensation
The following table shows, for the fiscal years ended October 3, 1998,
September 27, 1997, and September 28, 1996, compensation awarded or paid to or
earned by the Company's Chief Executive Officer, former Chief Executive
21
<PAGE>
Officer and its other executive officers at October 3, 1998, (the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
--------------------------------------------------- -----------------------------
Other Annual Restricted Securities
Compen- Stock Underlying
Name and Salary(1) Bonus sation(2) Awards(3) Options (4)
Principal Position Year ($) ($) ($) ($) (#)
------------------ ---- --------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Herbert H. Spoon 1998 87,217 -- 21,051 232,500 95,000
President and
Chief Executive Officer(5)
Mr. Richard W. Turner 1998 181,387 -- 22,026 -- 409,403
Former President and 1997 218,490 -- 17,993 -- --
Chief Executive Officer(6)
Mr. Thomas W. Fry 1998 140,836 15,000 18,256 -- 17,024
Vice President, 1997 138,333 13,500 17,712 -- --
Finance and Administration,
Treasurer and Secretary
Mr. Samuel Dickstein 1998 120,003 7,500 17,093 -- 43,479
Current Vice President,
New Business Development
and Technology
</TABLE>
(1) Includes amounts earned but deferred at the election of Mr. Turner pursuant
to the Company's Retirement Savings Plan of $21,146 and $28,698 in fiscal
years 1998 and 1997, respectively.
(2) Includes $438, $3,246, $3,231 and $3,050 paid in fiscal year 1998 to
Messrs. Spoon, Turner, Fry and Dickstein, respectively; and $3,721 and
$2,482 paid in fiscal year 1997 to Messrs. Turner and Fry, respectively; as
a normal contribution pursuant to the Company's Retirement Savings Plan.
Includes a $10,800 per person car allowance paid in fiscal year 1998 to
Messrs. Turner, Fry and Dickstein and to Messrs. Turner and Fry in fiscal
year 1997. Includes $20,000 paid to Mr. Spoon as a relocation bonus in
fiscal year 1998. Includes reimbursement of certain professional services
paid to Mr. Turner of $2,180 in fiscal year 1998. 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 expenses paid by the
Company.
22
<PAGE>
(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 October 3, 1998, the aggregate holdings
and value of restricted stock of the Named Executive Officers (based on the
number of 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 System on October 3, 1998) was as follows: Mr. Spoon $217,560. The
restrictions on awards of restricted stock lapse with respect to 25% of the
total number of shares per year on the first, second, third and fourth
anniversaries 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) Includes options to purchase shares of the Company's Common Stock granted
named Executive Officers in exchange for options to purchase the Common
Stock of the Company's former subsidiary, BMED, in connection with the
merger of the subsidiary into the Company, See"Option Grants in Fiscal
1998".
(5) Mr. Spoon became the Company's President and Chief Executive Officer
effective April 1, 1998.
(6) Mr. Turner was the Company's President and Chief Executive Officer through
March 1998 and remains an employee of 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 BMED, a subsidiary of the Company at the time, and the
substitution of options to purchase 595,739 shares of the Common Stock of the
Company for options to purchase Common Stock of BMED outstanding at that time,
options were once again outstanding. As of January 8, 1999, options to purchase
a total of 926,235 shares had been granted and were outstanding under the
Amended Plan and options to purchase 561,519 shares will remain available for
grant thereunder assuming approval of Proposal 2 in this Proxy.
The following tables show for the fiscal year ended October 3, 1998,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers.
23
<PAGE>
Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/ Market Potential Realizable Value at
Underlying Granted to Exercise Price at Assumed Annual Rates of Stock Price
Options Employees or Base Date of Appreciation for Option Term (3)
Granted in Fiscal Price Grant Expiration ------------------------------------
Name (#) (1) Year (2) ($/Sh) ($/Sh) Date 0% 5% 10%
---- ------- -------- ------- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Spoon 95,000 14.2% 1.9375 3/31/08 108,770 271,859
Mr. Turner 286,839 (4) 42.8% 0.3119 3.6875(4) 7/25/05 968,254(4) 1,452,199 2,118,520
Mr. Turner 107,564 (4) 16.1% 0.6980 3.6875(4) 4/22/06 321,563(4) 524,423 813,787
Mr. Turner 15,000 2.2% 4.0000 11/19/07 37,734 95,625
Mr. Fry 8,274 (4) 1.2% 0.3119 3.6875(4) 7/25/05 27,930(4) 41,889 61,110
Mr. Fry 8,750 1.3% 4.0000 11/19/07 22,011 55,781
Mr. Dickstein 35,854 (4) 5.3% 0.3119 3.6875(4) 7/25/05 121,029(4) 181,520 264,809
Mr. Dickstein 7,625 1.1% 4.0000 11/19/07 19,181 48,609
</TABLE>
(1) Options generally vest monthly over a four-year period. The options will
fully vest upon a change of control, as defined in the Company's Amended
Plan. The Board of Directors may reprice the options under the terms of the
Company's Amended Plan. On December 14, 1998, options representing the
right to purchase 102,847 shares of the Company's Common Stock at exercise
prices ranging from $3.7437 to $4.00, which had originally been granted on
November 4, 1997, and November 20, 1997, were repriced to $1.625 per share,
an amount equal to the fair market value of the Company's stock at that
time. Of the options subject to the repricing, options granting the right
to purchase 31,375 shares of the Company's Common Stock were held by Named
Executive Officers. Optionees who chose to surrender their old options for
the repriced options agreed to relinquish the right to exercise the options
for a period of six months.
(2) Based upon options to purchase 670,180 options issued to employees in
fiscal year 1998. Does not include 129,048 options issued to directors and
consultants in fiscal year 1998.
24
<PAGE>
(3) The potential realizable value is based on the term of the option at its
time of grant. It is calculated by assuming that the stock price on the
date of grant appreciated at the indicated rate, compounded annually for
the entire term of the option and that the option is exercised solely on
the last day of its term for the appreciated price. These amounts represent
certain assumed rates of appreciation, less the exercise or base price, in
accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, are dependent on the actual future performance of the Company's Common
Stock and no gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
(4) On November 4, 1997, with the completion of the merger into the Company of
BMED, a subsidiary of the Company at the time, the Company issued options
to purchase a total of 595,739 shares of the Company's Common Stock in
exchange for options to purchase shares of BMED Common Stock that were
outstanding at that time. The new options issued by the Company were priced
based upon a conversion factor that reflected the original exercise price
of the options issued by the subsidiary, vest in accordance with the
vesting schedule of the options replaced and assume the same expiration
date as the original option issued by the subsidiary. At the time of the
exchange all of the options issued to the Named Executive Officers were
fully vested.
Aggregated Options Exercised in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at FY-End (#) at FY-End ($)
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable (1) Unexercisable (2)
---- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Mr. Spoon 0/ 0/
-- -- 95,000 0
Mr. Turner 344,371/ 490,541/
-- -- 65,032 97,507
Mr. Fry 10,462/ 12,420/
-- -- 6,562 0
Mr. Dickstein 37,760/ 53,820/
-- -- 5,719 0
</TABLE>
(1) Includes both in-the-money and out-of-the money options.
(2) The fair market value of the underlying shares on the last day of the
fiscal year less the exercise or base price. "Out-of-the-money" options are
ignored.
25
<PAGE>
Employment Agreements
The employment agreement between the Company and Mr. Turner, an employee
and a director of the Company, provides 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, provides
that if Mr. Fry 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.
Compensation Committee Interlocks and Insider Participation
As noted above, during fiscal year 1998, the Compensation Committee
consisted of Dr. Wan and Mr. Wrench. In connection with and effective upon the
Distribution, Dr. Wan resigned as Vice President, Corporate Technology, of the
Company and Mr. Wrench resigned as the Senior Vice President and Chief Financial
Officer of the Company. Each continues to serve the Company as members of the
Board of Directors.
26
<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 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 similar companies. A cash portion
of the cash compensation of each executive officer is contingent upon the
Company's performance. Cash bonuses, may vary significantly for an individual
from year to year, and may vary among the executive officers. Another component
of compensation of executive officers is restricted stock grants that vest over
a multi-year period. Incentive stock options, also subject to multi-year
vesting, were also a part of the compensation of some of the multi-year
executive officers.
Base Salary
The Committee determined salaries for fiscal year 1998 in March 1998 for
all executive officers. In adjusting the base salary of the executive officers,
the Compensation Committee examines both competitive market rates and
qualitative factors relating to corporate and individual performance. In
connection with its examination of competitive factors, 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 year 1998, the Committee
relied primarily on the evaluation and recommendations of Mr. Crocker and Mr.
Turner of each officer's responsibilities for fiscal year 1998 and performance
during fiscal year 1997.
At its meeting in March 1998, the Committee approved base compensation
increases effective January 1, 1998, for the Named Executive Officers other than
Mr. Crocker as follows: Mr. Fry and Mr. Dickstein by 10.7% each effective
January 1998.
Management Incentive Bonus
In fiscal year 1998, 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
27
<PAGE>
of the fiscal year. In December 1998 the Company's Board awarded bonus payments
to Mr. Fry of $15,000 and to Mr. Dickstein of $7,500 for fiscal year 1998.
Chief Executive Officer Compensation
In general, the factors utilized in determining Mr. Turner'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 March 1998, Mr. Turner resigned as President and Chief Executive Officer
of the Company. As a result, his base compensation was reduced to $125,000,
effective April 1998 and Mr. Spoon was engaged as President and Chief Executive
Officer with a base compensation of $175,000, effective April 1998.
Long-Term Incentives
The Company has equity incentive plans in place to enable the alignment of
the interests of stockholders and management by creating 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, 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). In September 1998, the Committee
awarded an incentive stock option exercisable to purchase 95,000 shares of the
Company's Common Stock and 120,000 restricted shares of the Company's Common
Stock to Mr. Spoon. All options and grants are subject to vesting provisions.
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".
Gary D. Wrench Lawrence A. Wan
28
<PAGE>
Performance Measurement Comparison (1)
The following graph shows the value of an investment of $100 on October 1,
1993, 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):
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CRSP Total Returns Index For: 10/1993 09/1994 09/1995 09/1996 09/1997 10/1998
BEI Medical System Company, Inc. 100.0 61.4 90.3 138.2 178.7 91.7
Nasdaq Stock Market (US Companies) 100.0 100.9 139.3 165.8 226.4 221.1
Nasdaq Non-Financial Stocks 100.0 99.4 138.6 162.3 216.8 208.5
</TABLE>
Notes:
A. The table represents monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly renewal, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/01/1993.
- ----------
(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.
29
<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, a director of the Company, holds 50% of the equity in
GynHiTech Brasil Ltda ("GynHi"). In August 1997, the Company and GynHi entered
into a three-year exclusive distribution agreement allowing GynHi to market and
sell the Company's products in Brazil. Pursuant to this agreement GynHi
purchased $187,819 worth of products from the Company at wholesale prices in
fiscal year 1998.
Until April 1998, the Company's headquarters were located in Hackensack,
New Jersey, in a building leased from a partnership whose partners included Mr.
Dickstein, the Company's Vice President, New Business Development and
Technology. The Company paid the partnership $104,985 in fiscal year 1998 for
the use of the facilities. In fiscal year 1998, the Company also paid Mr.
Dickstein $1,445 in royalties on the sale of certain products acquired by the
Company in the 1992 acquisition of Meditron Devices, Inc., a company co-founded
by Mr. Dickstein.
30
<PAGE>
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, 1999
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended October 3, 1998, is available without
charge upon written request to: Investor Relations, BEI Medical Systems Company,
Inc., 100 Hollister Road, Teterboro, NJ 07608.
31
<PAGE>
PROXY
BEI MEDICAL SYSTEMS COMPANY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
For The Annual Meeting of Stockholders
To be held March 25, 1999
The undersigned hereby appoints Charles Crocker 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 Company's facility
located at 100 Hollister Road, Teterboro, New Jersey, on Thursday, March 25,
1999 at 2:00 p.m. (local time), and at any and all postponements, continuations
and adjournments thereof with all powers that the undersigned would possess 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
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(continued on reverse side)
<PAGE>
Please mark
Your votes as
indicated in |X|
this example
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
THE NOMINEES FOR DIRECTOR LISTED BELOW.
1. To elect two directors to hold office until 2. To approve 3. To approve 4. To ratify the
the 2002 Annual Meeting of Stockholders. amendments to the amendments to the selection of Ernst &
Company's Amended 1987 Company's 1992 Young LLP as independent
Stock Option Plan, as Restricted Stock Plan, public accountants of
proposed in the proxy as proposed in the the Company for its
statement. proxy statement. fiscal year ending
October 2, 1998.
|X| FOR all nominees |_| WITHHOLD AUTHORITY to
listed below vote for all nominees
(except as listed below.
indicated to the
contrary below).
Nominees: Charles Crocker and Ralph M. Richart. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
To withhold authority to vote for any nominee(s), |_| |_| |_| |_| |_| |_| |_| |_| |_|
write such nominee(s)' names(s) below:
- ------------------------------------------------
- ------------------------------------------------
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:______________________________________, 1999
____________________________________________________
____________________________________________________
Signature(s)
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN
THE ENCLOSED ENVELOPE WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES.
</TABLE>
