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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: MAY 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-10095
UNIT INSTRUMENTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0077406
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
22600 SAVI RANCH PARKWAY, YORBA LINDA, CALIFORNIA 92887
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 921-2640
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO ____
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
On July 31, 1996, 3,913,644 shares of the Corporation's Common Stock, $.15
par value, were held by non-affiliates. The aggregate market value of such
shares, computed by reference to the closing price of the Corporation's Common
Stock on NASDAQ-NMS on July 31, 1996 was $42,071,673.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASSES OUTSTANDING AT JULY 31, 1996:
------- -----------------------------
<S> <C>
Common Stock $.15 Par Value...... 4,379,454
</TABLE>
<PAGE>
PART I
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include [(i) the existence and development of
the Company's technical and manufacturing capabilities, (ii) anticipated
competition, (iii) potential future growth in revenues and income, (iv)
potential future decreases in costs, and (v) the need for, and availability of,
additional financing].
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These forward-
looking statements are based on assumptions that the Company will not lose a
significant customer or customers or experience increased fluctuations of demand
or rescheduling of purchase orders, that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will be successful in integrating the operations of its Control Systems,
Inc. subsidiary with the rest of the Company's operations, that the Company will
retain key technical and management personnel, that the Company's forecasts will
accurately anticipate market demand, and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
addition, the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in such forward-looking
statements. In light of the significant uncertainties inherent in the forward-
looking information included herein, the inclusion of such information should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
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ITEM 1. BUSINESS
GENERAL
- -------
Unit Instruments, Inc. ("Unit"), a California corporation, was incorporated
in 1984 and is the successor-in-interest to Autoclave Engineers, Inc.
("Autoclave"), a Pennsylvania corporation founded in 1946. Unit commenced
operations in 1980 and was acquired by Autoclave in 1984. From 1986 to 1995, the
predecessor Company consisted of three operating segments: Burton Corblin,
Autoclave Engineers Group and Unit Instruments. Burton Corblin designed and
manufactured high pressure diaphragm and piston compressors. Autoclave Engineers
Group designed, manufactured and marketed autoclaves, compressors, valves,
fittings and related systems, components and accessories, principally for
elevated temperatures and/or pressure applications. During fiscal 1995, Burton
Corblin was sold and a formal plan for the disposition of Autoclave Engineers
Group was adopted by the Board of Directors of the predecessor Company. In the
second quarter of fiscal 1996, Autoclave Engineers Group was sold (see "Item 1.
Discontinued Operations" for a more complete narrative of the above-referenced
restructuring). At the Annual Meeting of Shareholders held in November, 1995,
the shareholders approved the change of the predecessor Company's state of
incorporation from Pennsylvania to California, pursuant to a Plan of Merger
which provided for Autoclave to be merged into its wholly-owned subsidiary, Unit
Instruments, Inc. In conjunction with this action, the corporate office in Erie,
Pennsylvania was relocated to Unit's facilities in Yorba Linda, California. As
used herein, the term "Company" shall mean and refer to Unit, its predecessor
Company and its subsidiary, as appropriate.
Following the restructuring, the Company consists of one operating segment
which designs, manufactures and markets mass flow controllers that are used to
control the flow of process gases into semiconductor wafer fabrication chambers
and other related semiconductor fabrication equipment. Wafer fabrication
involves deposition, etching and stripping processes that each require the
introduction of process gases that must be precisely controlled to ensure system
throughput and process yields. The Company's products are marketed and sold
worldwide through a direct sales force and sales representatives. Principal
marketing and service centers are maintained in the United States, Ireland,
Japan and Korea.
DISCONTINUED OPERATIONS
- -----------------------
During fiscal 1995, the Company sold its Burton Corblin subsidiary to James
Howden & Godfrey Overseas Limited for $9.1 million and the forgiveness of
certain intercompany debt owed to Burton Corblin. A gain on disposal of Burton
Corblin of $963,000 was recognized in fiscal 1995. Subsequent to the sale of
Burton Corblin, the Company adopted a formalized plan for the disposition of
Autoclave Engineers Group ("AEG") and, correspondingly, the results for AEG for
fiscal 1995 were accounted for as discontinued operations. In September, 1995,
the Company sold AEG to Snap-tite, Inc.
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and recorded a gain on disposal of $1,454,000. The operating results of AEG for
fiscal 1996, through the date of sale, were recorded as discontinued operations.
In conjunction with the sale of Burton Corblin and AEG, the Company also
adopted a restructuring plan that involved the merger of Autoclave Engineers,
Inc. into its wholly owned subsidiary, Unit Instruments, Inc., and the
relocation of the corporate office function to Unit Instruments' headquarters in
Yorba Linda, California. The corporate office function was transferred to Unit
Instruments in September, 1995 and the shareholders, at the Annual Shareholders'
Meeting in November, 1995, approved the merger of Autoclave Engineers, Inc. into
Unit Instruments, Inc., with Unit being the surviving corporation in such
merger. As a result of these activities, restructuring costs of $1,230,000 were
incurred during fiscal 1995 and $373,000 of costs were recorded for fiscal 1996.
SUBSEQUENT EVENT
- ----------------
Subsequent to the end of fiscal 1996, the Company concluded its acquisition
of Control Systems, Inc. ("CSI"). CSI fabricates high purity gas isolation boxes
and gas panels for semiconductor manufacturers. CSI, based in Rio Rancho, New
Mexico, will be operated as a wholly-owned subsidiary of the Company. The
acquisition of CSI was accounted for as a purchase with consideration of $1.2
million and 289,000 shares of Common Stock valued at approximately $4.0 million
on the acquisition date of June 3, 1996. This acquisition is expected to result
in the recording of goodwill of approximately $4.8 million.
PRODUCTS
- --------
The Company designs, manufactures and markets mass flow controllers
("MFCs") that are used primarily in the fabrication of integrated circuits
("ICs"). The fabrication of ICs fundamentally involves the deposition of
insulating or conducting materials onto a wafer, the etching of the wafer to
remove unprotected deposited material, and the stripping of the leftover
photoresist from the wafer after etching. This process may be repeated up to 30
or more times in the fabrication of a sophisticated IC. Each step of the wafer
fabrication process involves the introduction of various gases that must be
virtually contamination-free and accurately controlled at a precise flow rate
and volume. Following the processing of each wafer, process gases are completely
evacuated from the fabrication chamber and then re-introduced at the beginning
of the next wafer processing cycle.
Units mass flow controllers measure gas (or mass) flow by channeling a
small portion of the gas into a capillary tube that produces a thermal
differentiation. This thermal difference is measured by a sensor that feeds the
signal information to a control circuit that adjusts the internal valve to
either increase or decrease gas flow. Accuracy, speed of response, repeatability
and particle generation are the key technical criteria the industry uses in
evaluating MFCs.
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The Company primarily produces two types of MFCs: elastomer and all-metal
seal. Elastomer MFCs incorporate many of the same subassemblies as all-metal
seal products, but use less costly organic or elastomer seals that are typically
used in less process sensitive applications. All-metal MFCs incorporate metal
seals exclusively and are typically used in more demanding process control
environments. The Company recently introduced a line of digital MFCs that
supplement its extensive analog MFC product line. MFCs represented over 85% of
Units sales for fiscal years 1996, 1995 and 1994.
The Company also produces a line of pressure controllers that control the
pressure of gas as it enters the fabrication chamber, gas panels that integrate
various components into a single gas delivery system, digital power supplies and
ratio controllers. Customer service is provided through four domestic and nine
international service centers.
MARKETING AND CUSTOMERS
- -----------------------
The Company markets its MFCs directly to a well-defined group of original
equipment manufacturers ("OEMs") of wafer fabrication and related process
equipment. In addition, the Company markets directly to the semiconductor
manufacturers ("end users") who purchase directly from the Company for spares
and replacement MFCs. Additionally, end users can "nominate" a particular MFC
supplier when purchasing fabrication equipment from the OEMs. The Company
believes this "pull through" effect by the end users is an important element in
determining market share in the industry. OEMs accounted for approximately 75%
of total Company sales in fiscal 1996, with the balance attributable to end
users and service activities.
Unit primarily markets its products through a worldwide network of direct
sales personnel and representatives. In addition, the Company has one
strategically positioned international distributor that services certain Pacific
Rim countries. The Company has six domestic and five international sales
offices. In addition to direct sales efforts, the Company utilizes regular
participation in trade shows, frequent advertising in trade journals, and
placement of evaluation units to market its products. The Company also works
with existing and potential customers in prototype development efforts for "next
generation" equipment applications.
For fiscal year 1996, Applied Materials Inc. accounted for 29% of Units
total sales and Lam Research Corporation accounted for 19% of total sales.
Export and international sales were approximately 17%, 17% and 21% of total
sales in fiscal 1996, 1995 and 1994, respectively. However, the Company believes
that a substantial portion of domestic product shipments to OEMs are
subsequently shipped to end users outside of the United States.
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BACKLOG
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The Company's backlog at May 31, 1996 was approximately $3.5 million,
compared to backlog at May 31, 1995 of approximately $3.3 million. General
industry practice allows for orders to be rescheduled or canceled without
significant penalty. Most customer orders in backlog are deliverable within one
to four weeks and, accordingly, the Company's backlog at any given date is not
necessarily indicative of actual sales for any succeeding period.
MANUFACTURING AND SUPPLIERS
- ---------------------------
Unit designs, manufactures and assembles precision components at its own
facilities but also relies on third-party suppliers for various machined parts
and electronic subassemblies. All final assembly activity is performed in
cleanrooms. Unit has three manufacturing facilities: the main facility in Yorba
Linda, California, and two smaller facilities in Japan and Ireland. Customers
are increasingly seeking reductions in lead-times, increases in quality and
higher price/performance levels. To meet and exceed customer expectations,
several manufacturing strategies have been implemented, including TQM and team
benchmarking. The Company has augmented its quality focus over the past several
years with the goal of reducing costs and increasing customer satisfaction. In
fiscal 1995, the Company's facility in Ireland achieved registration under ISO
9002. In fiscal 1996, the Company achieved registration under ISO 9001 for its
main manufacturing facility in Yorba Linda, California. ISO 9000 registration is
an international quality standard that signifies that a manufacturer has
appropriate controls, documentation and procedures in all significant aspects of
its manufacturing operation to produce consistent high quality products. ISO
9001 is the most comprehensive level in the ISO 9000 series.
Most materials used in the Company's products are standard items that are
available from multiple sources. However, certain machined parts and raw
materials are obtained from a single source or a limited number of suppliers. In
addition, selected raw materials have an extended lead-time. Although the
Company seeks to limit its dependency on sole or limited sources, suppliers and
extended lead-times for raw materials, the partial or complete loss of these
suppliers, or an abrupt change in lead-times for raw material, could have a
material adverse effect on the Company's results of operations.
The Company's standard warranty period is from one to two years.
INTELLECTUAL PROPERTY
- ---------------------
The Company holds various U.S. and foreign patents on certain design and
functional aspects of its mass flow controllers. Although the Company believes
its patents have value and may potentially provide a competitive advantage, it
believes the success of the business depends primarily on product innovation,
technical expertise and
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know-how of its personnel, along with other factors. The Company has developed
proprietary information relating to the design and manufacture of its products,
along with the metrology of gases used in the IC manufacturing process. There
can be no assurance that competitors will not independently develop
substantially equivalent or superior proprietary information.
COMPETITION
- -----------
The market for the Company's mass flow controllers is highly competitive.
Significant competitive factors include product quality and performance, price,
delivery lead-times, customer service and support, breadth of product offering,
size of installed base and historical relationship with the customer. The
Company believes that it competes favorably with respect to these factors with
the primary exception of being predominantly a one product supplier, i.e., mass
flow controllers. The Company has three major domestic competitors and two
major Japanese competitors. Unit has a small manufacturing facility in Japan to
support and augment its efforts to penetrate the Japanese market and, while some
market share penetration has occurred, it is still limited. For the Company to
maintain and enhance its competitive position, significant continuing
investments in engineering, manufacturing process improvements, marketing,
customer service and support will be required for the foreseeable future.
PRODUCT DEVELOPMENT
- -------------------
The Company is a leader in the development of mass flow controllers and
peripheral accessories. The Company's product development activities target
enhancing existing products and developing new products that will successfully
compete on the basis of performance, reliability and pricing. A variety of
engineering skills are required in the development of the Company's products,
including mechanical, thermal dynamics, electrical, gas metrology and sensor
technology. Certain skills that are outside the Company's core technical
competencies, or augment internal expertise, are acquired through consulting
engineers. The Company has 39 full-time employees dedicated to research and
development activities.
For fiscal 1996, 1995 and 1994, the Company spent $3,757,000, $2,871,000
and $1,792,000, respectively, for research and development activities.
INVENTORY AND WORKING CAPITAL
- -----------------------------
The Company is required to carry significant amounts of inventory to meet
the rapid delivery requirements of its customers and to buffer against extended
lead-times for certain raw materials. The Company does not provide extended
payment terms to its customers. Returns for customer convenience are not allowed
by the Company.
8
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ENVIRONMENTAL COMPLIANCE
- ------------------------
The Company has identified ground water and soil contamination at its
previously owned Erie, Pennsylvania operation of Autoclave Engineers Group.
These findings have been reported to the appropriate authorities and the Company
has established a reserve of $681,000 for estimated costs of further
investigation and potential remediation related to the matter. In the opinion of
management, the final outcome of this matter will not have a material adverse
effect on the Company's financial position or results of operations. See Note 13
of Notes to Consolidated Financial Statements.
The Company's facilities are subject to federal, state and local
authorities' environmental control regulations. In the opinion of management,
compliance with these laws and regulations has not had, and will not have, a
material effect upon the capital expenditures, earnings and competitive position
of the Company.
EMPLOYEES
- ---------
At May 31, 1996, the Company and its subsidiaries had 448 employees, of
which 339 were in manufacturing and service support, 37 in marketing, sales and
applications engineering, 39 in research, development and engineering and 33 in
finance and administration. As of the end of fiscal 1996, the Company had 389
employees in the United States, 35 in Europe and 24 in the Pacific Rim. None of
the Companys employees are represented by a union or other collective bargaining
agent, and the Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS
- ------------------
The executive officers of Unit Instruments, their ages and position with the
Company as of May 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael J. Doyle 43 President and Chief Executive Officer
John E. Lamirande 40 Vice President, Manufacturing
John W. Leggat 53 Vice President, Sales and Marketing
Gary N. Patten 49 Vice President, Chief Financial Officer
and Secretary
Michael Saloka 57 Vice President, International
Kathryn S. Tricoli 49 Vice President, Human Resources
Nelson Urdaneta 46 Vice President, Engineering
</TABLE>
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Mr. Doyle has been President and Chief Executive Officer of the Company
since September, 1995. Formerly, he was President of Unit from 1984 to 1995
while it was a wholly-owned subsidiary of Autoclave Engineers, Inc. Mr. Doyle
also served as a director of Autoclave Engineers, Inc. from 1984 until its
merger into Unit in September, 1995. Mr. Doyle co-founded Unit Instruments in
1980.
Mr. Lamirande has served as Vice President, Manufacturing since June, 1995.
From September, 1994 to June, 1995, he served as Director of Quality. From 1984
to September 1994, Mr. Lamirande was employed by Baxter International, a
diversified medical products manufacturer, as Director of Operations in the
Stratus Division and as Director of Quality Assurance in the MicroScan division.
Mr. Leggat has served as Vice President, Sales and Marketing since June,
1995. From 1993 to 1995, he was President of Imaging Technology, a systems
integrator of bar code printers, and, from 1992 to 1993, he was co-founder of
Market Focus, a market research firm. From 1981 to 1992, he was a marketing
executive with Data Products Corporation, a manufacturer of printer products.
Mr. Patten has served as Vice President, Chief Financial Officer and
Secretary since June, 1995. From 1986 to 1995, he was Vice President, Chief
Financial Officer and Secretary of Optical Radiation Corporation, a diversified
manufacturer of medical devices, eyeware and industrial products.
Mr. Saloka has served as Vice President, International since June, 1995.
From 1987 to 1995, he served as Vice President, Finance while it was a wholly-
owned subsidiary of Autoclave Engineers, Inc. From 1983 to 1987, he was Director
of Internal Audit at Knott's Berry Farm, a theme park.
Ms. Tricoli has served as Vice President, Human Resources since April,
1993. From 1989 to 1993, she was Director of Human Resources at Kwikset, a
division of Black & Decker, which manufactures door hardware and locks.
Mr. Urdaneta has served as Vice President, Engineering since April, 1993.
From 1991 to 1993, he was Director of Research and Development at Baxter
Healthcare, a division of Baxter International. Prior to that, he served as Vice
President, Engineering for Racal Dana, an instrumentation manufacturer, from
1974 to 1991.
ITEM 2. PROPERTIES
The Company maintains its headquarters and principal manufacturing facility
in a leased 82,000 square foot building in Yorba Linda, California. The lease on
this facility expires in 2006 and provides for a 5-year renewal option. The
Company owns a 7,000 square foot manufacturing facility in Dublin, Ireland;
leases a 2,700 square foot manufacturing facility in Tokyo, Japan; has four
leased service centers in San Jose,
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California, Tempe, Arizona, Dallas and Austin, Texas. Internationally, Unit has
leased service centers in Kyusha Island and Osaka, Japan; Sungnam, Korea and
Munich, Germany.
The Company believes that the existing facilities are generally suitable
and adequate for its business.
ITEM 3. LEGAL PROCEEDINGS
The predecessor to the Company, Autoclave Engineers, Inc., is a named co-
defendant, along with numerous other companies, in several lawsuits in state and
federal courts in which plaintiffs allege personal injury from exposure to
asbestos-related products. Autoclave manufactured marine steam valves that may
have contained some minor quantities of asbestos, but ceased the production of
these products several years ago. The Company has product liability insurance
and has been generally successful in being dismissed from these types of
actions. To date, the Company has not incurred any financial liability related
to asbestos litigation. While it is not feasible to predict the outcome of
pending or future asbestos-related claims, management of the Company, based upon
available information and the settlement history of similar litigation involving
the Company, believes that any liability that may arise from these actions will
not have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON EQUITY MARKET DATA
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The Common Stock of Unit Instruments, Inc. is traded in the over-the-
counter market through the National Association of Securities Dealers Automated
Quotation National Market System (NASDAQ-NMS). The Company's NASDAQ-NMS symbol
is UNII. High and low closing prices for the Company's Common Stock, as reported
on NASDAQ-NMS, and cash dividends paid per share, for the fiscal quarters
indicated, were as follows:
<TABLE>
<CAPTION>
PERIOD HIGH LOW DIVIDENDS PAID
------ ---- --- --------------
<S> <C> <C> <C> <C>
1995 First Quarter $ 9.250 $ 7.375 $0.060
Second Quarter 9.500 8.500 0.060
Third Quarter 10.000 8.000 0.060
Fourth Quarter 13.625 8.750 0.060
1996 First Quarter $17.625 $11.500 $0.060
Second Quarter 19.250 10.625 0.060
Third Quarter 15.250 11.625 --
Fourth Quarter 15.500 11.875 --
</TABLE>
The Company had 351 holders of record of its Common Stock on May 31, 1996.
The Company suspended its regular quarterly dividends in fiscal 1996 and does
not anticipate resuming cash dividend payments in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $65,568 $48,256 $33,141 $23,965 $21,500
Income (loss) from continuing
operations before cumulative
effect of accounting change 4,778 705 (212) (1,610) (696)
Discontinued operations:
Income, net 750 1,334 1,186 1,715 1,971
Gain on disposal, net 1,454 963 -- -- --
Net income 6,982 3,002 1,198 105 1,275
---------------------------------------------------------
Earnings per share:
Income (loss) from continuing
operations before cumulative
effect of accounting change $ 1.09 $ 0.16 $ (0.05) $ (0.38) $ (0.16)
Discontinued operations 0.50 0.53 0.28 0.40 0.46
Net income 1.59 0.69 0.28 0.02 0.30
---------------------------------------------------------
Cash dividends per share $ 0.06 $ 0.24 $ 0.24 $ 0.24 $ 0.30
Average shares used in computing
earnings per share 4,393 4,340 4,268 4,233 4,243
<CAPTION>
MAY 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $26,724 $27,573 $25,128 $26,210 $26,605
Total assets 52,780 51,902 58,250 61,823 61,292
Long-term debt -- 453 952 1,417 3,152
Shareholders' equity 43,224 38,478 37,721 38,087 38,894
- --------------------------------------------------------------------------------------------
</TABLE>
The selected financial data should be read with the related consolidated
financial statements and notes thereto, included herein.
During fiscal 1993, the Company changed its method of valuing certain
inventories from the last-in, first-out method to the first-in, first-out
method. The selected financial data for the fiscal year 1992 has been restated
to reflect this change in accounting principle. The impact on net earnings was
a decrease of $235,000, or $.06 per share in 1992.
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In fiscal 1994, the Company changed the method of accounting for overhead
costs in certain inventories. Prior to 1994, costs related to material
processing and handling activities were applied to production as a function of
direct labor incurred; however, effective in 1994, they were applied based on
their relationship to material costs incurred. The cumulative effect of adopting
this change as of June 1, 1993 of $224,000, or $.05 per share, is included in
the net income and net income per share for the fiscal year ended May 31, 1994.
Prior years' financial data have not been restated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes related thereto.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING PERCENTAGES
-------------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of net sales 60.2% 62.2% 62.9%
Selling, general and administrative 22.2% 27.6% 30.1%
Restructuring costs .6% 2.5% --
Research and development 5.7% 5.9% 5.4%
Income from operations 11.2% 1.7% 1.6%
Income (loss) from continuing operations 7.3% 1.5% (0.6%)
Discontinued operations 3.4% 4.8% 3.6%
Net income 10.6% 6.2% 3.6%
</TABLE>
1996 COMPARED TO 1995
- ---------------------
Sales from continuing operations for fiscal 1996 increased 36% to $65.6
million from $48.3 million the prior fiscal year. This increase in sales is
primarily the result of a strong semiconductor equipment market upturn that
began during 1993. Sales of the Company's newest model metal seal MFCs grew
disproportionately, while sales for older model metal seal product and elastomer
MFCs grew at a much more modest rate. Identifiable international sales
increased 38%, but the Company believes that a significant portion of sales made
to domestic original equipment manufacturers are subsequently delivered to
foreign semiconductor manufacturers.
Cost of sales decreased to 60.2% of net sales in 1996, compared to 62.2% in
1995, primarily because of greater manufacturing overhead absorption and higher
productivity. Partially offsetting this lower cost of sales percentage for the
fiscal year was higher material costs because of product mix and higher costs
recorded by the Company's offshore manufacturing facilities.
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Selling, general and administrative expenses decreased as a percent of sales
to 22.2% in 1996 from 27.6% in the prior fiscal year. This decrease is
primarily attributable to the increased sales levels and to the closure of the
former corporate office in Erie, Pennsylvania and the relocation of the
corporate office function to Unit Instruments' headquarters in Yorba Linda,
California. The Company believes that, on an annualized basis, it will save in
excess of $1 million from the reduction of corporate office expenses.
The Company concluded its restructuring activities during the second quarter
of fiscal 1996 with the sale of the Autoclave Engineers Group and the relocation
of the corporate office function. Restructuring charges of $373,000 were
recorded during the year, as compared to $1,230,000 recorded for fiscal 1995.
No additional restructuring costs were incurred subsequent to the second quarter
and none are anticipated in the immediate future.
Research, development and engineering expenses increased 31% for fiscal 1996,
but declined marginally as a percent of sales to 5.7% from 5.9% in 1995. The
Company decided during the year to lessen its dependency on outside consulting
engineers and augment its internal resources. This resulted in headcount
increasing to 39 individuals dedicated to research, development and engineering
at the end of fiscal 1996 from 24 at the end of the prior fiscal year. The
Company believes that the continued timely development of new products and
enhancements to existing products is essential to maintaining and increasing its
competitive position. Accordingly, the Company anticipates that such expenses
will continue to increase in absolute dollar terms and potentially as a percent
of sales.
Interest income increased substantially in fiscal 1996 because of much higher
average cash balances which resulted from the sale of two operating units of the
Company. Interest expense decreased as cash resources generated from the sale
of Autoclave Engineers Group in September, 1995 were used to repay all domestic
bank borrowings.
Income from continuing operations before income taxes for fiscal 1996
increased to $7.8 million from $.9 million for the prior fiscal year. This
increase is attributable to several factors, including higher sales levels,
lower cost of sales, lower restructuring expenses and lower administrative costs
resulting from the relocation of the corporate office.
Income taxes on continuing operations were provided for at a 38.7% rate for
fiscal 1996, which is significantly higher than the prior rate of 24.8%. The
fiscal 1995 tax rate was favorably impacted by modest pre-tax income and certain
effects of the restructuring activities.
Income from continuing operations advanced to $4.8 million, or $1.09 per
share, for the current fiscal year from $.7 million, or $0.16 per share in the
prior fiscal year. Income from discontinued operations resulted from Autoclave
Engineers Group's
15
<PAGE>
performance through the date of sale in September, 1995. A net gain of $1.5
million was recorded on the sale of Autoclave Engineers Group. For the prior
fiscal year, a net gain of $1.0 million was recorded on the sale of Burton
Corblin. Net income for fiscal 1996 was $7.0 million, or $1.59 per share, which
compares favorably to fiscal 1995 results of $3.0 million, or $0.69 per share.
The Company's results of operations may be affected in the future by a
variety of factors including: the dependency of sales on a few large customers,
product mix, new product offerings by the Company and its competitors,
competitive pricing pressures, new technologies, product cost changes and the
acquisition of new businesses with different cost and expense structures.
Specifically, the Company is heavily dependent on one industrial segment, the
semiconductor equipment market, and any significant change in this segments
activity level would have a direct impact on the Company's performance.
1995 COMPARED TO 1994
- ----------------------
Sales from continuing operations increased 46% to $48.3 million for fiscal
year 1995 reflecting, in part, the continuation of the strong upturn in the
semiconductor equipment market that began in 1993. The Company introduced two
new metal seal mass flow controller models in fiscal 1994 that gained excellent
market acceptance during the current fiscal year. These new products accounted
for the majority of the sales increase for the year. In addition, average
selling prices were generally higher for the current fiscal period as compared
to the prior year period. The Company's older model MFCs recorded lower unit
sales for the year, but favorable mix and higher average selling prices resulted
in stable revenue for the current period. Sales from the Company's offshore
operations were also stable for the fiscal year.
Cost of sales, as a percent of sales, decreased slightly to 62.2% from the
prior years 62.9%. This decrease was attributable to marginally lower overhead
at the Company's main manufacturing facility in Yorba Linda, California which
was partially offset by higher expenses at the Company's operation in Japan.
Selling, general and administrative expenses decreased as a percent of sales
to 27.6% from 30.1% in fiscal 1994. This decrease primarily resulted from
operating leverage achieved by the 46% sales increase for the fiscal year.
Restructuring costs of $1.2 million were incurred during fiscal 1995
principally for severance charges related to the Company's planned sale of the
Autoclave Engineers Group and closure of the Erie corporate office.
Research and development expenses increased 60% over the prior year and
increased as a percent of sales to 5.9% in fiscal 1995 from 5.4% for fiscal
1994. These higher expenses represent additional staffing and increased
development activity directed toward product enhancements and new products.
16
<PAGE>
Interest income increased to $230,000 in 1995 compared to $66,000 in 1994.
The increase in interest income was attributable to higher cash balances
generated from the sale of Burton Corblin in 1995 which were offset, to a
limited extent, by generally lower interest rates. Interest expense decreased
to $339,000 from $448,000 because of lower average borrowings outstanding and
lower interest rates on these borrowings.
The effective rate for income tax provided in 1995 was approximately 25%
compared to a 199% rate in the prior year. The prior year rate was adversely
impacted because of low pre-tax income, the inclusion, for tax purposes, of non-
deductible foreign losses and other expense items, including goodwill and
business meal expenses, the adjustment of prior accruals, and the adoption of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
Effective June 1, 1993, the Company adopted prospectively SFAS No. 109. This
Statement required the Company to change its method of accounting for income
taxes from the deferred method to the liability method which requires the
recognition of deferred tax assets and liabilities for the estimated future
taxes payable or recoverable, arising from temporary differences between the tax
bases of assets and liabilities and their financial statement bases. The effect
of adopting SFAS No. 109 was an increase to the provision for income tax on
continuing operations of approximately $162,000 and a decrease on discontinued
operations of $25,000.
During the third quarter of fiscal 1995, the Company sold its compressor
operations in the United States and France and recorded a gain on disposal of
this business segment. During the fourth quarter, the Company recorded
additional reserves for this discontinued operation. Under the terms of the
sale agreement, the Company retained certain product warranty exposures and a
commitment for the realization of accounts receivable. A reserve of $225,000
was established in 1995 for these contingencies. Subsequently, in fiscal 1996,
it was determined that an additional $159,000 was required to resolve the
product warranties and realization of accounts receivable.
In the fourth quarter of fiscal 1995, the Company developed a plan for the
disposition of its Autoclave Engineers Group ("AEG") business segment.
Accordingly, this operation has been accounted for as a discontinued operation
for yearend reporting purposes. The sale of AEG was completed on September 22,
1995 and the Company recorded a net gain on the disposal of $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During fiscal 1996, the Company's financial condition improved based upon
strong operating performance and the sale of an operating unit. Cash and
equivalents, plus short-term investments, totaled approximately $14.6 million at
fiscal 1996 yearend compared to $9.4 million at May 31, 1995.
17
<PAGE>
OPERATING ACTIVITIES
--------------------
In fiscal 1996, the Company generated approximately $3.9 million in net
cash from operating activities primarily as a result of $7.0 million in net
income and $2.0 million in depreciation and amortization, offset by an
increase of $5.1 million in net operating assets and liabilities. Accounts
receivable and inventory increased approximately $1.9 million, due
primarily to higher sales, while accounts payable decreased $1.2 million,
primarily because of the liquidation of restructuring related liabilities.
Correspondingly, accrued liabilities decreased $1.5 million as certain
restructuring related liabilities were paid.
INVESTING ACTIVITIES
--------------------
The Company received approximately $12.5 million in net cash proceeds
and a 5-year interest bearing note for $.8 million from the sale of
Autoclave Engineers Group during fiscal 1996. Capital expenditures were
$5.2 million for the year and were primarily directed at increasing the
Company's manufacturing capacity and worldwide service capabilities. At May
31, 1996, the Company had no material commitments for capital expenditures.
The Company estimates that it will spend approximately $2.0 million on
capital expenditures in fiscal 1997.
In June, 1996, the Company acquired Control Systems, Inc. for a
combination of common stock, cash and the assumption of liabilities. As
such, this acquisition will require the use of cash resources during fiscal
1997. In addition, the Company continues to evaluate potential
acquisitions, joint ventures and strategic alliances that would complement
the Company's existing businesses and product lines. Any such undertaking
during fiscal 1997 could require the use of the Company's cash resources.
FINANCING ACTIVITIES
--------------------
As part of the restructuring commenced by the Company in fiscal 1995,
the Company repurchased 220,000 shares of Common Stock in fiscal 1996 for a
total consideration of $2.6 million and discontinued the payment of regular
quarterly dividends, subsequent to the dividend paid for the second
quarter. Lastly, borrowings were reduced $1.8 million through funds
generated by the sale of the Company's Autoclave Engineers Group.
During fiscal 1996, the Company established an unsecured $5.0 million
line of credit to support the issuance of letters of credit and borrowings.
At May 31, 1996, the Company had $3.0 million available against this line
and had committed $2.0 million to support standby letters of credit.
18
<PAGE>
The Company expects that current cash balances, available lines of
credit and anticipated cash flow from operations will be adequate to meet
its near-term financing needs.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Unit Instruments, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14(a)(1) and (2) on page 48, present
fairly, in all material respects, the financial position of Unit Instruments,
Inc. and its subsidiaries at May 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 4 to these consolidated financial statements, the
Company changed its method of accounting for overhead costs in certain
inventories in fiscal 1994.
Price Waterhouse LLP
Costa Mesa, California
July 12, 1996
20
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND 1995
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $14,572 $ 4,465
Short-term investments, at cost -- 4,919
Accounts receivable, less reserves of
$135 in 1996 and $110 in 1995 10,179 9,543
Inventories (Note 4) 9,709 8,440
Prepaid expenses and other 191 381
Deferred taxes 1,042 1,188
Net assets of discontinued operations
held for sale -- 11,072
------- -------
Total current assets 35,693 40,008
Fixed assets, net (Note 5) 10,223 6,824
Goodwill, net of accumulated amortization
of $1,723 in 1996 and $1,571 in 1995 4,338 4,490
Deferred taxes 249 --
Other assets 2,277 580
------- -------
Total $52,780 $51,902
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,969 $ 3,139
Accrued compensation and benefits 1,786 1,560
Income taxes (Note 7) 1,141 672
Current installments on term debt
(Note 6) 1,845 3,156
Other current liabilities 2,228 3,908
------- -------
Total current liabilities 8,969 12,435
Long-term debt (Note 6) -- 453
Deferred income taxes (Note 7) -- 77
Other long-term liabilities and
deferred credits 587 459
Total 9,556 13,424
------- -------
Commitments and contingencies
(Notes 8, 12 and 13)
Shareholders' equity:
Common stock, $.15 par value; authorized
shares: 12,000,000; issued
shares: 4,090,146 in 1996 and 4,416,193
in 1995 613 662
Additional paid-in capital 19,247 20,413
Retained earnings 23,673 18,171
Foreign currency translation
adjustment (309) (252)
------- -------
43,224 38,994
Less treasury stock, at cost: 173,388
shares in 1995 -- (516)
------- -------
Total shareholders' equity 43,224 38,478
------- -------
$52,780 $51,902
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
21
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED MAY 31, 1996, 1995, 1994
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 65,568 $ 48,256 $ 33,141
Operating costs and expenses:
Cost of goods sold 39,501 30,014 20,840
Selling, general and administrative 14,587 13,317 9,983
Restructuring costs 373 1,230 --
Research, development and engineering 3,757 2,871 1,792
---------- ---------- ----------
Operating income 7,350 824 526
Interest income 690 230 66
Interest expense (112) (339) (448)
Other income (expense) (132) 222 70
---------- ---------- ----------
Income from continuing operations before
income taxes, and cumulative effect
of accounting change 7,796 937 214
Provision for income taxes 3,018 232 426
---------- ---------- ----------
Income (loss) from continuing
operations before cumulative effect of
accounting change 4,778 705 (212)
Discontinued operations (Note 2):
Income, net of income tax provision
of $521, $1,119 and $684 in 1996,
1995 and 1994, respectively 750 1,334 1,186
Gains on disposals, including tax
provision of $1,011 in 1996 and tax
benefit of $171 in 1995 1,454 963 --
Cumulative effect of change in
accounting for certain overhead costs,
net of income tax provision of $125 -- -- 224
---------- ---------- ----------
Net income $ 6,982 $ 3,002 $ 1,198
========== ========== ==========
Per common share:
Income (loss) from continuing
operations before accounting change $ 1.09 $ 0.16 $ (0.05)
Discontinued operations:
Income 0.17 0.31 0.28
Gain on disposal 0.33 0.22 --
Cumulative effect of accounting change -- -- 0.05
---------- ---------- ----------
Net income $1.59 $0.69 $ 0.28
========== ========== ==========
Average shares used in computing
earnings per share 4,393,230 4,340,384 4,267,533
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
22
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MAY 31, 1996, 1995, 1994
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,982 $ 3,002 $ 1,198
Adjustments to reconcile net income to net cash
provided from operating activities:
Cumulative effect of accounting change, net -- -- (224)
Depreciation and amortization 2,023 2,850 2,906
Deferred income taxes (180) (828) (96)
Equity interests -- (758) 103
Changes in assets and liabilities, net of effect of businesses sold:
Accounts receivable (636) (1,634) (2,050)
Inventories (1,269) (2,817) (478)
Prepaid expenses and other 249 312 (626)
Accounts payable and accrued compensation and benefits (944) 4,232 2,188
Income taxes 469 283 (113)
Other current liabilities (1,421) (34) (50)
Loss on disposal of property, plant and equipment -- 15 73
Gain on sale of business (1,454) (963) --
Other 126 188 63
------- ------- -------
Net cash flow provided from operating activities 3,945 3,848 2,894
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,182) (4,548) (2,363)
Proceeds from sale of property, plant and equipment -- 256 99
Proceeds from sale of business, net of cash 12,526 4,456 --
Note receivable from sale of business (750) --
Change in short-term investments 4,919 (4,998) 6,611
Issuance of note receivable (1,025) -- --
Other (67) 89 (210)
------- ------- -------
Net cash provided by (used in) investing activities 10,421 (4,745) 4,137
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (453) (459) (431)
Change in short-term borrowings, net (1,311) 556 (3,467)
Cash dividends paid (517) (1,014) (1,011)
Purchase of company common stock (2,585) -- --
Stock option exercise, related tax benefit and other 664 141 7
------- ------- -------
Net cash (used in) financing activities (4,202) (776) (4,902)
Effect of exchange rate changes on cash and cash equivalents: (57) 419 (317)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 10,107 (1,254) 1,812
Cash and cash equivalents at beginning of year 4,465 5,719 3,907
------- ------- -------
Cash and cash equivalents at end of year $14,572 $ 4,465 $ 5,719
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 112 $ 339 $ 269
Income taxes paid $ 4,493 $ 2,168 $ 1,441
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
23
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MAY 31, 1996, 1995, 1994
(amounts in thousands)
<TABLE>
<CAPTION>
FOREIGN
COMMON COMMON ADDITIONAL CURRENCY
STOCK STOCK PAID-IN RETAINED TRANSLATION TREASURY
SHARES ISSUED CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ------ ---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993 4,416 $662 $20,079 $15,996 $ 1,929 $(579) $38,087
Net income 1,198 1,198
Dividends (1,011) (1,011)
Exercise of stock options 3 3 6
Tax benefit from stock options 1 1
Foreign currency translation (560) (560)
----- ---- ------- ------- ------- ----- -------
Balance at May 31, 1994 4,416 662 20,083 16,183 1,369 (576) 37,721
Net income 3,002 3,002
Dividends (1,014) (1,014)
Exercise of stock options 100 94 194
Purchase of common stock (34) (34)
Tax benefit from stock options 55 55
Issuance of warrants for
common stock 175 175
Relief of foreign currency (1,626) (1,626)
translation
Foreign currency translation 5 5
----- ---- ------- ------- ------- ----- -------
Balance at May 31, 1995 4,416 662 20,413 18,171 (252) (516) 38,478
Net income 6,982 $ 6,982
Dividends (258) (258)
Exercise of stock options 67 10 386 396
Purchase of common stock (220) (33) (1,330) (1,222) (2,585)
Tax benefit from stock options 268 268
Retirement of treasury stock (173) (26) (490) 516 --
Foreign currency translation (57) (57)
----- ---- ------- ------- ------- ----- -------
Balance at May 31, 1996 4,090 $613 $19,247 $23,673 $ (309) $ -- $43,224
===== ==== ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
24
<PAGE>
UNIT INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
- --------
The Company primarily designs, manufactures and markets mass flow
controllers that are used to control and measure the flow of process gases in
the fabrication of semiconductor wafers.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of Unit
Instruments, Inc. and its wholly-owned subsidiaries ("the Company"). Significant
inter-company accounts and transactions have been eliminated.
FISCAL YEAR
- -----------
For the current year, the Company's fiscal year ended on the Saturday
closest to May 31st. For clarity of presentation, the current year will be
reported as ending on May 31, 1996. The current method of ending the fiscal year
on the Saturday closest to May 31st is expected to be continued. Fiscal years
prior to this reporting year, that are presented in or referenced by this
report, ended on May 31st of the respective years.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
INVENTORY VALUATION
- -------------------
Inventories are valued at lower of cost (first-in, first-out) or market.
FIXED ASSETS, DEPRECIATION AND AMORTIZATION
- -------------------------------------------
The Company computes depreciation using the straight line method over the
estimated useful lives of the related assets or the remaining lives of the
related leases (three to ten years), whichever is shorter. Repairs and
maintenance are charged to expense as incurred. Major renewals and betterments,
which extend the useful life of the related asset, are capitalized. Asset
values are recorded at original cost.
25
<PAGE>
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development costs are expensed in the period incurred.
WARRANTY RESERVE
- ----------------
The Company generally provides customers with a limited one to two-year
warranty. The liability for future warranty claims reflects the estimated
future cost of warranty repairs on products previously sold. The Company
recognizes the estimated cost of warranty obligations at the time the related
products are sold and periodically evaluates and adjusts the warranty reserve to
the extent actual warranty experience varies from original estimates.
INTANGIBLE ASSETS
- -----------------
Intangible assets are recorded at cost and amortized over their estimated
useful lives using the straight-line method. Goodwill represents the excess of
cost over the fair market value of assets acquired and is amortized over forty
years using the straight-line method. The Company regularly reviews the
realizability of goodwill and recognizes, on a current basis, any material
impairment in the carrying value of goodwill.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The accounts of foreign subsidiaries are measured using local currencies as
the functional currency. Assets and liabilities are translated from such foreign
currencies into U.S. dollars at period-end exchange rates and income and expense
accounts are translated at average monthly exchange rates. Net gain or loss
resulting from the translations are excluded from the income and loss accounts
and applied to a separate component of shareholders' equity. Gains and losses
from foreign currency transactions are insignificant and are included in
selling, general and administrative expenses.
REVENUE RECOGNITION
- -------------------
Product sales are recorded at the time of shipment and service revenues are
recorded when the related services are performed.
INCOME TAXES
- ------------
The Company accounts for income taxes using the asset and liability method in
accordance with Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
26
<PAGE>
EARNINGS PER SHARE
- ------------------
Earnings per share is computed based on weighted average number of common and
common share equivalent shares outstanding during each year. Stock options and
warrants that have a dilutive effect are considered common stock equivalents for
purposes of earnings per share. Fully diluted net income per share is not
materially different from primary net income per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Values of Financial
Instruments" (SFAS 107). The carrying amounts of cash and cash equivalents,
accounts and other receivables, accounts payable, accrued liabilities and debt
approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS 121), establishes accounting standards for the impairment of long-lived
assets to be reviewed whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Under the provisions of
SFAS 121, companies are required to review the recoverability of long-lived
assets and intangible assets by comparing cash flows on an undiscounted basis to
the net book value of the assets. In the event the projected and discounted
cash flows are less than the net book value of the assets, the carrying values
of the assets are written down to their fair value, less cost to sell. In
addition, SFAS 121 requires that assets to be disposed of be measured at the
lower of cost or fair value, less cost to sell. The Company will adopt SFAS 121
during fiscal year 1997. The adoption of SFAS 121 is not expected to have a
material effect upon the Company's financial position or results of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
- ---------------------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which establishes financial accounting and reporting
standards for stock-based employee compensation. Under SFAS 123, companies are
encouraged, but not required, to adopt a method of accounting for stock
compensation awards based upon the estimated fair value at the date the
options/awards are granted as determined through the use of a pricing model (the
"Fair Value Method"). Companies continuing to account for such awards in
accordance with the existing guidance of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), will have to disclose,
in the Notes to Financial Statements, the proforma impact on net income and net
income per share had the Company utilized the Fair Value Method. The Company
anticipates accounting for future stock compensation awards in accordance with
APB 25 with the appropriate footnote disclosure required under SFAS 123.
27
<PAGE>
USE OF ESTIMATES
- ----------------
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the respective reporting
periods. Actual results could differ from those estimates.
RECLASSIFICATIONS
- -----------------
Certain prior year items have been reclassified to conform with the current
year presentation.
2. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
On September 22, 1995, the Company sold the assets of its Autoclave Engineers
Group ("AEG") located in Erie, Pennsylvania to Snap-tite, Inc. for consideration
of $16,250,000, consisting of $15,500,000 of cash and an interest bearing five-
year promissory note for $750,000. The assets purchased by Snap-tite, Inc.
included all the outstanding stock of Autoclave Engineers Canada Ltd. and
Autoclave Engineers, France, which were wholly-owned subsidiaries of Autoclave.
The sale of AEG resulted in an after tax gain of $1,454,000, and income from AEG
operations during fiscal year 1996 resulted in an after tax net income of
$750,000.
Subsequent to the sale of AEG, Autoclave Engineers, Inc., the former parent of
Unit Instruments, Inc. ("Unit"), merged into Unit resulting in Unit becoming the
surviving corporation and reporting Company.
On January 19, 1995, the Company sold its Burton Corblin compressor operation
in the United States and France to James Howden & Godfrey Overseas Limited
(Howden) for cash of $9,064,000, the forgiveness of $2,584,000 in debt owed by
Autoclave Engineers, Inc. to Burton Corblin S.A. (BCSA) and the forgiveness of
$3,122,000 of inter-company debt owed to BCSA. As a result of this transaction,
Howden acquired all outstanding stock of BCSA from the Company. The transaction
resulted in an after tax gain of $963,000 after provision for certain estimated
costs.
The results of operations of AEG and BCSA have been reported as discontinued
operations in the accompanying Consolidated Statements of Income for all three
years presented thereon. The net sales and income for discontinued operations
for the years ended May 31, 1996, 1995 and 1994 are presented below.
28
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Net sales
AEG $8,341,000 $28,683,000 $26,887,000
BC -- 19,792,000 19,878,000
Net income
AEG 750,000 753,000 88,000
BC -- 581,000 1,098,000
</TABLE>
With the disposition of AEG and BC, the continuing operations of the
Company represent a single business segment. The identifiable assets of the
discontinued segments at May 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Autoclave Products (primarily U.S.) $23,608,000 $24,328,000
Compressors (primarily France) -- 23,978,000
</TABLE>
In conjunction with the divestiture of Burton Corblin and Autoclave Engineers
Group, the predecessor Company, Autoclave Engineers, Inc., established a plan of
restructuring that involved the relocation of the corporate office function from
Erie, Pennsylvania to the headquarters of Unit Instruments in Yorba Linda,
California. In fiscal 1995, a restructuring reserve of $1,230,000 was
established for severance benefits for six corporate officers and staff. In the
first half of fiscal 1996, an additional restructuring charge of $373,000 was
recorded for professional fees and severance. All severance payments were made
during the second quarter of fiscal 1996 with the relocation of the corporate
office. The Company does not anticipate any additional charges associated with
this restructuring activity.
3. SHORT TERM INVESTMENTS
There are no short term investments at May 31, 1996. Short term investments
for May 31, 1995 were comprised of the following:
<TABLE>
<CAPTION>
May 31,1995
----------------------------------------
Face Market
Value Cost Value
------------ ----------- -----------
<S> <C> <C> <C>
Municipal bonds $1,600 ,000 $1,600,000 $1,600,000
Commercial paper 3,000,000 2,906,000 2,967,000
Money market account 413,000 413,000 413,000
----------- ---------- ----------
Total $ 5,013,000 $4,919,000 $4,980,000
=========== ========== ==========
</TABLE>
29
<PAGE>
4. INVENTORIES
Inventories at May 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $6,514,000 $5,326,000
Work in process 2,313,000 1,896,000
Finished goods 882,000 1,218,000
---------- ----------
Total $9,709,000 $8,440,000
========== ==========
</TABLE>
In fiscal 1994, the Company changed the method of accounting for overhead
costs in certain inventories. Prior to 1994, costs related to material
processing and handling activities were applied to production as a function of
direct labor incurred; however, effective in 1994, they were applied based on
their relationship to material costs incurred. The cumulative effect of adopting
this change as of June 1, 1993 of $224,000, or $0.05 per share, is included in
the net income and net income per share for the fiscal year ended May 31, 1994.
5. FIXED ASSETS
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
May 31, 1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 5,096,000 $ 2,346,000
Machinery and equipment 11,732,000 9,338,000
Construction-in-progress 662,000 880,000
----------- -----------
17,490,000 12,564,000
Accumulated depreciation and (7,267,000) (5,740,000)
amortization ----------- -----------
Total $10,223,000 $ 6,824,000
=========== ===========
</TABLE>
6. DEBT
The Company has a revolving credit line with a bank which provides for an
overall credit limit of $5,000,000 and expires in January, 1997. Interest is
payable monthly at prime or an Offshore Rate plus 1.50%. The credit facility
provides for the issuance of letters of credit not to exceed $5,000,000. At May
31, 1996, there were no amounts borrowed under this agreement, but a $2,000,000
standby letter of credit was issued to support a $1,837,000 loan from a Japanese
bank to Unit Instruments, Japan. The revolving credit agreement contains
certain financial covenants that the Company was in compliance with at May 31,
1996. Term debt is comprised of the following:
30
<PAGE>
<TABLE>
<CAPTION>
May 31, 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Bank term loan, payable in monthly
installments of $40,000, including
interest, at rates of 8.5% and 9.5%
through 1997 $ -- $ 812,000
Bank term loan, payable quarterly and
renewable at interest rates from 1.6%
to 2.0%, secured by a standby letter
of credit 1,837,000 2,697,000
Capital lease obligation with weighted
average interest rates of 7.25% due
from 1995 through 1999 -- 100,000
Other 8,000 --
----------- -----------
1,845,000 3,609,000
Less current portion (1,845,000) (3,156,000)
----------- -----------
Long-term debt $ $ 453,000
=========== ===========
</TABLE>
7. INCOME TAXES
The composition of the provision for income taxes included in the consolidated
statement of income was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Current provision:
Federal $2,911,000 $ 859,000 $ 287,000
---------- ---------- ----------
State 211,000 225,000 61,000
Foreign 76,000 75,000 42,000
---------- ---------- ----------
3,198,000 1,159,000 390,000
Deferred
Federal (149,000) (745,000) 36,000
State (31,000) (182,000) --
---------- ---------- ----------
Total provision - continuing operations $3,018,000 $ 232,000 $ 426,000
========== ========== ==========
Discontinued operations:
Current 1,835,000 1,097,000 708,000
Deferred (303,000) (149,000) (24,000)
Total provision - discontinued
operations $1,532,000 $ 948,000 $ 684,000
========== ========== ==========
Total tax provision $4,550,000 $1,180,000 $1,110,000
========== ========== ==========
</TABLE>
31
<PAGE>
A reconciliation of the federal statutory rate to the effective rate on income
from continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Provision at federal statutory rate $2,651,000 $ 319,000 $ 73,000
State income tax net of federal benefit 140,000 26,000 (24,000)
Goodwill amortization 52,000 52,000 52,000
Effect of utilized foreign tax credits (79,000) -- --
Foreign tax rate (lower) or higher than
U. S. rate 175,000 (19,000) 64,000
Adjustment of prior year accruals -- (276,000) 120,000
Change in valuation allowance -- 105,000 --
SFAS 109 adjustment -- -- 162,000
Other 79,000 25,000 (21,000)
---------- ---------- --------
Total adjustments 367,000 (87,000) 353,000
---------- ---------- --------
Total provision for income taxes $3,018,000 $ 232,000 $426,000
========== ========== ========
</TABLE>
Temporary differences arising from continuing operations between the financial
bases and tax bases of assets and liabilities result in deferred income taxes.
Deferred tax assets and liabilities consist of the following at May 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory valuation $ 301,000 $ 317,000
Deferred compensation 343,000 202,000
Accrued expenses 471,000 364,000
Reserves 373,000 --
Restructuring accruals -- 631,000
Foreign tax credit carryforward 615,000 555,000
---------- ----------
Total gross deferred tax assets 2,103,000 2,069,000
Valuation allowance (615,000) (555,000)
Deferred tax liabilities:
Tax over book depreciation (197,000) (344,000)
Other -- (59,000)
---------- ----------
Total deferred tax liabilities (197,000) (403,000)
---------- ----------
Net deferred tax asset $1,291,000 $1,111,000
========== ==========
</TABLE>
A valuation allowance has been provided against deferred tax assets related to
the utilization of foreign tax credits. At May 31, 1996, the Company had foreign
tax credit carryforwards available for federal income tax purposes. The amount
of these carryforwards and the year in which they expire are:
32
<PAGE>
<TABLE>
<CAPTION>
Federal Foreign Foreign
Tax Credits Operating Losses
--------------- ----------------
<S> <C> <C>
1997 $ 4,000 $ 231,000
1998 302,000 114,000
1999 -- 270,000
2000 -- 139,000
2001 309,000 337,000
-------- ----------
TOTAL $615,000 $1,091,000
======== ==========
</TABLE>
The domestic and foreign components of income (loss) before provision for
income taxes for continuing operations are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
US $8,087,000 $660,000 $181,000
Foreign (291,000) 277,000 33,000
---------- -------- --------
Total $7,796,000 $937,000 $214,000
---------- -------- --------
</TABLE>
The cumulative amount of unrepatriated earnings of continuing foreign
subsidiaries and entities owned 20% or more, for which no deferred taxes have
been provided, is $1,140,000 at May 31, 1996. It is the Company's intention to
reinvest undistributed earnings of certain of its foreign subsidiaries and
thereby indefinitely postpone their remittance.
Effective June 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
This Statement required the Company to change its method of accounting for
income taxes from the deferred method to the liability method, which requires
the recognition of deferred tax assets and liabilities for the estimated future
taxes payable or recoverable arising from temporary differences between the tax
bases of assets and liabilities and their financial statement bases. Prior to
fiscal 1994, accounting for income taxes was determined under the provisions of
Accounting Principles Board Opinion No. 11.
The effect of adopting SFAS No. 109 increased the provision for income taxes
for continuing operations in fiscal 1994 by approximately $162,000 and reduced
the provision for income tax for discontinued operations by $25,000.
8. RETIREMENT PLANS
The Company maintains a qualified profit sharing (401K) plan for substantially
all of its employees who meet certain age and length of service requirements.
Contributions equal to 50% of the participants contributions are made by Unit to
the
33
<PAGE>
plan. Additional contributions may be made by Unit at the discretion of Unit's
Board of Directors. Contributions to the plan were $486,000 in 1996, $564,000 in
1995, and $327,000 in 1994.
In addition, the Company maintains a supplemental retirement plan for one
current and five former executives with retirement benefits based upon certain
percentages of the employees salaries. At May 31, 1996 and 1995, the Company's
estimated liability for the plan was $572,000 and $634,000, respectively.
9. STOCK OPTION PLANS
The Company maintains a 1987 Stock Plan ("1987 Plan"), under which key
employees may be awarded both non-qualified and qualified stock options not to
exceed 1,600,000 shares of the Company's Common Stock. Under this plan, options
are granted at a price not less than the fair market value at the grant date and
generally become exercisable in five equal annual installments beginning one
year after the grant date. Options expire ten years after the grant date. Of the
total shares authorized for issuance, 1,003,610 shares have been granted and
216,264 shares have been exercised.
The Company also maintains a 1990 Non-Employee Director Stock Option Plan
("1990 Plan") under which each non-employee director receives an automatic grant
of options on September 1st of each year. The aggregate options available under
the 1990 Plan is not to exceed 250,000 shares of the Company's Common Stock.
Under this plan, options are granted at the fair market price on the grant date
and are completely vested. Options expire ten years after the grant date. Of the
total shares authorized, 86,563 shares have been granted and no shares have been
exercised.
The following is a summary of all stock option activity for fiscal 1996, 1995
and 1994:
<TABLE>
<CAPTION>
Number of Shares Price Per Share
----------------- ---------------
<S> <C> <C>
May 31, 1993 414,827 $ 4.95 - $11.02
Options canceled or expired (1,705) $8.00
Exercised (1,000) $5.89
Granted 24,000 $8.00
-------
May 31, 1994 436,122 $ 4.95 - $11.02
Options canceled or expired (6,775) $ 8.00 - $10.38
Exercised (31,815) $ 4.95 - $8.00
Granted 73,643 $ 8.50 - $11.25
-------
May 31, 1995 471,175 $ 4.95 - $11.25
Exercised (67,341) $ 4.95 - $8.00
Granted 470,075 $12.63 - $15.38
-------
May 31, 1996 873,909 $ 4.95 - $15.38
=======
</TABLE>
34
<PAGE>
At May 31, 1996, there were 366,856 shares exercisable under the 1987 Plan at
option prices ranging from $4.95 to $11.25 and 86,563 shares exercisable under
the 1990 Plan at option prices ranging from $7.00 to $15.38. As options have
been granted at the fair market value, no accounting recognition is given to
stock options until they are exercised, at which time the proceeds are credited
to the capital accounts.
10. EXPORT SALES AND CONCENTRATION OF CREDIT RISK
Export sales amounted to $3,720,000, $2,139,000 and $1,452,000, or 6%, 4% and
4% of total sales, in 1996, 1995 and 1994, respectively.
The Company generates revenues principally from sales of product to customers
in the semiconductor industry. Accordingly, the Company's sales and trade
receivables are concentrated principally in this industry. During 1996, 1995 and
1994, sales to one customer totaled $19,863,000, $16,672,000 and $9,769,000,
respectively, while sales to another customer totaled $12,909,000, $8,194,000
and $4,808,000, respectively, for the same three fiscal years.
11. INDUSTRY SEGMENT INFORMATION
The Company operates in one industry segment: the design, manufacture and
distribution of mass flow controllers that are used to measure the flow of
process gases in the fabrication of semiconductor wafers. Information about the
Company's operations, by geographic locations, is shown below:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales:
United States $58,063 $42,366 $27,737
Europe 4,323 3,372 3,214
Asia 3,182 2,518 2,190
------- ------- -------
Total $65,568 $48,256 $33,141
======= ======= =======
Income from operations:
United States $ 7,460 $ 650 $ 376
Europe 133 380 346
Asia (243) (206) (196)
------- ------- -------
Total $ 7,350 $ 824 $ 526
======= ======= =======
Identifiable assets:
United States $45,165 $45,663 $30,919
Europe 4,134 3,404 24,855
Asia 3,481 2,835 2,476
------- ------- -------
Total $52,780 $51,902 $58,250
======= ======= =======
</TABLE>
35
<PAGE>
12. OPERATING LEASES
The Company leases manufacturing and office facilities at various locations
under non-cancelable operating leases expiring through 2006.
Future minimum lease payments under non-cancelable operating leases (with
initial lease terms in excess of one year) as of May 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending May 31:
-------------------
<S> <C>
1996 $1,160,000
1997 1,128,000
1998 1,098,000
1999 1,014,000
2000 1,009,000
Thereafter 4,913,000
</TABLE>
Total rent expense for operating leases from continuing operations was
$1,410,000, $1,294,000 and $1,210,000 for 1996, 1995 and 1994, respectively.
13. CONTINGENCIES
The Company has identified ground water and soil contamination at its
previously owned Erie, Pennsylvania operation of Autoclave Engineers Group.
These findings have been reported to the appropriate authorities and the Company
has established a reserve of $681,000 for estimated costs of further
investigation and potential remediation related to this matter. In the opinion
of management, the final outcome of this matter will not have a material adverse
effect on the Company's financial position or results of operations.
The predecessor to the Company, Autoclave Engineers, Inc., is a named co-
defendant, along with numerous other companies, in several lawsuits in state and
federal courts in which plaintiffs allege personal injury from exposure to
asbestos-related products. Autoclave manufactured marine steam valves that may
have contained some minor quantities of asbestos, but ceased the production of
these products several years ago. The Company has product liability insurance
and has been generally successful in being dismissed from these types of
actions. To date, the Company has not incurred any financial liability related
to asbestos litigation. While it is not feasible to predict the outcome of
pending or future asbestos-related claims, management of the Company, based upon
available information and the settlement history of similar litigation involving
the Company, believes that any liability that may arise from these actions will
not have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
The Company has certain other actions pending that arise out of the ordinary
course of business.
36
<PAGE>
In the opinion of management, the ultimate resolution of the these matters
will not have a material adverse impact on the Company's financial position or
results of operations.
14. RELATED PARTY TRANSACTIONS
The Company entered into a Share Repurchase Agreement ("the Agreement") in
fiscal 1995 with its largest shareholder, the J & L Levinson Partnership ("the
Partnership"), of which James C. Levinson and Marilyn G. Levinson are the sole
partners. Mr. Levinson is the Chairman of the Company's Board of Directors and
Mrs. Levinson was a member of the Board of Directors until her resignation in
September, 1995. Under the Agreement, the terms of which were contingent upon
the closing of the sale of the assets of the Autoclave Engineers Group, the
Company repurchased 220,000 shares of the Common Stock of the Company from the
Partnership at a price of $11.75 per share, or approximately $2.6 million, on
September 22, 1995.
15. SUBSEQUENT EVENT (UNAUDITED)
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in exchange
for $1.2 million and 289,000 shares of Company stock valued at $3,977,000. The
acquisition will be accounted for by the purchase method. Accordingly, the
results of operations of CSI will be included with those of the Company for
periods subsequent to the date of acquisition. CSI had had revenues of
$10,388,000 and net earnings of $589,000 for the calendar year ended December
31, 1995. CSI will convert to the Company's fiscal year.
The unaudited proforma condensed balance sheet of the Company and CSI as of
May 31, 1996, after giving effect to certain proforma adjustments, is as
follows:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
ASSETS
Current assets $37,799,000
Property, plant and equipment 11,317,000
Other assets 1,512,000
Goodwill 9,128,000
-----------
$59,756,000
===========
LIABILITIES AND EQUITY
Current liabilities $11,628,000
Other liabilities 927,000
Shareholders' equity 47,201,000
-----------
$59,756,000
===========
</TABLE>
37
<PAGE>
The unaudited proforma combined results of operations of the Company and CSI
for the year ended May 31, 1996, after giving effect for certain proforma
adjustments, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Net sales $76,370,000
Income from continuing 4,641,000
operations
Income per share from $ 0.99
continuing operations
</TABLE>
The foregoing unaudited proforma results reflect one year's amortization of
goodwill resulting from the acquisition of CSI. The Company has determined that
the goodwill has an estimated 12-year life and, for purposes of the proforma
adjustments, a 12-year amortization period has been used.
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
<TABLE>
<CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION
--------------- --- ---------------------
<S> <C> <C>
A. Wade Blackman Jr. (2) 68 President, Farmington Capital Management
Corporation
George Boyadjieff (2) 56 President, Chief Executive Officer, Varco
International
Michael J. Doyle 43 President, Chief Executive Officer, Unit
Instruments
James C. Levinson (1) 68 Private Investor
Edward Rogas, Jr. (1) (2) 56 Vice President, Teradyne
</TABLE>
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Mr. Blackman has served as a director of the Company since 1995, and as a
director of the Company's former parent, Autoclave Engineers, Inc., from 1984
until its merger into the Company in September, 1995. He is President of
Farmington Capital Management Corporation, a private investment company.
Mr. Boyadjieff has been a director of the Company since 1995. He is President
and Chief Executive Officer of Varco International, Inc. ("Varco"), a leading
manufacturer of products used in the international oil and gas well industry.
Mr. Boyadjieff has been associated with Varco for 25 years and has served in a
variety of technical and executive positions. He is also a director of Varco.
Mr. Doyle has been President and Chief Executive Officer of the Company since
September, 1995. Formerly, he was President of Unit from 1984 to 1995 while it
was a wholly-owned subsidiary of Autoclave Engineers, Inc. Mr. Doyle also served
as a director of Autoclave Engineers, Inc. from 1984 until its merger into Unit
in September, 1995. Mr. Doyle co-founded Unit Instruments in 1980.
39
<PAGE>
Mr. Levinson is the current Chairman of the Board. He has served as a director
of the Company since 1995, and as a director of the Companys former parent,
Autoclave Engineers, Inc., from 1961 until its merger into the Company in
September, 1995. From 1966 to 1992, Mr. Levinson was President and Chief
Executive Officer of Autoclave Engineers, Inc.
Mr. Rogas has been a director of the Company since 1995. He is Vice President
of Teradyne, Inc. ("Teradyne"), a leading manufacturer of semiconductor,
circuit-board and telecommunications test systems. Mr. Rogas has been associated
with Teradyne since 1976 in various management and executive positions.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for the
fiscal years ended May 31, 1996, 1995 and 1994 paid by the Company and/or its
predecessor, Autoclave Engineers, Inc., (i) to each individual serving as the
chief executive officer of the Company and/or its predecessor during fiscal 1996
and (ii) the other four most highly compensated executive officers of the
Company and/or its predecessor during fiscal 1996 (collectively, the "Named
Executive Officers"). Mr. William F. Schilling, who is listed in the table,
served as President and Chief Executive Officer of the Company's predecessor,
Autoclave Engineers, Inc., until his resignation, September 27, 1995, upon
consummation of the sale by the Company of the Autoclave Engineers Group.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ------------------------- ------------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) (1) ($) ($) (#) ($) ($) (2)
- ---------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MICHAEL J. DOYLE 1996 180,417 96,000 -- -- 150,000 133,785 5,280
PRESIDENT AND CHIEF 1995 160,937 105,273 -- -- -- -- 11,250
EXECUTIVE OFFICER 1994 135,608 62,613 -- -- -- -- 8,820
GARY N. PATTEN 1996 138,451 54,000 -- -- 42,220 -- 1,904
VICE PRESIDENT, CHIEF 1995 -- -- -- -- -- -- --
FINANCIAL OFFICER AND 1994 -- -- -- -- -- -- --
SECRETARY
JOHN W. LEGGAT 1996 138,451 54,000 -- -- 35,110 -- 1,940
VICE PRESIDENT, SALES 1995 -- -- -- -- -- -- --
AND MARKETING 1994 -- -- -- -- -- -- --
NELSON URDANETA 1996 134,998 48,600 -- -- 63,330 47,250 4,110
VICE PRESIDENT, 1995 134,662 60,410 -- -- -- -- 4,040
ENGINEERING 1994 122,000 -- -- -- -- -- 1,410
MICHAEL SALOKA 1996 130,000 46,800 -- -- 42,220 45,500 4,260
VICE PRESIDENT, 1995 120,256 58,170 -- -- -- -- 3,610
INTERNATIONAL 1994 101,243 -- -- -- -- -- 3,040
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WILLIAM F. SCHILLING (4) 1996 65,150 26,060 -- -- -- -- --
FORMER, PRESIDENT AND 1995 191,796 145,725 -- -- -- -- 742,422 (3)
CHIEF FINANCIAL OFFICER 1994 181,908 55,500 -- -- -- -- --
AUTOCLAVE ENGINEER, INC.
</TABLE>
(1) Represents bonuses earned by the Named Executive in the year indicated;
which were paid in the subsequent year.
(2) Represents Company contributions under the 401(K) Plan.
(3) Represents severance costs and a special $225,000 incentive.
(4) Mr. Schilling resigned as President and Chief Executive Officer effective
September 29, 1995.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information for the Named
Executive Officers with respect to grants by the Company and/or its predecessor,
Autoclave Engineers, Inc., during fiscal 1996 of stock options pursuant to the
Company's 1987 Stock Plan to purchase Common Stock of the Company. The 1987
Stock Plan was originally established by the Company's predecessor, Autoclave
Engineers, Inc., and was assumed by the Company in connection with the
reorganization.
<TABLE>
<CAPTION>
OPTION GRANTS TABLE
INDIVIDUAL GRANTS (1)
-------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM (3)
OPTIONS GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------------------
NAME (#) YEAR (2) ($/SH) DATE 5%($) 10%($)
- ---- --------------- ---------- ----------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Doyle 150,000 33.2% $12.63 3/16/2005 $1,190,000 $3,020,000
Gary N. Patten 42,220 9.3% $12.63 3/16/2005 $ 335,000 $ 850,000
John W. Leggat 35,110 7.8% $12.63 3/16/2005 $ 279,000 $ 707,000
Nelson Urdaneta 63,330 14.0% $12.63 3/16/2005 $ 503,000 $1,275,000
Michael Saloka 42,220 9.3% $12.63 3/16/2005 $ 335,000 $ 850,000
William F. Schilling -- -- -- -- -- --
</TABLE>
(1) These stock options were granted pursuant to the 1987 Stock Plan. All
stock options have ten year terms and vest at the rate of 20% of the total
shares on each of the first five anniversaries of the date of grant, except
for stock options granted to Mr. Urdaneta which vested 50% on the date of
grant; 20% which vest on the first and second anniversaries of the date of
grant, and 10% which vest on the third anniversary of the date of grant.
(2) An aggregate of 452,155 stock options to purchase shares of Common Stock,
pursuant to the 1987 Stock Plan, were granted to employees during fiscal
1996.
(3) Potential realizable value is based on an assumption that the stock price
of Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten year option term. One
share of stock purchased at $12.63 in 1996 would yield profits of $7.94 per
share at 5% appreciation over ten years, or $20.13 per share at 10%
appreciation over the same period. These numbers are calculated based on
the requirements promulgated by the Securities and Exchange Commission and
do not reflect the Company's estimate of future stock price.
41
<PAGE>
DEFERRED COMPENSATION AGREEMENTS
The Company has deferred compensation agreements with one current and one
former employee, Messrs. Doyle and Levinson, respectively. Under the agreements,
the Company will make fixed monthly post-retirement payments to each employee
until their death, in amounts based upon the employees' annual salaries at the
time of retirement. Pursuant to such agreements, the employees have agreed to
refrain from competing with the Company, to maintain the confidentiality of the
Company's trade secrets and to renounce all personal interest in patents, know-
how and other intellectual property developed by them during their employment by
the Company. Mr. Levinson began receiving payments under the deferred
compensation program in October, 1995, upon his retirement from active service
with the Company.
LONG TERM INCENTIVE PLAN
The Company's predecessor, Autoclave Engineers, Inc., maintained a Long Term
Incentive Plan ("LTI") for each of its operating subsidiaries, of which Unit
Instruments was a subsidiary at that time. Upon the reorganization, the LTI Plan
for the divested operating subsidiaries was terminated without payment of any
earned incentive. Subsequently, the Board of Directors and management determined
that the LTI Plan was inappropriate for Unit Instruments as an independent,
publicly-held, high technology company. Accordingly, the Company proposed to the
four (4) LTI participants that the Plan be voluntarily terminated effective
August 30, 1995 and the participants agreed to such termination. In
consideration for this voluntary termination, the Company agreed to pay each
participant all of their earned incentive in cash instead of 50% to 70% in one
(1) year restricted Common Stock. Mr. Doyle was one of the participants in the
LTI Plan and his earned incentive, through the date of termination, was
$133,785, as is reflected in the "Summary Compensation Table."
INVOLUNTARY SEVERANCE AGREEMENTS
In September, 1995, the Company entered into agreements with seven officers of
the Company, inclusively, Messrs. Doyle, Patten, Leggat, Urdaneta, Saloka,
Lamirande and Ms. Tricoli, providing severance benefits in the event they are
terminated within three (3) years following a change in control of the Company.
Pursuant to such agreements, a change in control occurs (i) when any person
becomes the beneficial owner of securities of the Company representing more than
20% of the combined voting power of the Company's then outstanding securities;
(ii) if, during any period of two consecutive years, individuals who constitute
the Board of Directors cease to constitute a majority of the Board of Directors;
(iii) if all, or substantially all, of the Company,s assets are sold or
transferred to a third party; (iv) if the Company consolidates or merges with
another company and the Company is not the survivor; or (v) if the Company no
longer has a class of securities registered pursuant to Section 12 of the
Exchange Act. The agreements provide that if the officer is terminated following
a change in control of the
42
<PAGE>
Company, the Company shall pay such officer a sum equal to three times his or
her annual salary and bonus paid during the twelve-month period immediately
preceding the termination, vest the officer in any unvested benefits under any
retirement or deferred compensation plan in which the officer participates, and
pay for a three year continuation of such officer's health, life, disability and
accident insurance. However, the agreements provide that to the extent such
benefits would constitute an "excess parachute payment" under Section 280G of
the Internal Revenue Code of 1986, the severance payments payable thereunder
shall be reduced.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to purchase
the Company's Common Stock granted under the 1987 Stock Option Plan, including
(i) the number of shares purchased upon exercise of options in fiscal 1996, (ii)
the net value realized upon such exercise, (iii) the number of unexercised
options outstanding at May 31, 1996 and (iv) the value of such unexercised
options at May 31, 1996:
AGGREGATED OPTION/EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES VALUE YEAR END (#) AT FISCAL YEAR END (1) ($)
ACQUIRED ON REALIZED ------------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Doyle -- -- 33,712 150,000 $264,329 $243,000
Gary N. Patten -- -- -- 42,220 -- $ 68,396
John W. Leggat -- -- -- 35,110 -- $ 56,878
Nelson Urdaneta -- -- 31,665 31,665 $ 51,297 $ 51,297
Michael Saloka 1,149 $9,965 1,705 42,220 $ 10,625 $ 68,396
William F. Schilling -- -- 37,050 -- $263,323 --
</TABLE>
(1) Market value of underlying securities at year-end minus the exercise price
multiplied by the number of shares.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors establishes the
compensation plans and polices and the specific compensation levels for
executive officers and administers the 1987 Stock Plan.
43
<PAGE>
COMPENSATION POLICIES
There are three major elements of the Company's executive
compensation program: base salaries, incentive bonuses and long-term stock
options.
The Compensation Committee establishes the salaries of executive
officers primarily by reference to data contained in the American
Electronics Association (AEA) survey of executive compensation in the
electronics industry. The Committee also cross-references this survey data
with salary surveys for the Southern California area. The Committee
establishes base salaries that are within the range of salaries for persons
holding positions of similar responsibility at comparably-sized technology
companies. In addition, the Committee considers factors such as relative
Company performance, the individual's past performance, his or her future
potential and the individual's experience and ability as judged by the
Committee. For fiscal 1997, the Compensation Committee has approved a base
salary merit pooling averaging approximately 4 1/2% for executive officers.
Annual bonuses for executive officers are primarily based on the
achievement of performance targets set forth in the Company's operating
plan for the year. The annual cash bonus for executives, other than the
Chief Executive Officer, Michael J. Doyle, is based on operating profits in
relation to the Company's operating plan and a factor based on Mr. Doyle's
subjective judgment of the executive's performance. Bonus payments to
executive officers, other than Mr. Doyle's, averaged approximately 35% of
such officers' base salaries for fiscal 1996. The Committee believes this
to be commensurate with overall performance against the objectives utilized
in the executive bonus program.
The Compensation Committee believes that stock options are an
effective long-term compensation device in that they serve to align the
interests of the executive officers with those of the shareholders and
motivate officers to remain in the Companys employ. The predecessor
Company's Compensation Committee granted stock options to the executives of
Unit at the time of the transition of Unit to that of a independent,
publicly-held company. The option awards were based, in part, on the
recommendations of an outside executive compensation consulting firm; the
recognition that no stock options had been awarded to Unit senior managers
since 1991 and that two executives had been recruited to join the Company
in fiscal 1996 with the commitment of competitive stock option awards.
While the current Compensation Committee did not participate in the
decision concerning the granting of these stock option awards, the current
Committee approves of these stock option grants.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Doyle's base salary was increased from $153,000 to $200,000 in
September, 1995 upon the reorganization. This increase was based upon
survey
44
<PAGE>
data and range recommendations from an outside executive compensation
consulting firm for chief executive officers of high technology public
companies. Mr. Doyle was previously President of the Company when it was a
subsidiary of the predecessor Company.
Mr. Doyle is entitled to an annual cash bonus, which for fiscal
1996, was based entirely on the Company's operating profit, adjusted for
restructuring related charges and other non-recurring items. Mr. Doyle's
target bonus rate was 40% of his annual base salary with such amount
adjusted up or down depending on actual adjusted operating profits. For
fiscal 1996, the Company achieved an adjusted operating profit that was
approximately 104% of the target operating profit. Based on this level of
performance, Mr. Doyle received a bonus of $96,000 for fiscal 1996,
representing approximately 120% of his bonus target and approximately 48%
of his base salary.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
As a result of legislation adopted in 1993, the Internal Revenue
Code now limits the federal income tax deductibility of compensation paid
to the Company's Chief Executive Officer and to each of the other four most
highly compensated executive officers. For this purpose, compensation can
include, in addition to cash compensation, the difference between the
exercise price of stock options and the value of the underlying stock on
the date of exercise. Under this legislation, the Company may deduct
compensation with respect to any of these individuals only to the extent
that during any fiscal year such compensation does not exceed $1 million or
does not meet certain other conditions (such as shareholder approval).
Based on the Company's current compensation plans and policies, and
proposed regulations interpreting the new legislation, the Company and the
Committee believe that, for the near future, there is little risk that the
Company will lose any significant tax deduction for executive compensation.
James C. Levinson Edward Rogas, Jr.
of the Compensation Committee of the Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of James C. Levinson and Edward
Rogas, Jr. who are non-employee directors with no interlocking relationships as
defined by the Securities and Exchange Commission.
45
<PAGE>
ITEM 12. 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 July 1, 1996 by (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each of the executive officers named in the Summary
Compensation Table, and (iv) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED (1) (2) COMPANYS COMMON STOCK
- ---- -------------------------- ---------------------
<S> <C> <C>
J&L Levinson Partnership........ 505,907(3) 11.6%
700 Louisiana Street
Houston, TX 77002
Marilyn G. Levinson............. 409,683(4) 9.4%
100 Anchor Drive, #460
Key Largo, FL 33037
The Pioneer Group............... 334,500 7.6%
60 State Street
Boston, MA 02109
U. S. Bancorp................... 268,540 6.1%
1118 West Fifth Avenue
Portland, OR 97202
The Killen Group, Inc........... 244,050 5.6%
1189 Lancaster Avenue
Berwyn, PA 19312
Dimensional Fund Advisors,
Inc............................ 225,626 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
James C. Levinson............... 133,496(5) 3.0%
A. Wade Blackman, Jr............ 63,383(6) 1.4%
Michael J. Doyle................ 151,789(7) 3.5%
George Boyadjieff............... 0 --
Edward Rogas, Jr................ 0 --
John W. Leggat.................. 9,522(8) *
Gary N. Patten.................. 21,444(9) *
Michael Saloka.................. 11,298(10) *
William F. Schilling............ 37,050(11) *
Nelson Urdaneta................. 44,331(12) *
All directors and officers
as a group..................... 708,213(13) 16.2%
(13 persons at July 1, 1996)
</TABLE>
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable or exercisable within 60 days
of July 1, 1996 are deemed to be beneficially owned by the person holding
such option or warrant for computing the percentage ownership of such
person, but are not treated as outstanding for computing the percentage of
any other person. Applicable percentages of beneficial ownership are based
on 4,379,454 shares of Common Stock outstanding on July 1, 1996.
(2) Information is as of December 31, 1995, and is based on Schedule 13Gs filed
with the Securities and Exchange Commission by the respective entities.
(3) J&L Levinson Partnership is a general partnership of which James C.
Levinson and Marilyn G. Levinson are the sole general partners.
46
<PAGE>
(4) Includes 3,265 shares which Mrs. Levinson has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996 and 406,418 shares which Mrs.
Levinson may be deemed to beneficially own through her partnership interest
in the J&L Levinson Partnership.
(5) Includes 34,007 shares which Mr. Levinson has the right to acquire by
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996, and 99,489 shares which Mr.
Levinson may be deemed to beneficially own through his partnership interest
in the J&L Levinson Partnership. Does not include 406,418 shares owned by
Mr. Levinsons wife, Marilyn G. Levinson, through her partnership interest
in the J&L Levinson Partnership, as to which Mr. Levinson disclaims
beneficial ownership.
(6) Includes 63,383 shares which Mr. Blackman has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(7) Includes 63,712 shares which Mr. Doyle has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(8) Includes 7,022 shares which Mr. Leggat has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(9) Includes 8,444 shares which Mr. Patten has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(10) Includes 10,149 shares which Mr. Saloka has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(11) Includes 37,050 shares which Mr. Schilling has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(12) Includes 44,331 shares which Mr. Urdaneta has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of July 1, 1996.
(13) Includes shares which the current executive officers and directors have the
right to acquire by the exercise of stock options that are currently
exercisable or will become exercisable within 60 days of July 1, 1996.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than ten percent shareholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended May 31, 1996, James E. Levinson did not timely
report on Form 4 the sale of 220,000 shares of Common Stock. Other than this
delayed filing, again based solely on its review of copies of such forms
received by it or written representations from certain reporting persons, the
Company believes that all other filing requirements applicable to its officers,
directors and ten percent shareholders were fulfilled.
47
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Share Repurchase Agreement ("the
Agreement") in fiscal 1995 with its largest shareholder, the J & L Levinson
Partnership ("the Partnership"), of which James C. Levinson and Marilyn G.
Levinson are the sole partners. Mr. Levinson is the Chairman of the Company's
Board of Directors and Mrs. Levinson was a member of the Board of Directors
until her resignation in September, 1995. Under the Agreement, the terms of
which were contingent upon the closing of the sale of the assets of the
Autoclave Engineers Group, the Company repurchased 220,000 shares of the Common
Stock of the Company from the Partnership at a price of $11.75 per share, or
approximately $2.6 million, on September 22, 1995.
During fiscal 1996, the law firm of Eckert Seamans Cherin & Mellot
("Eckert Seamans") rendered professional service to the Company. Mr. W. Gregg
Kerr, a director of the Company until his resignation in September, 1995, is a
former partner of Eckert Seamans and is currently special counsel for Eckert
Seamans.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K.
1. Financial Statements. The following consolidated financial statements of
--------------------
Unit Instruments, Inc. and subsidiaries and the Report of Independent
Accountants are filed as part of this Report on Form 10-K and should be read in
conjunction with the related notes thereto, included herein.
Page
----
Report of Independent Accountants 20
Consolidated Balance Sheets - May 31, 1996 and 1995 21
Consolidated Statements of Income - Years Ended 22
May 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended 23
May 31, 1996, 1995 and 1994
48
<PAGE>
Page
----
Consolidated Statements of Shareholders' Equity - 24
Years Ended May 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 25
2. Financial Statement Schedules. All schedules are omitted because they are
-----------------------------
not required, are not applicable, or the information is included in the
consolidated financial statements or notes hereto.
3. Exhibits. The following Exhibits are filed as part of, or incorporated by
--------
reference into, this Report on Form 10-K.
EXHIBIT NUMBER: DESCRIPTION:
- -------------- ------------
3.1 Registrant's Articles of Incorporation
3.2 Registrant's By-laws
4.3 Specimen Stock Certificate
10.1 Form of Unfunded Deferred Compensation Agreement, as amended.
(Incorporated by reference to Exhibit 10(a) of Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1983.)
10.2 1987 Stock Plan, as amended. (Incorporated by reference to
Exhibit 4.1 of Registrant's Registration Statement on Form S-8
(No. 33-37292) filed on October 15, 1990.)
10.3 1990 Non-Employee Director Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement on Form S-8 (No. 33-58550) filed on
February 17, 1993.)
10.4 Stock Purchase Agreement dated as of January 19, 1995 by the
Company and James Howden & Godfrey Overseas Limited.
(Incorporated by reference to Exhibit 2.1 to Registrant's
Current Report on Form 8-K dated January 19, 1995.)
10.5 Asset Purchase Agreement dated as of August 14, 1995 by the
Company and Snap-tite, Inc. (Incorporated by reference to
Exhibit 10(p) to Registrant's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995.)
10.6 Share Repurchase Agreement dated as of June 22, 1995 by and
among James C. Levinson, Marilyn Gasche Levinson, the J & L
Levinson Partnership and the Company. (Incorporated by
reference to Exhibit 10(q) to Registrant's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995.)
49
<PAGE>
10.7 Plan of Merger merging Autoclave Engineers, Inc. (a
Pennsylvania Corporation) with and into Unit Instruments, Inc.
(a California corporation). (Incorporated by reference to
Exhibit 2.1 to Registrant's Current Report on Form 8-K dated
November 22, 1995.)
10.8 Business Loan Agreement dated January 23, 1996 by the Company
and Bank of America, NTSA.
10.9 Form of Involuntary Severance Agreement with certain officers
of the Company.
10.10 Agreement and Plan of Reorganization and Merger dated April
23, 1996 among the Company, CSI Acquisition Corporation and
Control Systems, Inc.
11.1 Statement regarding computation of earnings per share.
22.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There was one Current Report on Form 8-K filed by the Registrant
during the fourth fiscal quarter ended May 31, 1996. This Current Report stated
that the Company had reached agreement to acquire all outstanding shares of
Control Systems, Inc. ("CSI"), a privately held corporation based in Rio Rancho,
New Mexico. CSI fabricates gas isolation boxes and gas panels for semiconductor
manufacturers. Consideration in this acquisition was stated to be 275,000
shares of the Registrant's Common Stock and $1.2 million. The acquisition was to
be accounted for under purchase accounting.
(c) Exhibits
The exhibits required by this Item are listed under Item 14 (a)(3).
(d) Financial Statement Schedules
The financial statement schedules required by this Item are listed under
[Item 14(a)(2)].
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNIT INSTRUMENTS, INC.
By: /s/ Gary N. Patten
----------------------
Gary N. Patten
Chief Financial Officer
Chief Accounting Officer and Secretary
Date: August 12, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Doyle and Gary N. Patten,
jointly and severally, his or her respective attorneys-in-fact, each with the
power of substitution, for each other in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her respective substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Doyle President, Chief Executive August 12, 1996
- ----------------------------- Officer
(Michael J. Doyle)
/s/ James C. Levinson Chairman of the Board August 12, 1996
- -----------------------------
(James C. Levinson)
/s/ Gary N. Patten Chief Financial Officer, Chief August 12, 1996
- ----------------------------- Accounting Officer and
(Gary N. Patten) Secretary
/s/ A. Wade Blackman Director August 12, 1996
- -----------------------------
(A. Wade Blackman)
/s/ George Boyadjieff Director August 12, 1996
- -----------------------------
(George Boyadjieff)
/s/ Edward Rogas Director August 12, 1996
- -----------------------------
(Edward Rogas)
</TABLE>
51
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
UNIT INSTRUMENTS, INC.
**********
Michael J. Doyle the President and Gary N. Patten the Secretary of Unit
Instruments, Inc., a corporation duly organized and existing under the laws of
the State of California, do hereby certify:
1. That Michael J. Doyle is the President and that Gary N. Patten is the
Secretary of Unit Instruments, Inc., a California corporation.
2. That the articles of incorporation of this corporation were filed with
the Secretary of State on the 25th day of March, 1980.
3. That the amendment to the articles of incorporation of this
corporation and a restatement of the articles of incorporation, which shall
include said amendment, were duly approved by the board of directors.
4. That the articles of this corporation are amended and restated to read
as follows:
ARTICLE ONE: NAME
The name of the Corporation is: Unit Instruments, Inc.
ARTICLE TWO: PURPOSE
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE THREE: LIMITATION OF DIRECTORS' LIABILITY
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
<PAGE>
ARTICLE FOUR: INDEMNIFICATION
This Corporation is authorized to indemnify the directors and officers of
this Corporation to the fullest extent permissible under California law and in
excess of that otherwise permitted under Section 317 of the California
Corporations Code.
ARTICLE FIVE: AUTHORIZED SHARES
This Corporation is authorized to issue two classes of shares designated
"Common Stock" and "Preferred Stock," respectively. The number of shares of
Common Stock authorized to be issued is 12,000,000, par value $.15 per share,
and the number of shares of Preferred Stock authorized to be issued is
2,000,000, par value $.0l per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby authorized to determine the
number of series into which the shares of Preferred Stock may be divided, and to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
designation and number of shares constituting any series prior to the issue of
shares of that series and to increase or decrease, within the limits stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series (but not below the number of shares of
such series then outstanding), the number of shares of any such series
subsequent to the issue of shares of that series. If the number of shares of any
series is so decreased, then the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
ARTICLE SIX: DIRECTORS
The number of directors of the corporation may be fixed from time to time
by resolution of the board of directors but shall not be less than four nor more
than seven. Upon becoming a listed corporation within the meaning of Section
301.5 of the California Corporations Code cumulative voting shall be eliminated.
ARTICLE SEVEN: ACTION BY CONSENT OF SHAREHOLDERS
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action to be so taken, shall be signed by
the holders of all of the outstanding shares entitled to vote thereon.
ARTICLE EIGHT: AGENT FOR SERVICE
The name and address in the State of California of the Corporation's
initial agent for service of process is CT Corporation System, 818 W. Seventh
Street, Los Angeles, CA 90017.
-2-
<PAGE>
5. That the designation and total number of outstanding shares entitled
to vote on the amendment and the restatement of the articles of incorporation
and the minimum percentage vote required of each class entitled to vote on said
amendment and restatement of the articles of incorporation for approval thereof
are as follows:
<TABLE>
<CAPTION>
Number of shares Minimum percentage
outstanding entitled vote required to
to vote the amendment approve the amendment
Designation and the restatement and the restatement
- ----------- --------------------- ---------------------
<S> <C> <C>
Common Shares 1,000 Common Shares More than 50 Percent
</TABLE>
6. That the number of shares of each class which gave written consent to
said amendment and restatement of the articles of incorporation of this
Corporation equalled or exceeded the minimum percentage vote required to approve
said amendment and restatement as set forth in Article 4 of this certificate.
7. That the foregoing amendment and restatement has been duly approved by
the required vote of shareholders in accordance with Section 902 of the
Corporation Code.
Each of the undersigned declares under penalty of perjury that the
statements contained in the foregoing certificate are true of their own
knowledge. Executed at _____________________, on November 10, 1995.
------------------------------------
Michael J. Doyle, President
------------------------------------
Gary N. Patten, Secretary
-3-
<PAGE>
EXHIBIT 3.2
BYLAWS FOR THE REGULATION, EXCEPT
AS OTHERWISE PROVIDED BY STATUTE OR ITS
ARTICLES OF INCORPORATION, OF
UNIT INSTRUMENTS, INC.
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation is hereby fixed and located at 22600 Savi Ranch Parkway, Yorba
Linda, California. The Board of Directors is hereby granted full power and
authority to change said principal executive office from one location to
another. Any such change shall be noted on the bylaws by the secretary, opposite
this section, or this section may be amended to state the new location.
SECTION 2. OTHER OFFICES. Other business offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual or other meetings of shareholders
shall be held at the principal executive office of the corporation, or at any
other place within or without the State of California which may be designated
either by the Board of Directors or by the written consent of all persons
entitled to vote thereat and not present at the meeting, given either before or
after the meeting and filed with the secretary of the Corporation.
SECTION 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be
held each year on such date and at such time as shall be set by the Board of
Directors. At such meetings, directors shall be elected, reports of the affairs
of the Corporation shall be considered, and any other business may be transacted
which is within the powers of the shareholders. Written notice of each annual
meeting shall be given to each shareholder entitled to vote, either personally
or by mail or other means of written communication, charges prepaid, addressed
to such shareholder at his address appearing on the books of the Corporation or
given by him to the Corporation for the purpose of notice. If any notice or
report addressed to the shareholder at the address of such shareholder appearing
on the books of the Corporation is returned to the Corporation by the United
States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice or report to the shareholder at such address,
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available for the shareholder upon written
demand of the shareholder at the principal executive office of the Corporation
for a period of one year from the date of the giving of the notice or report to
all other shareholders. If a shareholder gives no address, notice shall be
deemed to have been given him if sent by mail or other means of written
communication addressed to the place where the principal executive office of the
Corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said principal executive office is
located.
<PAGE>
-2-
All such notices shall be given to each shareholder entitled thereto not
less than ten (10) days nor more than sixty (60) days before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with the
foregoing provisions, executed by the secretary, assistant secretary or any
transfer agent of the Corporation, shall be prima facie evidence of the giving
of the notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders;
(c) if directors are to be elected, the names of nominees intended at
the time of the notice to be presented by management for election;
(d) the general nature of a proposal, if any, to take action with
respect to approval of (i) a contract or other transaction with an interested
director, (ii) amendment of the Articles of Incorporation, (iii) a
reorganization of the Corporation as defined in Section 181 of the General
Corporation Law, (iv) voluntary dissolution of the Corporation, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for
the purpose of taking any action permitted by the shareholders under the General
Corporation Law and the Articles of Incorporation of this Corporation, may be
called at any time by the Chairman of the Board or the president, or by the
Board of Directors, or by one or more shareholders holding not less than ten
percent (10%) of the votes at the meeting. Upon request in writing that a
special meeting of shareholders be called for any proper purpose, directed to
the Chairman of the Board, president, vice president or secretary by any person
(other than the Board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to shareholders entitled to
vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other express
provision is made by statute, notice of such special meetings shall be given in
the same manner as for the annual meetings of shareholders. In addition to the
matters required by items (a) and, if applicable, (c) of the preceding Section,
notice of any special meeting shall specify the general nature of the business
to be transacted, and no other business may be transacted at such meeting.
SECTION 4. QUORUM. The presence in person or by proxy of the persons
entitled to vote a majority of the voting shares at any meeting shall constitute
a quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
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SECTION 5. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum no other business may be transacted at such meeting, except as
provided in Section 4 above.
When any shareholders' meeting, either annual or special, is adjourned for
forty-five days or more, or if after adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given as in the
case of an original meeting. Except as provided above, it shall not be necessary
to give any notice of the time and place of the adjourned meeting or of the
business to be transacted thereat, other than by announcement of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement of the time and place thereof at the meeting at which
such adjournment is taken.
SECTION 6. VOTING. Unless a record date for voting purposes be fixed as
provided in Section 1 of Article V of these bylaws, then, subject to the
provisions of Sections 702 and 704, inclusive, of the Corporations Code of
California (relating to voting of shares held by a fiduciary, in the name of a
corporation, or in joint ownership), only persons in whose names shares entitled
to vote stand on the stock records of the Corporation at the close of business
on the business day next preceding the day on which notice of the meeting is
given or if such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting. Such vote may be viva voce or by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
any election and before the voting begins. If a quorum is present, except with
respect to election of directors, the affirmative vote of the majority of the
shares represented at the meeting and voting on any matter shall be the act of
the shareholders, unless the vote of a greater number or voting by classes is
required by the General Corporation Law or the Articles of Incorporation.
Subject to the requirements of the next sentence and the Articles of
Incorporation, every shareholder entitled to vote at any election for directors
shall have the right to cumulate his votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
votes to which his shares are entitled, or to distribute his votes on the same
principle among as many candidates as he shall think fit. No shareholder shall
be entitled to cumulative votes unless the name of the candidate or candidates
for whom such votes would be cast has been placed in nomination prior to the
voting, and any shareholder has given notice at the meeting prior to the voting
of such shareholder's intention to cumulate his votes. The candidates receiving
the highest number of votes of shares entitled to be voted for them, up to the
number of directors to be elected, shall be elected.
SECTION 7. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, or who, though present, has, at the
beginning of the meeting, properly objected to the transaction of any business
because the meeting was not lawfully called or convened, or to particular
matters of business legally required to be included in the notice, but not so
included, signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
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SECTION 8. ACTION WITHOUT MEETING. Directors may be elected without a
meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of directors,
provided that, without notice except as hereinafter set forth, a director may be
elected at any time to fill a vacancy not filled by the directors by the written
consent of persons holding a majority of the outstanding shares entitled to vote
for the election of directors.
Any other action which, under any provision of the California General
Corporation Law, may be taken at a meeting of the shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by all of the
persons who would be entitled to vote on the action.
Unless, as provided in Section 1 of Article V of these bylaws, the Board of
Directors has fixed a record date for the determination of shareholders entitled
to notice of and to give such written consent, the record date for such
determination shall be the day on which the first written consent is given. All
such written consents shall be filed with the secretary of the Corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the Corporation.
SECTION 9. PROXIES. Every person entitled to vote or execute consents shall
have the right to do so either in person or by one or more agents authorized by
a written proxy executed by such person or his duly authorized agent and filed
with the secretary of the Corporation. Any proxy duly executed is not revoked
and continues in full force and effect until (i) an instrument revoking it or a
duly executed proxy bearing a later date is filed with the secretary of the
Corporation prior to the vote pursuant thereto, (ii) the person executing the
proxy attends the meeting and votes in person, or (iii) written notice of the
death or incapacity of the maker of such proxy is received by the Corporation
before the vote pursuant thereto is counted; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution, unless the person executing it specifies therein the length of time
for which such proxy is to continue in force.
SECTION 10. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the chairman of any such
meeting may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall be as prescribed by Section 707 of the
General Corporation Law and shall include determining the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any
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way arising in connection with the right to vote; counting and tabulating all
votes or consents; determining when the polls shall close; determining the
result; and such acts as may be proper to conduct the election or vote with
fairness to all shareholders. In the determination of the validity and effect of
proxies, the dates contained on the forms of proxy shall presumptively determine
the order of execution of the proxies, regardless of the postmark dates on the
envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to limitations of the Articles of Incorporation
and of the California General Corporation Law as to action to be authorized or
approved by the shareholders, and subject to the duties of directors as
prescribed by the bylaws, all corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
controlled by, the Board of Directors. Without prejudice to such general powers,
but subject to the same limitations, it is hereby expressly declared that the
directors shall have the following powers, to wit:
First - To select and remove all the officers, agents and employees of the
Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation or the bylaws, fix
their compensation and require from them security for faithful service.
Second - To conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not inconsistent
with law, or with the Articles of Incorporation or the bylaws, as they may deem
best.
Third - To change the principal executive office and principal office for
the transaction of the business of the Corporation from one location to another
as provided in Article I, Section 1, hereof; to fix and locate from time to time
one or more subsidiary offices of the Corporation within or without the State of
California, as provided in Article I, Section 2, hereof; to designate any place
within or without the State of California for the holding of any shareholders'
meeting or meetings; and to adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time, as in their judgment they may deem
best, provided such seal and such certificates shall at all times comply with
the provisions of law.
Fourth - To authorize the issue of shares of stock of the Corporation from
time to time, upon such terms as may be lawful.
Fifth - To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth - By resolution adopted by a majority of the authorized number of
directors, to designate an executive and other committees, each consisting of
two or more directors, to serve at the pleasure of the Board, and to prescribe
the manner in which proceedings of such committee shall be conducted. Unless
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the Board of Directors shall otherwise prescribe the manner of proceedings of
any such committee, meetings of such committee may be regularly scheduled in
advance and may be called at any time by any two members thereof; otherwise, the
provisions of the bylaws with respect to notice and conduct of meetings of the
Board shall govern. Any such committee, to the extent provided in a resolution
of the Board, shall have all of the authority of the Board, except with respect
to:
(i) the approval of any action for which the General
Corporation Law or the Articles of Incorporation also require shareholder
approval;
(ii) the filling of vacancies on the Board or in any committee;
(iii) the fixing of compensation of the directors for serving on
the Board or on any committee;
(iv) the adoption, amendment or repeal of the bylaws;
(v) the amendment or repeal of any resolution of the Board;
(vi) any distribution to the shareholders, except at a rate or
in a periodic amount or within a price range determined by the Board; and
(vii) the appointment of other committees of the Board or the
members thereof.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be not less than four nor more than seven with the exact number
to be set by the Board of Directors until changed by amendment of the Articles
of Incorporation or by a bylaw amending this Section 2 duly adopted by the vote
or written consent of holders of a majority of the outstanding shares
represented at a meeting in which a quorum is present and voting; provided that
a proposal to reduce the authorized number of directors below five cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of action by written consent, are equal to more than 16
2/3 percent of the outstanding shares entitled to vote.
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of shareholders but, if any such annual meeting is not held
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. All directors shall hold
office until their respective successors are elected, subject to the General
Corporation Law and the provisions of these bylaws with respect to vacancies on
the Board.
SECTION 4. VACANCIES. A vacancy in the Board of Directors shall be deemed
to exist in case of the (i) death, (ii) resignation or removal of any director
with or without cause, (iii) pursuant to Section 303 of the California
Corporations Code if a director has been declared of unsound mind by order of
court or convicted of a felony, or (iv) if the authorized number of directors be
increased, or if the shareholders fail, at any annual or special meeting of
shareholders at which any director or directors are elected, to elect the full
authorized number of directors to be voted for at that meeting.
Vacancies in the Board of Directors, except for a vacancy created by the
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until his successor is elected at an annual or a
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special meeting of the shareholders. A vacancy in the Board of Directors created
by the removal of a director may only be filled by the vote of a majority of the
shares entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of the holders of a majority of the
outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent shall require the consent of holders of a majority of the outstanding
shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the Board, the president, the secretary or the Board of Directors of
the Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the Board of Directors accepts the resignation of a
director tendered to take effect at a future time, the Board or the
shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
SECTION 5. PLACE OF MEETING. Regular meetings of the Board of Directors
shall be held at any place within or without the State which has been designated
from time to time by resolution of the Board or by written consent of all
members of the Board. In the absence of such designation, regular meetings shall
be held at the principal executive office of the Corporation. Special meetings
of the Board may be held either at a place so designated or at the principal
executive office.
SECTION 6. ORGANIZATION MEETING. Immediately following each annual meeting
of shareholders, the Board of Directors shall hold a regular meeting at the
place of said annual meeting or at such other place as shall be fixed by the
Board of Directors, for the purpose of organization, election of officers, and
the transaction of other business. Call and notice of such meetings are hereby
dispensed with.
SECTION 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board of
Directors shall be held without call as provided in a resolution adopted by the
Board of Directors from time to time; provided, however, should said day fall
upon a legal holiday, then said meeting shall be held at the same time on the
next day thereafter ensuing which is a full business day. Notice of all such
regular meetings of the Board of Directors is hereby dispensed with.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors for
any purpose or purposes shall be called at any time by the chairman of the
Board, the president, any vice president, the secretary or by any two directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone or by
telegraph or mail, charges prepaid, addressed to him at his address as it is
shown upon the records of the Corporation or, if it is not so shown on such
records or is not readily ascertainable, at the place at which the meetings of
the directors are regularly held. In case such notice is mailed, it shall be
deposited in the United States mail in the place in which the principal
executive office of the Corporation is located at least four days prior to the
time of holding the meeting. In case such notice is delivered, personally or by
telephone or telegraph, as above provided, it shall be so delivered at least
forty-eight hours prior to the time of the holding of the meeting.
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Such mailing, telegraphing or delivery, personally or by telephone, as above
provided, shall be due, legal and personal notice to such director.
When all of the directors are present at any directors' meeting, however
called or noticed, and either (i) sign a written consent thereto on the records
of such meeting, or, (ii) if a majority of the directors are present and if
those not present sign a waiver of notice of such meeting or consent to holding
the meeting or an approval of the minutes thereof, whether prior to or after the
holding of such meeting, which said waiver, consent or approval shall be filed
with the secretary of the corporation or (iii) if a director attends a meeting
without notice but without protesting, prior thereto or at its commencement, the
lack of notice to him, then the transactions thereof are as valid as if had at a
meeting regularly called and noticed.
SECTION 9. ACTION WITHOUT MEETING. Any action by the Board of Directors may
be taken without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board and shall have
the same force and effect as a unanimous vote of such directors.
SECTION 10. ACTION AT A MEETING: QUORUM AND REQUIRED VOTE. Presence of a
majority of the authorized number of directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person at
such meeting. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the Board of Directors, unless a greater number, or the same number
after disqualifying one or more directors from voting, is required by law, by
the Articles of Incorporation, or by these bylaws. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
SECTION 11. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of the Board of Directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present,
has, prior to the meeting or at its commencement, protested the lack of proper
notice to him, signs a written waiver of notice or a consent to holding such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 12. ADJOURNMENT. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
SECTION 13. NOTICE OF ADJOURNMENT. If the meeting is adjourned for more
than twenty-four hours, notice of any adjournment to another time or place shall
be given prior to the time of the adjourned meeting to the directors who were
not present at the time of adjournment. Otherwise notice of the time and place
of holding an adjourned meeting need not be given to absent directors if the
time and place be fixed at the meeting adjourned.
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SECTION 14. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board.
SECTION 15. INDEMNIFICATION OF AGENTS OF THE CORPORATION; PURCHASE OF
LIABILITY INSURANCE.
(a) For the purposes of this Section, "agent" means any person who is or
was a director, officer, employee or other agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation; "executive officer" means any person who is or was a director or an
officer serving a chief policy making function, or is or was serving at the
request of the Corporation as a director or officer of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director or officer serving a chief policy making function of a foreign or
domestic corporation which was a predecessor corporation of the Corporation or
of another enterprise at the request of the Corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subsection (d) or paragraph (3) of subsection (e) of this section.
(b) This Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any proceeding (other than an action by or
in the right of this Corporation to procure a judgment in its favor) by reason
of the fact that such person is or was an executive officer of the Corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the Corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful. This
Corporation may indemnify any person who was or is a party, or is threatened to
be made a party, to any proceeding (other than an action by or in the right of
this Corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the Corporation against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
Corporation and, in the case of a criminal proceeding, had no reason to believe
the conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interests of this Corporation or that the person had reasonable cause
to believe that the person's conduct was unlawful.
(c) This Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed action
by or in the right of this Corporation to procure a judgment in its favor by
reason of the fact that such person is or was an executive officer of this
Corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action if such person acted in
good faith, in a manner such person believed to be in the best interests of this
Corporation and its shareholders. No indemnification shall be made under
subsection (b) and/or (c):
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(1) in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to this Corporation in the
performance of such person's duty to this Corporation and its shareholders,
unless and only to the extent that the court in which such proceeding is or
was pending shall determine upon application that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court shall
determine;
(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval; or
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of this Corporation has been successful on
the merits in defense of any proceeding referred to in subsection (b) or (c) or
in defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith.
(e) Except as provided in subsection (d), any indemnification under this
section shall be made by this Corporation upon a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in subsection (b) or (c),
by any of the following:
(1) A majority vote of a quorum consisting of directors who are not
a party to such proceeding;
(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
(3) Approval or ratification by the affirmative vote of a majority of
the shares of this Corporation represented and voting at a duly held
meeting at which a quorum is present or by the written consent of holders
of a majority of the outstanding shares entitled to vote. For such purpose,
the shares owned by the person to be indemnified shall not be considered
outstanding or entitled to vote thereon; or
(4) The court in which such proceeding is or was pending upon
application made by this Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not
such application by the agent, attorney or other person is opposed by this
Corporation.
(f) Expenses incurred in defending any proceeding may be advanced by the
Corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent or executive officer to repay such
amount if it shall be determined ultimately that the agent or executive officer
is not entitled to be indemnified as authorized in this section.
(g) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights to
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indemnification are authorized in the articles of this Corporation. The rights
to indemnity hereunder shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors, and administrators of the person. Nothing contained in this
section shall affect any rights to indemnification to which persons other than
such directors and officers may be entitled by contract or otherwise. Nothing
contained in this section shall affect any right to indemnification to which
persons other than the directors and officers may be entitled by contract or
otherwise.
(h) No indemnification or advance shall be made under this section, except
as provided in subsection (d) or paragraph (3) of subsection (e), in any
circumstance where it appears:
(1) That it would be inconsistent with a provision of the articles,
bylaws, a resolution of the shareholders or an agreement in effect at the
time the accrual of the alleged cause of action asserted in the proceeding
in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
(i) This Corporation may purchase and maintain insurance on behalf of any
agent of this Corporation against any liability asserted against or incurred by
the agent in such capacity or arising out of the agents status as such, whether
or not this Corporation would have the power to indemnify the agent against such
liability under the provisions of this section. The fact that this Corporation
owns all or a portion of the shares of the company issuing a policy of
insurance shall not render this subsection inapplicable if either of the
following conditions are satisfied:
(1) If authorized in the Articles of Incorporation of this
Corporation, any policy issued is limited to the extent provided by
paragraph (11) of subdivision (a) of Section 204 of the California
Corporations Code; or
(2) (A) The company issuing the insurance policy is organized,
licensed, and operated in a manner that complies with the insurance laws
and regulations applicable to its jurisdiction of organization,
(B) The company issuing the policy provides procedures for
processing claims that do not permit that company to be subject to the
direct control of the Corporation that purchased that policy, and
(C) The policy issued provides for some manner of risk sharing
between the issuer and purchaser of the policy, on one hand, and some
unaffiliated person or persons, on the other, such as by providing for
more than one unaffiliated owner of the company issuing the policy or
by providing that a portion of the coverage furnished will be obtained
from some unaffiliated insurer or re-insurer.
(j) This Section 15 does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person may also be an agent of the
Corporation as defined in subsection (a) of this Section. This Corporation shall
have power to indemnify such a trustee, investment manager or other fiduciary to
the extent permitted by subdivision (f) of Section 207 of the California General
Corporation Law.
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ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a president,
a secretary and a chief financial officer. The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article. One person may hold two or more offices.
SECTION 2. ELECTION. The officers of the Corporation, except such officers
as may be appointed in accordance with the provisions of Section 3 or Section 5
of this Article, shall be chosen annually by the Board of Directors, and each
shall hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint,
and may empower the president to appoint, such other officers as the business of
the Corporation may require, each of whom shall hold office, for such period,
have such authority and perform such duties as are provided in the bylaws or as
the Board of Directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by the Board of Directors, at any regular or special meeting
thereof; or, except in case of an officer chosen by the Board of Directors, by
any officer upon whom such power of removal may be conferred by the Board of
Directors (subject, in each case, to the rights, if any, of an officer under any
contract of employment).
Any officer may resign at any time by giving written notice to the Board of
Directors or to the president, or to the secretary of the Corporation, without
prejudice, however, to the rights, if any, of the Corporation under any contract
to which such officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
bylaws.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the president shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of
<PAGE>
-13-
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the bylaws.
SECTION 8. VICE PRESIDENT. In the absence or disability of the president,
the vice presidents in order of their rank as fixed by the Board of Directors
or, if not ranked, the vice president designated by the Board of Directors,
shall perform all the duties of the president, and when so acting shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the bylaws.
SECTION 9. SECRETARY. The secretary shall record or cause to be recorded,
and shall keep or cause to be kept, at the principal executive office and such
other place as the Board of Directors may order, a book of minutes of actions
taken at all meetings of directors and shareholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the Corporation's transfer agent, a share register,
or a duplicate share register, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors required by the bylaws or by
law to be given, and he shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the bylaws.
SECTION 10. "TREASURER." The Chief Financial Officer of the Corporation
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares. Any surplus, including earned surplus, paid
in surplus and surplus arising from a reduction of stated capital, shall be
classified according to source and shown in a separate account. The books of
account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the bylaws.
ARTICLE V
MISCELLANEOUS
SECTION 1. RECORD DATE. The Board of Directors may fix a time in the future
as a record date for the determination of the shareholders entitled to notice of
and to vote at any meeting of shareholders or entitled to give consent to
corporate action in writing without a meeting, to receive any
<PAGE>
-14-
report, to receive any dividend or distribution, or any allotment of rights, or
to exercise rights in respect to any change, conversion or exchange of shares.
The record date so fixed shall be not more than sixty (60) days nor less than
ten (10) days prior to the date of any meeting, nor more than sixty (60) days
prior to any other event for the purposes of which it is fixed. When a record
date is so fixed, only shareholders of record on that date are entitled to
notice of and to vote at any such meeting, to give consent without a meeting, to
receive any report, to receive a dividend, distribution or allotment of rights,
or to exercise the rights, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or bylaws.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is give or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
is necessary, shall be the day on which the first written consent is given.
The record date for determining shareholders for any other purpose shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the 60th day prior to the date of such other action,
whichever is later.
SECTION 2. INSPECTION OF CORPORATE RECORDS. The accounting books and
records, the record of shareholders, and minutes of proceedings of the
shareholders and the Board and committees of the Board of this Corporation and
any subsidiary of this Corporation shall be open to inspection upon the written
demand on the Corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least 5 percent in the aggregate
of the outstanding voting shares of the Corporation or who hold at least 1
percent of such voting shares and have filed a Schedule 14B with the United
States Securities and Exchange Commission relating to the election of directors
of the Corporation shall have (in person, or by agent or attorney) the right to
inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five business days' prior written
demand upon the Corporation and to obtain from the transfer agent for the
Corporation, upon written demand and upon the tender of its usual charges, a
list of the shareholders' names and addresses, who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the Corporation. Such
<PAGE>
-15-
inspection by a director may be made in person or by agent or attorney and the
right of inspection includes the right to copy and make extracts.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name,
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
SECTION 4. ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders
referred to in Section 1501 of the California General Corporation Law is
expressly waived to the extent permitted by Section 1501 of the California
General Corporation Law, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to shareholders.
A shareholder or shareholders holding at least five percent of the
outstanding shares of any class of the Corporation may make a written request to
the Corporation for an income statement of the Corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than 30
days prior to the date of the request and a balance sheet of the Corporation as
of the end of such period and, in addition, if no annual report for the last
fiscal year has been sent to shareholders, the annual report for the last fiscal
year. The Corporation shall use its best efforts to deliver on the statement to
the person making the request within 30 days thereafter. A copy of any such
statements shall be kept on file in the principal executive office of the
Corporation for 12 months and they shall be exhibited at all reasonable times to
any shareholder demanding an examination of them or a copy shall be mailed to
such shareholder.
The Corporation shall, upon the written request of any shareholder, mail to
the shareholder a copy of the last annual, semiannual or quarterly income
statement which it has prepared and a balance sheet as of the end of the period.
The quarterly income statements and balance sheets referred to in this section
shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the Corporation or the certificate of an authorized
officer of the Corporation that such financial statements were prepared without
audit from the books and records of the Corporation.
SECTION 5. CONTRACTS, ETC., HOW EXECUTED. The Board of Directors, except as
in the bylaws otherwise provided, may authorize any officer or officers, agent
or agents, to enter into any contract or execute any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances; and, unless so authorized by the Board of Directors, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
SECTION 6. CERTIFICATE FOR SHARES. Every holder of shares in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chairman or vice chairman of the Board or the president or
vice president and by the chief financial officer or an assistant financial
officer or the secretary or any assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
<PAGE>
-16-
Any such certificate shall also contain such legend or other statement as
may be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, the federal securities laws, and any agreement between
the Corporation and the issue thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board of Directors or the bylaws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old certificate
unless the latter is surrendered and canceled at the same time; provided,
however, that a new certificate will be issued without the surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
Corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the Corporation; and (5) the owner satisfies
any other reasonable requirements imposed by the Corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
Corporation, and of the holders of the old and new certificates, shall be
governed by the provisions of Sections 8104 and 8405 of the California Uniform
Commercial Code.
SECTION 7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or
any vice president and the secretary or any assistant secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this corporation in any other corporation or corporations
may be exercised either by such officers in person or by any other person
authorized so to do by proxy or power of attorney duly executed by said
officers.
SECTION 8. INSPECTION OF BYLAWS. The Corporation shall keep in its
principal executive office in California, or, if its principal executive office
is not in California, then at its principal business office in California (or
otherwise provide upon Written request of any shareholder) the original or a
copy of the bylaws as amended or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
SECTION 9. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VI
AMENDMENTS
SECTION 1. POWER OF SHAREHOLDERS. New bylaws may be adopted or these bylaws
may be amended or repealed by the affirmative vote of a majority of the
outstanding shares represented at a
<PAGE>
-17-
meeting in which a quorum is present and voting, or by the written assent of
shareholders entitled to vote such shares, except as otherwise provided by law
or by the Articles of Incorporation.
SECTION 2. POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this Article VI to adopt, amend or repeal bylaws,
bylaws, other than a bylaw or amendment thereof changing the authorized number
of directors, may be adopted, amended or repealed by the Board of Directors.
<PAGE>
EXHIBIT 4.3
[FACE OF CERTIFICATE OF STOCK SPECIMEN]
COMMON STOCK COMMON STOCK
UNIT INSTRUMENTS, INC.
NUMBER SHARES
UII-
INCORPORATED UNDER THE LAWS CUSIP 90921C 10 0
OF THE SATE OF CALIFORNIA SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE FIFTEEN
CENTS ($.15) PER SHARE, OF
UNIT INSTRUMENTS, INC.
transferable on the books of the Corporation by the owner hereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ ?????^^ /s/ Michael J. Doyle
- ------------------------------- -------------------------------------
SECRETARY PRESIDENT
CERTIFICATE OF STOCK
SPECIMEN
[SEAL OF UNIT INSTRUMENTS, INC.]
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, New Jersey)
Transfer Agent
and Registrar
By
-----------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
[BACK]
UNIT INSTRUMENTS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDERS WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE
TRANSFER AGENT.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - ________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, ________________________________ hereby sell, assign
and transfer unto
[ ]
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
__________________________ Attorney to transfer the said stock on the books of
the within-named Corporation with full power of substitution in the premises.
Dated, _______________________ X________________________________________
X________________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.8
[LOGO] BANK OF AMERICA BUSINESS LOAN AGREEMENT
National Trust and Savings Association
- --------------------------------------------------------------------------------
This Agreement dated as of January 23, 1996, is between Bank of America
--
National Trust and Savings Association (the "Bank") and Unit Instruments, Inc.
(the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Five Million Dollars ($5,000,000).
(b) This is a revolving line of credit with within line facilities for letters
of credit. During the availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit plus the outstanding amounts of any letters of credit,
including amounts drawn on letters of credit and not yet reimbursed, to
exceed the Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and January 31, 1997 (the "Expiration Date") unless the Borrower
is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on February 29, 1996, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line
of credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on
the last day of each interest period, and, if the interest period is longer
than a month, then on the last day each month during the interest period.
At the end of any interest period, the
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<PAGE>
interest rate will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the portion.
1.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
one and one-half (1.50) percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect will
be 30, 60, 9O or 180 days. The last day of the interest period will be
determined by the Bank using the practices of the offshore dollar inter-
bank markets.
(b) Each Offshore Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
Offshore Rate = Grand Cayman Rate
-----------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will be expressed as
a decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already bearing
interest at the Offshore Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
period, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an Offshore Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an Offshore Rate portion are not available in the
offshore dollar inter-bank markets; or
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<PAGE>
(ii) the Offshore Rate does not accurately reflect the cost of an Offshore
Rate portion.
1.7 LETTERS OF CREDIT. This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of 180 days but
not to extend more than 120 days beyond the Expiration Date. Each
commercial letter of credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturity of 365 days but not
to extend more than 120 days beyond the Expiration Date.
(iii) The amount of the letters of credit outstanding at any one time,
(including amounts drawn on the letters of credit and not yet
reimbursed), may not exceed Five Million Dollars ($5,000,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement. The amount
will bear interest and be due as described elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay and make
the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial Letter of
Credit or Application and Agreement for Standby Letter of Credit.
(e) to pay any standard issuance fee and/or other fees that the Bank notifies
the Borrower will be charged for issuing and processing letters of credit
for the Borrower except the issuance fee for standby letters of credit
shall be one percent (1%) per annum of the face amount of each standby
letter of credit issued.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
2. FEES AND EXPENSES
2.1 PERIODIC FEE. The Borrower agrees to pay a fee equal to one-eighth of one
percent (1/8%) per annum of the Commitment. This fee is due on March 31, 1996,
and on the last day of each following quarter until the expiration of the
availability period.
2.2 EXPENSES. The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
3.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
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BUSLA (7/93) -3- 1456-SLAFC03.doc
<PAGE>
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
3.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or for
the designation of optional interest rates given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower,
or any other individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14568-01494, or such other of the Borrower's
-----------
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this Agreement.
3.4 DIRECT DEBIT.
(a) The Borrower agrees that interest and any fees will be deducted
automatically on the due date from checking account number 14568-01494.
-----------
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
3.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. For amounts bearing interest at an offshore rate (if any), a
banking day is a day other than a Saturday or a Sunday on which the Bank is
open for business in California and dealing in offshore dollars. All payments
and disbursements which would be due on a day which is not a banking day will be
due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
3.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
3.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
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3.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
3.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate plus one (1.00)
percentage point. This may result in compounding of interest.
4. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
4.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
4.2 OTHER ITEMS. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
5.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
5.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
5.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
5.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
5.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
5.6 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
5.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
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5.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
5.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
5.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
5.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
5.12 ERISA PLANS.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended
from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
5.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for short-term
working capital purposes, and at the option of the Bank, to finance drafts drawn
under any letter of credit issued under this Agreement.
6.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
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(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements for the first, second and third fiscal quarters, and within 9O
days of the period's end, the Borrower's quarterly financial statements for
the fourth fiscal quarter. The statements shall be prepared on a
consolidated and consolidating basis and may be Borrower prepared.
(c) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q Quarterly
Report and Form 8-K Current Report including any similar reports, within 10
days after the date of filing with the Securities and Exchange Commission.
6.3 WORKING CAPITAL. To maintain current assets in excess of current
liabilities by at least Five Million Dollars ($5,000,000).
6.4 TANGIBLE NET WORTH. To maintain tangible net worth equal to at least
Thirty Million Dollars ($30,000,000).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles, and
monies due from affiliates, officers, directors or shareholders of the Borrower)
less total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
6.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain a ratio of total
liabilities to tangible net worth not exceeding .65:1.0.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
6.6 PROFITABILITY. To maintain a positive net income before taxes and
extraordinary items for each six (6) month accounting period, measured
quarterly, using the trailing two (2) fiscal quarters.
6.7 OTHER DEBTS. Not to have outstanding or incur any contingent debts (other
than those to the Bank), or become liable for the debts of others in excess of
Five Million Dollars ($5,000,000) at any time without the Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
6.8 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
(d) Additional purchase money security interests in personal property acquired
after the date of this Agreement so long as such liens encumber only assets
acquired with proceeds from loans permitted thereunder.
6.9 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least
thirty (30) consecutive days in each line-year. "Line-year" means
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the period between the date of this Agreement and January 31, 1997, and each
subsequent one-year period (if any). For the purposes of this paragraph,
"advances" does not include undrawn amounts of outstanding letters of credit.
6.10 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars ($250,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.
6.11 BOOKS AND RECORDS. To maintain adequate books and records.
6.12 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
6.13 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
6.14 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
6.15 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
6.16 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
6.17 GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
6.18 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets except in the ordinary course of the Borrower's
business.
(e) sell or otherwise dispose of any assets for less than fair market value, or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
6.19 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
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(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
8. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
8.2 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
8.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor) , or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
8.4 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
8.5 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
8.6 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the loan.
8.7 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower has obtained from anyone else or which the Borrower has
guaranteed.
8.8 OTHER BANK AGREEMENTS. The Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement the Borrower has with
the Bank or any affiliate of the Bank.
8.9 ERISA PLANS. The occurrence of any one or more of the following events with
respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
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aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.
8.10 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
9.2 CALIFORNIA LAW. This Agreement is governed by California law.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees; provided that such actual or
potential participants or assignees shall agree to treat all financial
information exchanged as confidential. If a participation is sold or the loan is
assigned, the purchaser will have the right of set-off against the Borrower.
9.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
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(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be appointed
by a court as provided in California Code of Civil Procedure Section
638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or claim arises
from or relates to an obligation to the Bank which is secured by real
property located in California at the time of the proposed submission to
arbitration, this right is limited according to the provision above
requiring the consent of both the Borrower and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
9.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
9.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
9.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration
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proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. As used in this paragraph,
"attorneys' fees" includes the allocated costs of in-house counsel.
9.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
9.10 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
Bank of America
National Trust and Savings Association UNIT INSTRUMENTS, INC.
X /s/ P. Michael Roesner X /s/ Michael J. Doyle
- -------------------------------- --------------------------------
BY: P. MICHAEL ROESNER BY: MICHAEL J. DOYLE
TITLE: VICE PRESIDENT TITLE: PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE
ARE TO BE SENT: BORROWER ARE TO BE SENT:
North Orange County RCBO #1456 22600 Savi Ranch Parkway
300 South Harbor Blvd. Yorba Linda, California 92687
Anaheim, California 92805
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EXHIBIT 10.9
May 17, 1996
Re: Involuntary Severance Agreement
Dear :
Unit Instruments, Inc. (the "Corporation") considers it essential to
the best interest of its stockholders to foster the continuous employment of key
management personnel. As is the case with many publicly-held corporations, the
Board of Directors of the Corporation (the "Board") recognizes that the
possibility of a change in control of the Corporation may exist. This
possibility raises a great deal of uncertainty and questions among management,
and could lead to the departure or distraction of management personnel to the
detriment of the Corporation and its stockholders. The Board has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Corporation's senior management,
including yourself, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a change in
control of the Corporation.
In order to induce you to remain in the employ of the Corporation so
that you may continue to exercise your special skills and knowledge on behalf of
the Corporation, and to assist the Board of Directors in the event a change in
control transaction is considered, the Corporation agrees that you shall receive
the severance benefits set forth in this Agreement in the event your employment
with the Corporation is terminated within the meaning of this Agreement in
connection with a change in control of the Corporation (as "Change in Control"
is defined in Section 2 hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect through December 31, 1996; provided, however, that
(i) commencing
<PAGE>
on January 1, 1997 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Corporation shall have given notice to
you that it does not wish to extend this Agreement; (ii) if a "Change in
Control" of the Corporation occurs during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period of twenty-four
(24) months beyond the month in which such Change in Control occurs; and (iii)
the Corporation shall have no right to give notice that it does not wish to
extend this Agreement during any period while a tender offer for the purchase of
a substantial portion of the Corporation's common shares is outstanding or a
proxy contest for the election of directors to the Board is in progress or the
Corporation is conducting discussions or taking any other action which is
reasonably likely to lead to a Change in Control, and no purported notice by the
Corporation that it does not wish to extend this Agreement shall become
effective if a Change in Control actually occurs during the period of 180 days
following the delivery of such notice to you.
2. Change in Control. No benefits shall be payable hereunder unless
-----------------
there shall have been a Change in Control of the Corporation as set forth below.
For purposes of this Agreement, a "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended the "Exchange Act"),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or a subsidiary of the Corporation, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing more
than 20% of the combined voting power of the Corporation's then outstanding
securities; or (ii) during any period of two consecutive years (not including
any period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board and any new directors (other than
a director designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in clauses (i) or (iii) of this
Section) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (iii) all or
substantially all of the assets of the Corporation are sold or transferred to
one or more third parties, or the Corporation consolidates or merges with
another corporation unless the Corporation or a subsidiary of the Corporation is
the continuing or surviving corporation following the merger or consolidation;
or (iv) more than one-half of the operating assets of the Corporation as
presently constituted are sold or transferred to one or more third parties and
such operating assets disposed of are not replaced by the Corporation's
acquisition of other operating assets of comparable size within six months
following such disposition; or
2
<PAGE>
(v) the Corporation no longer has a class of securities registered pursuant to
Section 12 of the Exchange Act.
No transaction which effects a mere reincorporation of the Corporation, or
a transaction which reorganizes the Corporation, shall be considered a "Change
in Control" for purposes of this Agreement
3. Termination Before or After Change in Control. If any of the events
---------------------------------------------
described in Section 2 hereof constituting a Change in Control have occurred,
you shall be entitled to the benefits provided in Subsection 4(iv) hereof upon
the termination of your employment during the term of this Agreement, regardless
of whether it occurs before or after a Change in Control, unless such
termination is (A) because of your death, Disability or Retirement, (B) by the
Corporation for Cause, or (C) by you other than for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
-----------------------
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability." Termination by the Corporation
or you of your employment based on "Retirement" shall mean termination in
accordance with the Corporation's retirement policy at normal retirement age
generally applicable to its salaried employees or in accordance with any
retirement arrangement established with your consent with respect to you.
(ii) Cause. Termination by the Corporation of your employment for
-----
"Cause" shall mean termination upon (A) the willful and continued failure by you
to substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of
Termination, as defined in Subsection 3(iv), by you for Good Reason) after a
written demand for substantial performance is delivered to you by the Board,
which demand specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or (B) the willful engaging by
you in conduct which is demonstrably and materially injurious to the
Corporation, monetarily or otherwise. For purposes of this subsection, no act,
or failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Corporation.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to
3
<PAGE>
you and an opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses (A) or (B) of the first sentence of this
Subsection and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your employment
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(A) a substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to a Change in Control;
(B) the transfer of your responsibilities to an office or location
more than 25 miles more distant from your place of residence immediately prior
to a Change in Control, or the Corporation requiring you to be based anywhere
other than the metropolitan area in which you are based prior to a Change in
Control, except for required travel on the Corporation's business to an extent
substantially consistent with your business travel obligations prior to the
Change in Control;
(C) a reduction by the Corporation in your annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(D) the failure by the Corporation, without your consent, to pay to
you any portion of your current compensation, or to pay to you any portion of an
installment of deferred compensation under any deferred compensation program of
the Corporation within seven (7) days of the date such compensation is due;
(E) the failure by the Corporation to continue in effect any
compensation plan in which you participate, unless an equitable and
substantially equivalent arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Corporation to continue your participation therein on a basis not materially
less favorable, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the time of
the Change in Control;
(F) the failure by the Corporation to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's pension, retirement, savings, deferred compensation, auto
allowance, life insurance, medical, health and accident, or disability plans
(whether or not qualified under the Internal Revenue Code)
4
<PAGE>
in which you were participating at the time of a Change in Control, the taking
of any action by the Corporation which would directly or indirectly materially
reduce any of such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the Change in Control, or the failure by the
Corporation to provide you with the number of paid vacation days to which you
are entitled on the basis of years of service with the Corporation in accordance
with the Corporation's normal vacation policy in effect at the time of the
Change in Control;
(G) the failure of the Corporation to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Subsection
(iv) below (and, if applicable, the requirements of Subsection (ii) above); for
purposes of this Agreement, no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination of your
---------------------
employment by the Corporation or by you shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 6 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A) if your
--------------------
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii) above or for any
reason other than Disability, the date specified in the Notice of Termination
(which, in the case of a termination pursuant to Subsection (ii) above shall not
be less than thirty (30) days, and in the case of a termination pursuant to
Subsection (iii) above shall not be less than thirty (30) nor more than sixty
(60) days, respectively, from
5
<PAGE>
the date such Notice of Termination is given); provided that if within thirty
(30) days after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected); provided further that the
Date of Termination shall be extended by a notice of dispute only if such notice
is given in good faith and the party giving such notice pursues the resolution
of such dispute with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Corporation will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
pension, benefit and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is finally
resolved in accordance with this Subsection. Amounts paid under this Subsection
are in addition to all other amounts due under this Agreement and shall not be
offset against or reduce any other amounts due under this Agreement except to
the extent otherwise provided in paragraph (C) of Subsection 4(iv).
4. Compensation Upon Termination or During Disability. Following a
--------------------------------------------------
Change in Control, as defined by Section 2, upon termination of your employment
or during a period of disability you shall be entitled to the following
benefits:
(i) During any period that you fail to perform your full-time duties
with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect at
the commencement of any such period, together with all compensation payable to
you under the Corporation's short-term and long-term disability insurance
program or other plan during such period, until this Agreement is terminated
pursuant to Section 3(i) hereof. Thereafter, your benefits shall be determined
in accordance with the Corporation's insurance and retirement programs then in
effect.
(ii) If your employment shall be terminated by the Corporation for
cause or by you other than for Good Reason, Disability, Death or Retirement, the
Corporation shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the Corporation
at the time such payments are due, and the Corporation shall have no further
obligations to you under this Agreement.
6
<PAGE>
(iii) If your employment shall be terminated by the Corporation or by
you for Retirement, or by reason of your Death, your benefits shall be
determined in accordance with the Corporation's retirement and insurance
programs then in effect.
(iv) If your employment shall be terminated (a) by the Corporation
other than for Cause, Retirement or Disability or (b) by you for Good Reason,
then you shall be entitled to the benefits provided below:
(A) the Corporation shall pay you your full base salary through
your Date of Termination at the rate in effect at the time Notice of Termination
is given, plus all other amounts to which you are entitled under any
compensation plan of the Corporation, at the time such payments are due except
as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to your Date of Termination, the Corporation shall pay as severance
pay to you a lump sum severance payment (the "Severance Payment") equal to two
times the sum of (x) your annual base salary in effect immediately prior to the
occurrence of the circumstance giving rise to the Notice of Termination given in
respect thereof, and (y) the amount of any bonus paid to you during the 12
calendar months preceding the occurrence of the circumstance which provided the
reason for the Notice of Termination given in respect thereof or, if no bonus
was paid the prior fiscal year because you were hired within the previous
sixteen months, an amount equal to your stated bonus opportunity for the current
fiscal year. In addition, the Corporation shall pay your current auto allowance
for a 24-month period.
(C) effective upon your Date of Termination you shall become
vested with all unvested benefits which you have then accrued under any
retirement or deferred compensation plan, program or agreement of the
Corporation in which you participate, payable subject to the same actuarial and
interest factors applicable and in accordance with the options available and
selected by you under such plans or programs. The retirement and deferred
compensation plans, programs and agreements of the Corporation covered by this
paragraph include, without limitation, the Corporation's nonqualified Unfunded
Deferred Compensation Agreement (if applicable to you), but do not include any
of the Corporation's stock option or stock purchase plans. Under the
nonqualified Unfunded Deferred Compensation Agreement with the Corporation
referred to in Section 8 hereof (if applicable to you), your benefit at your
Date of Termination shall be calculated on the basis of your annual base salary
at your Date of Termination without regard to your age at such date, and shall
be payable to you commencing at your age 65 or such date after your attainment
of age 60 as you shall select, subject to the percentage reduction
7
<PAGE>
provided by Paragraph 3 of the Unfunded Deferred Compensation Agreement for
commencement of payments prior to age 65;
(D) for a twenty-four (24) month period after such termination,
the Corporation shall arrange to provide you and any of your dependents with
life, disability, accident and health insurance benefits substantially similar
to those which you and any of your dependents were receiving from the
Corporation immediately prior to the Notice of Termination (however, you must
make the required "employee contribution payments," if any, to the Company on a
monthly basis in the same amount as before the Date of Termination or, in the
case of termination for good reason under paragraph 3(iii)(F) of this Agreement,
immediately prior to the reduction of benefits), except to the extent that the
payment of such benefits would be, or would cause any other portion of the
"Total Payments" (as defined in paragraph (F) below) to be treated as an Excess
Parachute Payment under section 28OG of the Code;
(E) the Corporation shall also pay to you all legal fees and
expenses incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement), except to the extent that the payment of such fees and expenses
would constitute, or would cause any other portion of the Total Payments to
constitute, an Excess Parachute Payment;
(F) in the event that any payment or benefit received or to be
received by you in connection with a Change in Control or the termination of
your employment following a Change in Control (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Corporation,
with any person whose actions result in a Change in Control or any person
affiliated with the Corporation or such person (collectively with the Severance
Payment, "Total Payments") would constitute (in whole or in part) an Excess
Parachute Payment, the Severance Payment shall be reduced until no portion of
the Total Payments shall constitute an Excess Parachute Payment. For purposes
of this limitation (i) no portion of the Total Payments, the receipt or
enjoyment of which you shall have effectively waived in writing prior to the
date of payment of the Severance Payment shall be taken into account; (ii) no
portion of the Total Payments shall be taken into account which in the opinion
of the tax counsel selected by the Corporation's independent auditors and
acceptable to you does not constitute a "parachute payment" within the meaning
of section 28OG(b)(2) of the Code; (iii) the Severance Payment (other than any
portion thereof that is not taken into account by virtue of clauses (i) or (ii))
shall be reduced until the aggregate "present value" (as that term is defined in
Section 28OG(d)(4) of the Code) of Total Payments is such that no part of the
Total Payments constitutes an Excess Parachute Payment, in the opinion of the
tax counsel referred to in clause (ii); and (iv) the
8
<PAGE>
value of any noncash benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of sections 28OG(d)(3) and (4) of the Code; and
(G) the payment provided for in paragraph (B) above shall be made
not later than the fifth day following the Date of Termination; provided,
however, that if the amount of such payments, and the limitation on such
payments set forth in paragraph (F) above, cannot be finally determined on or
before such day, the Corporation shall pay to you on such day an estimate, as
determined in good faith by the Corporation, of the minimum amount of such
payments and shall pay the remainder of such payments (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event not later than the thirtieth day after
the Date of Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Corporation to you, payable on the fifth day after
demand by the Corporation (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(H) the Corporation shall, if requested by you within six (6)
months following the Date of Termination, pay for senior executive outplacement
services.
(I) the Corporation shall pay seven hundred ($700.00) per month
car allowance for a period of twenty-four (24) months.
(v) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owing by you to the Corporation or otherwise.
(vi) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable to you under
the Corporation's retirement programs.
5. Successors; Binding Agreement. (i) The Corporation will require
-----------------------------
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it with respect to the business and assets acquired if no such succession had
taken place (unless such successor is the Corporation, in which event such
assumption and agreement shall be deemed to have taken place by virtue of this
Agreement). Failure of the Corporation to obtain such assumption and
9
<PAGE>
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle you to compensation from the Corporation in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined
or any successor to its business and/or assets as aforesaid which assumes and
agrees (or is deemed to have assumed and agreed) to perform this Agreement or
which otherwise becomes bound by the terms of this Agreement by operation of
law.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addressee set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
7. Miscellaneous. All agreements or representations, oral or otherwise,
-------------
express or implied, with respect to the subject matter hereof which have been
made by either party are superseded by and expressly set forth in this
Agreement. No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by you and the Chief Executive Officer of the Corporation (or if you are the
Chief Executive Officer, then another executive officer of the Corporation) or
such other officer as may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by California law. All references to sections of the Exchange
10
<PAGE>
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Corporation under Section 4 shall survive the expiration of
the term of this Agreement.
8. Waiver and Release. In accepting this Agreement you specifically
------------------
waive and release all rights which you would otherwise have to continued
employment and special payments upon a sale of the Corporation or its assets
under Paragraph 3 of the Unfunded Deferred Compensation Agreement with the
Corporation (if applicable), provided, however, that except as modified by
paragraph (C) of Section 4 (iv) above, all other provisions of said Unfunded
Deferred Compensation Agreement shall continue in full force and effect. If you
are a party to an involuntary severance agreement with the Corporation of
substantially similar effect to this Agreement, then this Agreement shall
supersede and replace such prior agreement.
9. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
----------------------------------
Orange County, California in accordance with the rules of the American
Arbitration Association then in effect. Discovery shall be allowed and shall be
governed under the discovery rules of the California Code of Civil Procedure.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
11
<PAGE>
If this letter sets forth our entire agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter which will then constitute our agreement on this subject, with the mutual
intent to be legally bound hereby.
Sincerely,
UNIT INSTRUMENTS, INC.
By: ___________________________
Gary N. Patten
Vice President & Chief Financial Officer
GNP:cw
Agreed to this ____ day
of ________________, 1996
________________________________
12
<PAGE>
EXHIBIT 10.10
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF APRIL 23, 1996
AMONG
UNIT INSTRUMENTS, INC.,
CSI ACQUISITION CORPORATION
AND
CONTROL SYSTEMS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions........................................................... 1
2. Reorganization and Merger............................................. 1
2.1 Surviving Corporation.......................................... 1
2.2 Articles of Incorporation and Bylaws of CSI.................... 2
2.3 Common Stock of Merger Sub..................................... 2
2.4 Conversion of CSI Stock........................................ 2
2.5 Protection Against Dilution as to Conversion Rate.............. 2
2.6 Exchange of Stock Certificates................................. 2
2.7 Fractional Shares.............................................. 3
2.8 Issuance of Unit Common Stock.................................. 3
2.9 Transfer Books................................................. 3
3. The Closing........................................................... 3
4. Representations and Warranties of CSI................................. 4
4.1 Organization and Existence of CSI............................. 4
4.2 Authorized Capital Stock of CSI............................... 4
4.3 No Subsidiaries............................................... 4
4.4 CSI Financial Statements...................................... 4
4.5 Leases, Title to Properties, Etc.............................. 5
4.6 Absence of Certain Events..................................... 6
4.7 Indebtedness.................................................. 7
4.8 Guaranties and Suretyship..................................... 8
4.9 Absence of Undisclosed Liabilities............................ 8
4.10 Tax Matters................................................... 8
4.11 Notes and Accounts Receivable................................. 8
4.12 Inventories................................................... 8
4.13 Machinery and Equipment....................................... 9
4.14 Material Contracts............................................ 9
4.15 Patents and Trademarks; Intellectual Property................. 10
4.16 Insurance..................................................... 10
4.17 Licenses, Permits, Etc........................................ 11
4.18 Litigation.................................................... 11
4.19 Compliance with Laws.......................................... 11
4.20 Employees..................................................... 11
4.21 Employee Benefit Plans........................................ 11
4.22 Bank Accounts and Powers of Attorney.......................... 12
4.23 Product Warranties and Liabilities............................ 12
4.24 Labor Matters................................................. 12
4.25 Absence of Certain Changes.................................... 13
4.26 Questionable Payments......................................... 13
4.27 Brokers....................................................... 13
4.28 No Default.................................................... 13
4.29 Conflict of Interest.......................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.30 Books and Records............................................. 13
4.31 Authority of CSI and Principal Shareholders................... 14
4.32 Environmental and Safety Matters.............................. 14
4.33 Confidentiality............................................... 15
4.34 Miscellaneous Additional Matters Regarding Employees.......... 15
4.34.1 Withholding.......................................... 15
4.34.2 Tax Returns.......................................... 15
4.34.3 Hours Worked......................................... 15
4.34.4 Insurance Payments................................... 15
4.34.5 No Change in Condition............................... 15
4.34.6 No Claims............................................ 15
4.35 Securities Law Compliance..................................... 16
4.35.1 Communication........................................ 16
4.35.2 Principal Shareholders' Representations.............. 16
4.36 Full Disclosure...................................... 17
5. Representations and Warranties of Unit and Merger Sub................ 17
5.1 Organization and Existence.................................... 17
5.2 Authority..................................................... 17
5.3 Securities and Exchange Commission Reports of Unit............ 17
5.4 Absence of Certain Changes.................................... 18
5.5 Validity of Unit Common Stock................................. 18
5.6 Capital Stock of Merger Sub................................... 18
5.7 Investment Intent............................................. 18
5.8 Unit Financial Statements..................................... 18
5.9 Brokers....................................................... 18
5.10 Authorized Capital Stock of Unit.............................. 18
5.11 Full Disclosure............................................... 19
6. Covenants of CSI..................................................... 19
6.1 Conduct of Business........................................... 19
6.2 Access to Information......................................... 20
6.3 Preservation of Goodwill...................................... 20
6.4 Shareholders' Approval........................................ 20
6.5 Trade Secrets................................................. 20
6.6 Further Assurances............................................ 20
7. Mutual Covenants..................................................... 20
7.1 Blue Sky Compliance........................................... 20
7.2 Public Announcements.......................................... 20
7.3 Confidentiality of Information Furnished...................... 21
7.4 Reasonable Efforts to Satisfy Conditions...................... 21
8. Conditions to Obligations of CSI..................................... 21
8.1 Unit's and Merger Sub's Representations and Warranties True at
Closing....................................................... 21
8.2 Opinion of Unit's and Merger Sub's Counsel.................... 21
8.3 No Material Adverse Changes................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
9. Conditions to Obligations of Unit and Merger Sub..................... 21
9.1 CSI's Representations and Warranties True at Closing.......... 21
9.2 Opinion of CSI's Counsel...................................... 22
9.3 No Damage or Destruction...................................... 22
9.4 Resignations.................................................. 22
9.5 Employment Agreements......................................... 22
9.6 Confidentiality and Non-Competition Agreements................ 22
9.7 Intentionally Omitted......................................... 22
9.8 No Material Adverse Changes................................... 22
9.9 Blue Sky Matters.............................................. 22
9.10 CSI Shareholders' Approval.................................... 22
9.11 No Options.................................................... 22
10. Mutual Conditions to Obligations of Unit, Merger Sub, and CSI........ 22
10.1 Approvals..................................................... 23
10.2 No Litigation................................................. 23
10.3 Nature of Statements.......................................... 23
10.4 Survival of Representations and Warranties.................... 23
11. Indemnity............................................................ 23
11.1 Indemnification of Unit....................................... 23
11.2 Limitations................................................... 23
11.3 Indemnification of CSI........................................ 24
11.4 Claims Procedure.............................................. 24
11.5 Allocation among Principal Shareholders....................... 25
12. Registration; Indemnification....................................... 25
12.1 Registration................................................. 25
12.2 Expenses..................................................... 25
12.3 Indemnification by Unit...................................... 26
12.4 Indemnification by Shareholders.............................. 26
13. Termination......................................................... 27
14. Definitions......................................................... 27
14.1 Cross Reference Table........................................ 27
14.2 Certain Definitions.......................................... 28
14.2.1 Generally Accepted Accounting Principles............ 28
14.2.2 Material Adverse Effect............................. 28
14.2.3 Member of the Immediate Family...................... 28
14.2.4 Ordinary Course of Business......................... 28
15. Miscellaneous....................................................... 28
15.1 Expenses..................................................... 28
15.2 Notices...................................................... 28
15.3 Assignment................................................... 29
15.4 Successors Bound............................................. 29
15.5 Captions..................................................... 29
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
15.6 Amendment..................................................... 30
15.7 Entire Agreement.............................................. 30
15.8 Counterparts.................................................. 30
15.9 Governing Law................................................. 30
15.10 Attorneys' Fees............................................... 30
15.11 Waiver........................................................ 30
15.12 Severability.................................................. 30
</TABLE>
Exhibits
- --------
Exhibit A Articles of Merger
Exhibit B-1 Form of Employment Agreement between CSI and Thomas Barr
Exhibit B-2 Form of Employment Agreement between CSI and Christopher V. Barr
Exhibit C Form of Employee Nondisclosure and Inventions Agreement
Exhibit D-1 Form of Non-Competition Agreement between Unit and Thomas Barr
Exhibit D-2 Form of Non-Competition Agreement between Unit and
Christopher V. Barr
Exhibit E Form of Opinion of Counsel to Unit and Merger Sub
Exhibit F Form of Opinion of Counsel to CSI
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement")
dated as of April 23, 1996, among UNIT INSTRUMENTS, INC., a California
corporation ("Unit"), CSI ACQUISITION CORPORATION, a New Mexico corporation and
a wholly-owned subsidiary of Unit ("Merger Sub"), CONTROL SYSTEMS, INC., a New
Mexico corporation ("CSI"), and THOMAS AND JAIME BARR and CHRISTOPHER V. BARR
(collectively, the "Principal Shareholders");
W I T N E S S E T H :
WHEREAS, Unit, Merger Sub, CSI, and their respective Boards of Directors
and the Principal Shareholders deem it advisable to effect a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), pursuant to which Merger Sub
shall be merged with and into CSI (the "Merger") in accordance with the terms
and provisions of this Agreement; and
WHEREAS, as a result of the Merger the shareholders of CSI will receive
shares of Common Stock of Unit (the "Unit Common Stock") and cash in exchange
for the issued and outstanding shares of Common Stock of CSI (the "CSI Stock"),
all as more fully described in and subject to the specific terms and provisions
of this Agreement; and
WHEREAS, this Agreement sets forth the terms and conditions to which the
parties hereto have agreed and further contemplate the consummation of certain
related transactions hereinafter described;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants of the parties hereto, and subject to the terms and conditions set
forth herein, the parties herein agree as follows:
1. DEFINITIONS. Certain terms are used in this Agreement as specifically
defined herein. Unless elsewhere defined in the Agreement, these definitions
are set forth or referred to in Section 14 of this Agreement.
2. REORGANIZATION AND MERGER. Subject to the terms and conditions of
this Agreement, the parties hereto agree that Merger Sub and CSI shall execute
and file the Articles of Merger in substantially the form attached hereto as
Exhibit A with the New Mexico State Corporation Commission, whereupon Merger Sub
shall be merged with and into CSI and CSI shall become a wholly owned subsidiary
of Unit. It is intended that for federal tax purposes the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) and
368(a)(2)(E) of the Code.
2.1 SURVIVING CORPORATION. Upon the effectiveness of the Articles of
Merger (hereinafter referred to as the "Effective Time of the Merger"), Merger
Sub shall be merged with
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and into CSI and the separate existence of Merger Sub shall cease. CSI shall be
the corporation surviving the Merger and shall continue to be named "Control
Systems, Inc."
2.2 ARTICLES OF INCORPORATION AND BYLAWS OF CSI. The Articles of
Incorporation and Bylaws of CSI at and immediately prior to the Effective Time
of the Merger shall continue to be the Articles of Incorporation and Bylaws of
CSI.
2.3 COMMON STOCK OF MERGER SUB. Each share of the common stock of
Merger Sub (the "Merger Sub Common Stock") issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted, at the
Effective Time of the Merger, into and shall represent one fully paid and
nonassessable share of CSI Common Stock.
2.4 CONVERSION OF CSI STOCK. Subject to the other terms of this
Section 2, the shares of CSI Stock held by each shareholder immediately prior to
the Effective Time of the Merger shall, by virtue of the Merger and without any
action on the part of any holder thereof, be converted into either (a) an amount
of cash (without interest) and a number of shares of Unit Common Stock set forth
below the name of the holder of such shares on Schedule 2.4, or (b) a number of
shares of Unit Common Stock set forth below the name of the holder of such
shares on Schedule 2.4, as the case may be, in either case subject to adjustment
pursuant to Section 2.5 below and subject further to the provisions of Section
2.7 regarding the elimination of fractional shares.
2.5 PROTECTION AGAINST DILUTION AS TO CONVERSION RATE. In the event
that Unit subdivides or consolidates the Unit Common Stock or declares a Common
Stock dividend with respect to the Unit Common Stock or recapitalizes or
reclassifies its shares of Common Stock subsequent to the execution of this
Agreement and effective prior to the Closing Date, the conversion rate and type
of security shall be proportionately adjusted.
2.6 EXCHANGE OF STOCK CERTIFICATES. Promptly after the Effective
Time of the Merger, Unit shall give, or cause to be given, written notice of the
consummation of the Merger to each holder of record of shares of CSI Stock
issued and outstanding immediately prior to the Effective Time of the Merger
(individually, a "Holder" and collectively, the "Holders"), and each Holder may
surrender the same, in accordance with the procedures set forth in the written
notice of the consummation of the Merger delivered by Unit to each Holder, to
Unit's registrar and transfer agent, Continental Stock Transfer, 2 Broadway, New
York, New York 10004 (the "Exchange Agent"), and as soon as practicable after
such surrender, the Exchange Agent shall cause each such Holder to receive, in
exchange for such certificate or certificates so surrendered, a certificate or
certificates representing the number of whole shares of Unit Common Stock into
which the shares of CSI Stock so surrendered shall have been converted by the
Merger and the cash payment in lieu of a fractional share of Unit Common Stock,
if any, to which such Holder shall be entitled. At or prior to the Effective
Time of the Merger, Unit shall issue and deliver to Merger Sub, which shall in
turn deliver to the Exchange Agent, a certificate or certificates representing
the aggregate number of shares of Unit Common Stock to be issued in exchange for
CSI Stock pursuant to this Agreement. Subject to any applicable escheat laws,
until so surrendered and exchanged, each certificate which prior to the
Effective Time of the Merger represented outstanding shares of CSI Stock shall
be deemed for all corporate purposes of Unit, other than the payment of
dividends or other distributions, to evidence the ownership of the number of
whole shares of Unit Common Stock into which the shares of CSI Stock represented
thereby shall have been converted and shall be deemed to represent,
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in lieu of a fractional share of Unit Common Stock, the right to receive cash.
No cash or stock dividend payable, no certificate representing split shares
deliverable, and no other distribution payable or deliverable to holders of
record of Unit Common Stock at any time subsequent to the Effective Time of the
Merger shall be paid or delivered to the Holder of any certificate which at the
Effective Time of the Merger represented CSI Stock unless and until such
certificate is surrendered to the Exchange Agent. However, subject to any
applicable escheat laws, upon such surrender there shall be paid or delivered to
the initial holder of record of the certificate or certificates for Unit Common
Stock issued in exchange therefor, the amount of cash, a certificate
representing the number of shares of Unit Common Stock, or the other property
resulting from any such dividends, splits, or other distributions, as the case
may be, which shall have theretofore become payable or deliverable with respect
to Unit Common Stock subsequent to the Effective Time of the Merger. No
interest shall be payable with respect to such payment or delivery of dividends
or other distributions upon the surrender of certificates which represented CSI
Stock at the Effective Time of the Merger.
2.7 FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Unit Common Stock shall be issued upon surrender of
certificates of CSI Stock converted in connection with the Merger, and no
dividend, stock split, or other distribution of Unit shall relate to any such
fractional share interest, and no such fractional share interest will entitle
the owner thereof to vote or to any other rights of a shareholder of Unit. In
lieu of any such fractional share, any Holder shall be entitled, upon surrender
of such Holder's certificate or certificates representing CSI Stock, to receive
a cash payment therefor, without interest, at a pro rata amount based on the
last sale price per share of Unit Common Stock on the NASDAQ National Market
System (the "NASDAQ") on the date of the Effective Time of the Merger, as
reported by the National Association of Securities Dealers, Inc. No interest
shall accrue with respect to any cash held for the benefit of Holders of
unsurrendered certificates representing shares of CSI Stock.
2.8 ISSUANCE OF UNIT COMMON STOCK. All shares of Unit Common Stock
into which shares of the CSI Stock shall have been converted in connection with
the Merger shall be deemed to have been issued in full satisfaction of all
rights pertaining to such converted shares and shall, when issued pursuant to
the provisions hereof, be fully paid and nonassessable.
2.9 TRANSFER BOOKS. The stock transfer books of CSI pertaining to
CSI Stock outstanding at the Effective Time of the Merger shall be closed at the
Effective Time of the Merger, and thereafter no transfer of any such shares of
CSI Stock shall be recorded thereon. In the event a transfer of ownership of
shares of CSI Stock is not recorded on the stock transfer books of CSI, a
certificate or certificates representing the number of whole shares of Unit
Common Stock into which such shares of CSI Stock shall have been converted in
connection with the Merger may be issued to the transferee of such shares of CSI
Common Stock if the certificate or certificates representing such shares of CSI
Stock is or are surrendered to the Exchange Agent accompanied by all documents
deemed necessary by the Exchange Agent to evidence and effect such transfer of
ownership of shares of CSI Stock and accompanied by the payment of any
applicable stock transfer tax with respect to such transfer.
3. THE CLOSING. The delivery of the various opinions, certificates,
consents, instruments and documents which this Agreement contemplates (the
"Closing") shall take place at the offices of Stradling, Yocca, Carlson & Rauth,
A Professional Corporation, counsel to Unit, in Newport Beach, California, on
June 3, 1996, or such other day and time as shall be mutually agreed upon by
Unit
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and CSI, but in no event later than July 31, 1996. The date of, and the time at
which, the Closing takes place is herein referred to as the "Closing Date." As
soon as practicable after the Closing, the appropriate officers of Unit, Merger
Sub, and CSI shall take all necessary action to bring about the Effective Time
of Merger.
4. REPRESENTATIONS AND WARRANTIES OF CSI. CSI and the Principal
Shareholders jointly and severally make the representations and warranties set
forth below as of the date of this Agreement and as of the date of the Closing.
Except as otherwise provided to the contrary, each party makes the
representations and warranties without qualification as to knowledge. When a
representation or warranty is made "to the best knowledge of" CSI, such
knowledge shall be deemed to include, without limitation, the actual knowledge
of the Principal Shareholders and such information that each such individual
should reasonably be expected to have knowledge of by virtue of his position and
relationship with CSI. When a representation or warranty is made "to the best
knowledge of" any Principal Shareholder, such knowledge shall be deemed to
include, without limitation, the actual knowledge of each Principal Shareholder
and such information that any Principal Shareholder should reasonably be
expected to have knowledge of by virtue of his position and relationship with
CSI.
4.1 ORGANIZATION AND EXISTENCE OF CSI. CSI is a corporation duly
organized, validly existing and in good standing under the laws of New Mexico
and has all requisite corporate power to carry on its business as now conducted
and as proposed to be conducted and to enter into and, subject to shareholder
approval, perform its obligations under this Agreement. Except as set forth on
Schedule 4.1, CSI is qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the character or location of the
assets owned by it or the nature of the business transacted by it requires such
qualification where the failure to so qualify would have a Material Adverse
Effect. CSI has delivered to Unit a complete and correct copy of the Articles
of Incorporation (duly certified by the New Mexico State Corporation Commission)
and the Bylaws (certified by the Secretary of CSI) of CSI.
4.2 AUTHORIZED CAPITAL STOCK OF CSI. As of the date hereof, the
authorized capital stock of CSI consists of 500,000 shares of Common Stock,
$1.00 par value, of which 20,000 shares are validly issued and outstanding,
fully paid and nonassessable and not issued in violation of the preemptive
rights of any shareholder. All of the outstanding shares of Common Stock of CSI
have been issued in transactions which were exempt from registration under the
Securities Act of 1933, (the "Securities Act") as amended, and all applicable
state securities laws and blue sky acts. All shares of CSI Stock which have
been reacquired by CSI have reverted to the status of authorized but unissued
shares and are no longer outstanding. CSI does not have any outstanding
convertible securities, subscriptions, options, warrants, preemptive rights or
other agreements or commitments obligating it to issue shares of CSI Stock or
relating to the transfer or registration of CSI Stock.
4.3 NO SUBSIDIARIES. CSI has no subsidiaries or equity investments
of any type, whether in a corporation, partnership, trust or other entity.
4.4 CSI FINANCIAL STATEMENTS. CSI has delivered to Unit (i) the
balance sheet (hereinafter referred to as the "CSI Balance Sheet") of CSI at
December 31, 1995 (hereinafter referred to as the "Balance Sheet Date") and the
related statements of income and shareholders' equity of CSI for the fiscal year
then ended, together with the related notes thereto, as certified by Atkinson &
Co., Ltd, whose unqualified opinion (with the exception that the opinion as to
the
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income statement shall be qualified due to the fact that Atkinson & Co., Ltd.
did not physically verify CSI's inventory at December 31, 1994) thereon is
included therewith; (ii) the unaudited balance sheets of CSI at December 31,
1993 and 1994, and the related statements of income and shareholders' equity of
CSI for the periods then ended, together with the related notes thereto,
certified by the Principal Shareholders, and (iii) the unaudited balance sheet
of CSI at March 30, 1996, and the related statements of income and shareholders'
equity for the three (3) month period then ended, certified by the Principal
Shareholders. Such financial statements are complete and correct in all
material respects and in accordance with the books of account and records of
CSI, and present fairly the financial position of CSI at the dates indicated and
the results of its operations and the changes in its financial position for the
periods then ended, in accordance with generally accepted accounting principles
consistently applied.
4.5 LEASES, TITLE TO PROPERTIES, ETC. Attached hereto as Schedule
4.5 is a general description of each parcel of real property owned or leased by
CSI. Schedule 4.5 hereto also describes each lease agreement under which CSI
has any leasehold interest in any real property. CSI is in possession of all
such real properties owned or leased by it and described in Schedule 4.5 hereto.
CSI has good and marketable title to all properties and assets owned by it,
including those reflected in the CSI Balance Sheet (other than properties and
assets reflected in the CSI Balance Sheet which have since been sold or
otherwise disposed of in the Ordinary Course of Business) and those described in
Schedules 4.12 and 4.15 referred to hereinafter free and clear of all liens,
mortgages, security interests and encumbrances, including any conditional sale
or other title retention agreement, except:
(i) liens for taxes not yet due and payable;
(ii) statutory liens in immaterial amounts which are not yet
delinquent;
(iii) minor defects and irregularities in title or encumbrances
which do not impair the use thereof for the purposes for
which they are held; and
(iv) as set forth in the CSI Balance Sheet or in Schedule 4.5
hereto attached to this Agreement.
The leases set forth in Schedule 4.5 hereto are in full force and effect and
there is no existing default of a material nature under any of such leases on
the part of the lessor or lessee thereunder. Such leases consist only of
documents described in Schedule 4.5 hereto, complete and correct copies of which
have been exhibited by CSI to Unit. To the best knowledge of the Company and
the Principal Shareholders, none of the buildings, structures or appurtenances
located upon the real properties described in Schedule 4.5 hereto or the
operation and maintenance thereof as now operated or maintained, contravenes any
zoning ordinance or other administrative regulation (whether or not permitted
because of prior nonconforming use) or violates any restrictive covenant or any
provision of law, the effect of which would materially interfere with or prevent
the continued use of such properties for the purposes for which they are now
being used or would materially adversely affect the value thereof. The
buildings and major items of equipment and machinery reflected on the CSI
Balance Sheet are generally in such operating condition and repair, ordinary
wear and tear excepted, as is adequate for the conduct of CSI's business. CSI
has provided to Unit a complete and correct copy of each policy of title
insurance pertaining to the real properties (exclusive of leasehold interests)
owned by CSI, and described in Schedule 4.5 hereto.
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4.6 ABSENCE OF CERTAIN EVENTS. Except as set forth in Schedule 4.6
attached hereto, since the Balance Sheet Date, CSI has not:
(i) made any changes in its authorized capital or outstanding
securities;
(ii) issued, sold, delivered or agreed to issue, sell or
deliver any of its capital stock, bonds or other
corporate securities, pursuant to existing employee stock
options, or granted or agreed to grant any options,
warrants or other rights calling for the issuance, sale
or delivery thereof;
(iii) borrowed or agreed to borrow any funds or incurred, or
become subject to, any obligations or liability (absolute
or contingent), except obligations and liabilities
incurred in the Ordinary Course of Business;
(iv) paid any obligations or liability (absolute or
contingent) other than current liabilities reflected in
or shown on the CSI Balance Sheet and current liabilities
incurred since the Balance Sheet Date in the Ordinary
Course of Business;
(v) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of
any kinds whatsoever in respect of its capital stock, or
purchased, redeemed or otherwise acquired, or agreed to
purchase, redeem or otherwise acquire, any of its
outstanding capital stock;
(vi) except in the Ordinary Course of Business, sold,
transferred, or otherwise disposed of, or agreed to sell,
transfer, or otherwise dispose of, any of its assets,
properties, or rights, or cancelled or otherwise
terminated, or agreed to cancel or otherwise terminate,
any debts or claims;
(vii) except in the Ordinary Course of Business, entered or
agreed to enter into any agreement or arrangement
granting any preferential right to purchase any of its
assets, properties, or rights, or requiring the consent
of any party to the transfer and assignment of any such
assets, properties, or rights;
(viii) waived any rights of value, without consideration
therefor, which in the aggregate are material considering
its business;
(ix) made or permitted any amendment or termination of any
non-trade contract, agreement, or license to which it is
a party or to which it or any of its assets or properties
are subject;
(x) made, directly or indirectly, any accrual or arrangement
for or payment of bonuses or special compensation of any
kind or any
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severance or termination to pay any of its present or
former officers, directors, or employees;
(xi) increased or agreed to increase the rate of compensation
payable or to become payable by it to any of its
officers, directors, or employees or adopted any new, or
made any increase in, any existing, profit sharing,
bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan,
payment or arrangement made to, for, or with any of such
officers, directors, or employees;
(xii) made any capital expenditures (or commitments therefor)
in excess of $25,000 individually or in the aggregate;
(xiii) entered into any other transaction other than in the
Ordinary Course of Business;
(xiv) experienced any labor trouble or been informed of the
loss of potential loss of any management or technical
personnel which has, or can be anticipated to have, a
Material Adverse Effect;
(xv) been cited for any material violations of the federal
Occupational Safety Health Act of 1970 or any rules or
regulations promulgated thereunder or any other act,
rules or regulations of any other governmental agency;
(xvi) suffered any damages, destruction or losses which in the
aggregate are material to CSI's business, or incurred or
become subject to any material claim or liability for any
damages or alleged damages for any actual or alleged
negligence or other tort or breach of contract which are
in the aggregate material to CSI's business;
(xvii) failure to operate the business of CSI in the ordinary
course so as to use reasonable efforts to preserve the
business intact, to keep available to Buyer the services
of CSI's employees, and to preserve for Unit the goodwill
of CSI's suppliers, customers and others having business
relations with it except where such failure would not
have a material adverse effect on the business or
financial condition of CSI;
(xviii) change in accounting methods or practices by CSI
materially affecting its assets, liabilities or business;
or
(xix) change in CSI's condition (financial or otherwise),
assets, liabilities, working capital, reserves, earnings,
business or prospects, except for changes contemplated
hereby or changes which have not, individually or in the
aggregate, been materially adverse.
4.7 INDEBTEDNESS. The CSI Balance Sheet reflects all indebtedness
for borrowed money owed by CSI or to which any of its assets or properties are
subject, including a description
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of the terms thereof and all assets pledged or otherwise subject thereto. A
complete and correct copy of each note, loan, credit or other similar instrument
pursuant to which any such indebtedness for borrowed money was incurred has been
delivered to Unit.
4.8 GUARANTIES AND SURETYSHIP. CSI is not a party to or bound by any
guaranties, matters of suretyship, and other similar instruments.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
CSI Balance Sheet or in any Schedule attached to this Agreement, since the
Balance Sheet Date, CSI has not incurred, and none of its assets or properties
are subject to, any material liabilities or obligations (accrued, absolute,
contingent, or otherwise), whether or not such liabilities are normally shown or
reflected on a balance sheet prepared in a manner consistent with generally
accepted accounting principles, other than unsecured trade accounts payable or
revolving credit borrowings arising in the Ordinary Course of Business (as
defined in Section 14), federal and state income taxes accrued in respect of the
operations of CSI, or other normal expenses and liabilities accrued in the
Ordinary Course of Business. CSI is not in default in respect of any term or
condition of any material indebtedness or liability except for trade accounts
payable which are current consistent with industry practice. There are no facts
in existence and known to CSI which might reasonably serve as the basis for any
material liabilities or obligations of CSI not disclosed in this Agreement, the
CSI Balance Sheet or the Schedules attached to this Agreement, other than
liabilities incurred in the Ordinary Course of Business.
4.10 TAX MATTERS. All material foreign, federal, state, county,
local, and other taxes, including, without limitation, income taxes, corporate
franchise taxes, and sales and ad valorem taxes, due and payable by CSI on or
before the date of this Agreement have been paid, and CSI has filed all tax
returns and reports required to be filed by it with all taxing authorities. The
liabilities for foreign, federal, state, county, local, and other taxes
reflected in the CSI Balance Sheet represent reasonable and adequate provision
for the payment of all accrued and unpaid foreign, federal, state, county, local
and other taxes of CSI for all periods ended on or prior to the Balance Sheet
Date, whether or not disputed. No notice of assessment of deficiency has been
made against CSI and no extension of time is in effect for the assessment of any
deficiency. Complete and correct copies of all federal and state income or
franchise tax returns for the two fiscal years ended December 31, 1993 and 1994,
of CSI have been furnished to Unit. The federal and state income or franchise
tax returns of CSI have never been examined by the Internal Revenue Service or
any other state taxing authorities.
4.11 NOTES AND ACCOUNTS RECEIVABLE. A list and description of all
notes and accounts receivable owed to CSI at the Balance Sheet Date has been
delivered to Unit by CSI. Except to the extent collected since the Balance
Sheet Date, all notes and accounts receivable reflected on the CSI Balance Sheet
are, and all notes and accounts receivable accruing between the Balance Sheet
Date and the Closing Date will be (i) bona fide claims against debtors for sale
or other charges, (ii) subject to no material expenses, set-offs or
counterclaims, and (iii) collected in full (net of a bad debt reserve of not
more than 125% of the bad debt allowance set forth on the CSI Balance Sheet)
within 120 days of the date when due.
4.12 INVENTORIES. CSI has delivered to Unit a complete listing of
inventories of CSI at the Balance Sheet Date, setting forth the book values
thereof at such date. Except as set forth on Schedule 4.12, all inventories
reflected on the CSI Balance Sheet consist of, and at the Closing
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Date all inventories of CSI will consist of, items normally usable or saleable
in the Ordinary Course of Business and the values at which such inventories are
reflected on the Balance Sheet have been determined in accordance with generally
accepted accounting principles consistent with those applied for prior periods.
Except as set forth on Schedule 4.12, all of the inventories of CSI are valued
at the lower of cost or market as determined under the "first-in, first-out"
method. Except as set forth on Schedule 4.12, all items of inventory reflected
on the CSI Balance Sheet which are either below standard quality or obsolete,
excess, or otherwise unmarketable or unusable, have either been written down on
the CSI Balance Sheet to net realizable value or adequate reserves have been
provided. Except as set forth in Schedule 4.12 hereto, no inventories of CSI
have been consigned to others.
4.13 MACHINERY AND EQUIPMENT. CSI has delivered to Unit a summary
schedule of all major items of machinery and equipment owned or leased by CSI at
the Balance Sheet Date, which constitutes all of the machinery and equipment
necessary for the conduct of CSI's business. All machinery and equipment
necessary for the conduct of CSI's business in the ordinary course is in good
operating condition and repair, ordinary wear and tear excepted, and except as
listed, free from any known defects the effect of which would materially
interfere with or prevent the continued use of such machinery or equipment for
the purposes for which they are now being used or materially adversely affect
the value thereof.
4.14 MATERIAL CONTRACTS. Except only as to contracts and documents
listed in Schedule 4.14 hereto or any other Schedule attached to this Agreement,
CSI is not a party to or bound by, and none of its assets and properties are
subject to, any
(i) contract not made in the Ordinary Course of Business;
(ii) employment, consulting, or representation contract;
(iii) contract with any labor union or association;
(iv) bonus, pension, profit sharing, retirement, stock
purchase, stock option, hospitalization, insurance or
other plan or agreement providing employee benefits;
(v) lease with respect to any property, real or personal,
whether as lessor or lessee, providing for an annual
rental in excess of $25,000;
(vi) continuing contract for the future purchase of materials,
supplies or equipment which represent more than a six (6)
month supply thereof, or which involve payments by CSI of
in excess of $25,000 individually or $100,000 in the
aggregate;
(vii) contract or commitment for any capital expenditures
exceeding $25,000 individually or in the aggregate; or
(viii) executory sales contracts exceeding $100,000.
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A complete and correct copy of each contract listed on Schedule 4.14
hereto or on any other Schedule attached hereto has been exhibited to Unit, and
each such contract is in full force and effect and none of the parties thereto
are in default thereunder.
Neither CSI nor any Principal Shareholder has any knowledge of the
existence of any fact or the occurrence of any event which might make or have
the effect of making any contract to which it is a party and by which it is
bound, invalid or unenforceable or which is reasonably expected to result in a
termination thereof. None of the contracts to which CSI is a party or by which
it is bound is by its terms subject to renegotiation. To the best knowledge of
CSI and the Principal Shareholders, none of the contracts to which CSI is a
party or by which it is bound, unless specifically indicated on any Schedule to
this Agreement, contains any terms, conditions or requirements which exceed the
current performance capabilities of CSI or which CSI or the Principal
Shareholders have reason to believe will result in a total cost of performance
which is in excess of the contract bid price.
4.15 PATENTS AND TRADEMARKS; INTELLECTUAL PROPERTY. Attached hereto
as Schedule 4.15 is an accurate list and description of all patents, patent
applications, patent licenses, copyrights, copyright licenses, trademarks,
trademark applications and trademark licenses, and other trade secrets, know-how
or intellectual property rights (the "Intellectual Property") owned, held,
utilized or applied for by CSI. Except as set forth on Schedule 4.15, CSI owns
all Intellectual Property rights that are necessary or required for the conduct
of its business as presently conducted, such rights are sufficient for such
conduct of its business as presently conducted, and no royalties, honoraria,
fees or other payments are payable with respect to such Intellectual Property.
Except as set forth in Schedule 4.15 hereto, none of the Intellectual Property
is subject to:
(i) any infringement or claimed infringement by CSI of any
patent, patent right, copyright, trademark, trademark
right, trade secret or other intellectual property right
of others;
(ii) any infringement of the patents, patent rights,
copyrights, trademarks, trademark rights, trade secrets,
or other intellectual property rights of, or under license
to, CSI, nor of pending or threatened opposition
proceedings relating to any pending or contemplated patent
or trademark application of CSI; or
(iii) any threatened or contemplated cancellation or revocation
of any agreement granting to CSI any patent, copyright or
trademark license or right.
All personnel, including employees, agents and consultants, who have
contributed to or participated in the conception and development of Intellectual
Property on behalf of CSI either (i) have been party to a "work-for-hire"
arrangement or agreement with CSI that has accorded CSI full, effective,
exclusive and original ownership of all Intellectual Property thereby arising,
or (ii) have executed appropriate instruments of assignment in favor of CSI as
assignee that have conveyed to CSI full, effective and exclusive ownership of
all Intellectual Property thereby arising.
4.16 INSURANCE. Attached hereto as Schedule 4.16 is a list and
description of all policies of insurance held by CSI. Such policies are in such
amounts, and against such losses and
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risks, as are generally maintained for comparable businesses and properties, and
valid policies for such insurance will be outstanding and duly in force at all
times prior to the Effective Time of the Merger.
4.17 LICENSES, PERMITS, ETC. Attached hereto as Schedule 4.17 is a
list and description of all material licenses, franchises, permits, easements,
certificates, consents, rights and privileges, and governmental authorizations
necessary or appropriate to the conduct of the business of CSI. All such items
are in full force and effect and complete and correct copies thereof have been
furnished to Unit.
4.18 LITIGATION. There are no claims, actions, suits, proceedings, or
investigations pending, or to the best knowledge of CSI and the Principal
Shareholders, threatened against or affecting any of its assets or properties,
at law or in equity or before or by any court or foreign, federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality. CSI is not subject to any continuing court or administrative
order, writ, injunction or decree applicable to it or to its business, property
or employees, and CSI is not in default with respect to any order, writ,
injunction or decree of any court or foreign, federal, state, municipal or other
governmental department, commission, board, agency, or instrumentality.
4.19 COMPLIANCE WITH LAWS. Since the date of incorporation CSI has
complied in all material respects with all applicable foreign, federal, state,
municipal and other political subdivision or governmental agency statutes,
ordinances and regulations, including, without limitation, those imposing taxes,
in every applicable jurisdiction, in respect of the ownership of its assets and
properties and the conduct of its business where the effect of failure to so
comply would have a Material Adverse Effect.
4.20 EMPLOYEES. Attached hereto as Schedule 4.20 is a list of the
names and annual rates of salary and other compensation of all the present
officers, directors, employees, and agents of CSI. Schedule 4.20 hereto
summarizes the bonus, profit sharing, incentive, percentage compensation,
vacation and other like benefits, if any, payable to such officers, directors,
employees, and agents as of the date hereof. Except as set forth on Schedule
4.20 or as contemplated by this Agreement, CSI is not a party to any employment
agreement, whether written or oral, with any person. The transactions
contemplated by this Agreement will not trigger any obligations of CSI under any
employment agreement, whether written or oral, with any of CSI's employees.
4.21 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 4.21
attached hereto, there are no employee benefit plans maintained by CSI or to
which CSI contributes or is required to contribute. To the extent required by
law, all employee benefit plans set forth in Schedule 4.21 hereto, and their
related trusts, comply with the provisions of and have been administered in
compliance with the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all other applicable laws, rules and
regulations, and all necessary governmental approvals of the plans set forth in
Schedule 4.21 hereto have been obtained, including, without limitation,
qualification under the Code. Except as set forth on Schedule 4.21, any group
annuity contracts included in such plans may be amended or terminated without
penalty. CSI does not have, and after giving effect to the transactions
contemplated hereby will not have, any contingent or other future obligations or
liabilities under or with respect to any employee benefit plan of CSI which
provides for the continuation of benefits at the expense of CSI after retirement
or other termination of employment other than continuation of health coverage
under Sections 601 through
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608 of ERISA. True and complete copies of all of the plans and trusts set forth
in Schedule 4.21 hereto and of all annual reports filed with the Internal
Revenue Service or the Department of Labor for each such plan set forth on
Schedule 4.21 hereto since the incorporation of CSI, and all actuarial reports
prepared for such plan years, have been furnished or exhibited to Unit by CSI.
Since the incorporation of CSI, there has been no:
(i) "reportable event" as defined in ERISA;
(ii) event described in ether Section 4062(e) or 4063(a) of
ERISA; or
(iii) termination or partial termination, or commencement of
proceedings seeking termination, with respect to any
employee benefit plan previously maintained by CSI or any
employee benefit plan to which CSI previously contributed
or was required to contribute. The fiduciaries of the
plans described on Schedule 4.21 hereto have not engaged
in any "prohibited transaction" as defined in ERISA.
4.22 BANK ACCOUNTS AND POWERS OF ATTORNEY. Attached hereto as
Schedule 4.22 is a list setting forth:
(i) the name of each bank, savings and loan or other financial
institution in which CSI has any account or safe deposit
box, the account name and number of each such account or
safe deposit box, and the names of all persons authorized
to draw thereon or have access thereto; and
(ii) the name of each person, corporation, firm association, or
business entity or enterprise holding a general or special
power of attorney from CSI and a summary of the terms
thereof.
4.23 PRODUCT WARRANTIES AND LIABILITIES. Except as set forth on
Schedule 4.23 attached hereto, CSI has not given or made any express warranties
to third parties with respect to any products sold or services performed by it,
except for the limited warranties stated in the standard forms of warranty used
by it, complete and correct copies of which have been delivered to Unit, and
except for the warranties contained in certain of the contracts listed in
Schedule 4.14. Neither CSI nor any Principal Shareholder has any knowledge of
any fact or of the occurrence of any event forming the basis of any present or
future claim against CSI not fully covered by insurance, for liability on
account of products liability or on account of any express or implied product
warranty, except for warranty obligations and product returns in the Ordinary
Course of Business and as set forth on Schedule 4.23.
4.24 LABOR MATTERS. CSI is not a party to a collective bargaining
agreement with any labor union or association. There are no discussions,
negotiations, demands or proposals which are pending or have been conducted or
made with or by any labor union or association since the incorporation of CSI,
and there are no pending or threatened labor disputes, strikes, or work
stoppages which may have a Material Adverse Effect. CSI is in substantial
compliance with all foreign, federal and state laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practices.
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4.25 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, there
has been no adverse change in the business, prospects or condition, financial or
otherwise, of CSI, except changes in the Ordinary Course of Business which in
the aggregate have not had a Material Adverse Effect. To the best knowledge of
CSI and the Principal Shareholders, there are no new developments in any
business conducted by CSI, nor any new or improved materials, products,
processes or services useful in connection with the business of CSI or its
customers or suppliers, which can reasonably be expected to materially adversely
affect the properties, assets, business, or prospects of CSI.
4.26 QUESTIONABLE PAYMENTS. CSI has not made, and neither CSI nor any
Principal Shareholder has any knowledge or information that any shareholder,
officer, director, employee, agent or other representative acting on its behalf
has made, directly or indirectly, any bribes, kickbacks, or political
contributions with corporate funds, payments from corporate funds not recorded
on the books and records of CSI, payments from corporate funds which were
falsely recorded on the books and records of CSI, payments from corporate funds
to governmental officials in their individual capacities or illegal payments
from corporate funds to obtain or retain business either within the United
States of America or abroad.
4.27 BROKERS. CSI is not a party to or in any way obligated under any
contract or other agreement regarding, and there are no outstanding claims
against it for the payment of, any broker's or finder's fee in connection with
the origin, negotiation, execution, or performance of this Agreement or the
transactions contemplated hereby.
4.28 NO DEFAULT. There has been no default in any material respect in
any obligation to be performed by CSI under any contract, lease, agreement,
commitment or undertaking to which it is a party or by which it or its assets or
properties are bound, nor has CSI waived without consideration therefor any
material right under any such contract, lease, agreement, commitment, or
undertaking.
4.29 CONFLICT OF INTEREST. Except as set forth in Schedule 4.29, no
officer or director of CSI or any Member of the Immediate Family of any such
person:
(i) has any direct or indirect interest in (A) any entity
which does business with CSI, or (B) any property, asset
or right which is used by CSI in the conduct of its
business;
(ii) has any contractual relationship with CSI other than with
respect to the performance of services as an officer or
director; or
(iii) has been involved in any transaction with CSI during the
past three (3) years other than with respect to the
performance of service as an officer or director as to the
issuance of securities of CSI.
4.30 BOOKS AND RECORDS. The books and records of CSI are in all
material respects complete and correct and have been maintained in accordance
with good business practice and generally accepted accounting principles and
reflect a true record of all meetings or proceedings of its Board of Directors
and shareholders.
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4.31 AUTHORITY OF CSI AND PRINCIPAL SHAREHOLDERS. The execution,
delivery, and performance by CSI of this Agreement and the transactions
contemplated hereby have been duly authorized and approved by the Board of
Directors of CSI and, except for approval of this Agreement by CSI's
shareholders, no further corporate action is necessary on the part of CSI to
make this Agreement valid and binding upon CSI, assuming due execution by the
other parties hereto and thereto. The Principal Shareholders have full power
and authority to make, execute, deliver and perform this Agreement, and the
Principal Shareholders agree to vote their shares of CSI Stock in favor of this
Agreement and the transactions contemplated hereby. Neither the execution or
delivery, nor the performance by CSI of this Agreement, or the transactions
contemplated hereby will conflict with or result in a violation or breach of any
term or provision or constitute a default under the Articles of Incorporation or
Bylaws of CSI, or under any indenture, mortgage, deed of trust or other contract
or agreement to which CSI is a party or by which it or any of its assets or
properties are bound, or violate any order, writ, injunction, or decree of any
court, administrative agency, or governmental body. Other than in connection
with or in compliance with the provisions of the Securities Act and state
securities laws or blue sky acts, no consent or approval by any governmental
authority is required in connection with the execution and delivery by CSI of
this Agreement in the consummation of the transactions contemplated hereby.
4.32 ENVIRONMENTAL AND SAFETY MATTERS.
4.32.1 HAZARDOUS MATERIAL. As of the date hereof, to the
knowledge of CSI, no underground storage tanks are present under any property
that CSI or any of its Subsidiaries has at any time owned, operated, occupied or
leased. As of the date hereof, no material amount of any substance that has been
designated by any governmental entity or by applicable federal, state or local
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "Hazardous Material"), but excluding
office and janitorial supplies, are present, as a result of the actions of CSI
or any actions or to CSI's knowledge any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water, that CSI or any of its Subsidiaries has at any time owned,
operated, occupied or leased.
4.32.2 HAZARDOUS MATERIALS ACTIVITIES. At no time has CSI or any
of its Subsidiaries transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has CSI or any of its
Subsidiaries disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (collectively, "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity, which such violation would have a Material Adverse
Effect on CSI and its Subsidiaries, taken as a whole.
4.32.3 PERMITS. CSI currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of CSI as such activities and businesses are
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currently being conducted, the absence of which would have a Material Adverse
Effect on CSI and its Subsidiaries, taken as a whole.
4.32.4 ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is pending
or, to the knowledge of CSI, threatened concerning any Environmental Permit or
any Hazardous Materials Activity of CSI. CSI is not aware of any fact or
circumstance which could involve CSI in any environmental litigation or impose
upon CSI any environmental liability which would have a Material Adverse Effect
on CSI and its Subsidiaries, taken as a whole.
4.33 CONFIDENTIALITY. Since the date of incorporation of CSI, CSI has
taken adequate steps necessary to maintain the continuing protection of its
proprietary, confidential and trade secret information and Intellectual
Property. Such protections include, but are not limited to, having every CSI
employee who has access to proprietary or confidential information sign a
nondisclosure and inventions assignment agreement, true and correct copies of
which have been delivered to Unit, containing standard provisions that are
adequate to maintain the confidentiality of CSI's proprietary, confidential and
trade secret information and Intellectual Property.
4.34 MISCELLANEOUS ADDITIONAL MATTERS REGARDING EMPLOYEES.
4.34.1 WITHHOLDING. Proper and accurate amounts have been
withheld by CSI from the salaries of employees, for all periods, in full
compliance with provisions of applicable federal, state and local tax laws.
4.34.2 TAX RETURNS. Proper and accurate federal, state and other
applicable returns have been filed by CSI, as necessary, for all periods for
which returns were due with respect to employee income tax withholding, social
security and unemployment and similar taxes and the amount shown thereon to be
due and payable have been paid in full or adequate provisions therefore have
been included in the CSI Balance Sheet.
4.34.3 HOURS WORKED. The hours worked by and payments made to
employees of CSI have not been in violation of the Fair Labor Standards Act or
any applicable domestic laws dealing with such matters except where such
violation would not have a Material Adverse Effect.
4.34.4 INSURANCE PAYMENTS. To the best knowledge of CSI and the
Principal Shareholders, all payments due from CSI on account of employee health
and welfare insurance have been paid or properly accrued as a liability.
4.34.5 NO CHANGE IN CONDITION. The consummation of this
transaction will not give rise to any form of indemnity, claim or right to or of
any employee of CSI under any agreement, law, rule or regulation, whether as a
change in the condition of employment of such employee or otherwise.
4.34.6 NO CLAIMS. There are no claims, actions, suits,
proceedings, or investigations pending, or to the best knowledge of CSI and the
Principal Shareholders, threatened against CSI or any of its officers,
directors, employees or agents in regard to race, creed, gender,
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age or other forms of discrimination, sexual harassment, wrongful discharge, or
any other similar allegations.
4.35 SECURITIES LAW COMPLIANCE.
4.35.1 COMMUNICATION. Any communications with respect to the
transactions contemplated hereby among Unit, CSI and the Principal Shareholders,
and employees and agents of any of them, has been or will be made to or by such
parties only within the State of California.
4.35.2 PRINCIPAL SHAREHOLDERS' REPRESENTATIONS. Each Principal
Shareholder represents for himself that:
(i) he or she has been advised that the Unit Common Stock
will not be registered under the Securities Act, nor qualified
under any state securities laws or blue sky acts on the ground,
among others, that no distribution or public offering of Unit
Common Stock is to be effected, and that in this connection Unit
is relying in part on the representations of each of the
Principal Shareholders set forth herein;
(ii) he or she will be acquiring the Unit Common Stock for
his or her own account, and not as a nominee or agent for any
other persons, and for investment and not with a view to
distribution or resale thereof;
(iii) he or she acknowledges that to resell his or her
shares of Unit Common Stock, pursuant to Rule 144 adopted under
the Securities Act certain conditions must be satisfied,
including that (A) at least two (2) years must elapse from the
consummation of the Merger before any resale may be made and
during which he or she must have owned continuously the shares of
Unit Common Stock acquired in the Merger, and (B) during the
period from the second anniversary to the third anniversary of
the Effective Time of the Merger no public resales of any such
shares may be made unless financial and other information
concerning Unit is publicly available and, even if publicly
available, there will be, during such year, certain restrictions
on the manner in which public resales may be effected and on the
number of shares that may be sold in any three-month period; and
(iv) he or she acknowledges and agrees that the certificates
representing the Unit Common Stock shall contain the following,
or a substantially similar, legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR
INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
AUTHORIZED UNDER
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THE SECURITIES ACT OF 1933 AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER.
4.36 FULL DISCLOSURE. All of the representations and warranties made
by CSI in this Agreement, and all statements set forth in the certificates
delivered by CSI at the Closing pursuant to this Agreement, are true, correct
and complete in all material respects and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
such representations, warranties or statements, in light of the circumstances
under which they were made, misleading.
5. REPRESENTATIONS AND WARRANTIES OF UNIT AND MERGER SUB. Unit and
Merger Sub, jointly and severally, represent and warrant to and agree with CSI
that:
5.1 ORGANIZATION AND EXISTENCE. Each of Unit and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and New Mexico, respectively, and has all requisite
corporate power to carry on its business as now conducted. Merger Sub's only
asset is $1,000.00 cash, and it has no liabilities. Unit has qualified to do
business as a foreign corporation and is in good standing in every jurisdiction
in which the character or location of the assets owned by it or the nature of
the business transacted by it require such qualification where the failure to so
qualify would not have a Material Adverse Effect. Merger Sub owns no properties
and does not conduct, and will not conduct, any business. Merger Sub has no
debts or liabilities of any nature.
5.2 AUTHORITY. Unit and Merger Sub have the corporate power and have
taken or will take all necessary and proper corporate action to authorize and
approve this Agreement and the consummation hereof, and the execution and
delivery of this Agreement and consummation hereof do not and will not violate
any provision of any judicial or governmental decree, order, or judgment or
conflict with, or result in a breach of or constitute a default under, the
Articles of Incorporation or Bylaws of either Unit or Merger Sub or any
agreement or instrument to which either of them is a party or by which either is
bound. The execution, delivery, and performance by Unit of this Agreement and
the transactions contemplated hereby have been duly authorized and approved by
the Board of Directors of Unit and Merger Sub and the shareholder of Merger Sub
and no further corporate action is necessary on the part of Unit and Merger Sub,
assuming due execution by the other parties hereto and thereto.
5.3 SECURITIES AND EXCHANGE COMMISSION REPORTS OF UNIT. Unit has
furnished CSI with copies of the Annual Report on Form 10-K of its predecessor
corporation, Autoclave Engineers, Inc. ("Autoclave") for the fiscal year ended
in May 31, 1995, Autoclave's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1995 and Unit's Current Reports on Form 8-K dated November 10, 1995
and March 2, 1996 and its Quarterly Reports on Form 10-Q for the quarters ended
December 2, 1995 and March 2, 1996, and the Proxy Statement for Autoclave's last
annual meeting of shareholders, as filed with the Securities and Exchange
Commission (the "Commission") (collectively the "SEC Filings"). The SEC Filings
are accurate and complete in all material respects and do no omit any material
information required to be set forth therein. Unit has filed with the
Commission all reports required to be filed by it during the last twelve months.
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5.4 ABSENCE OF CERTAIN CHANGES. Since March 2, 1995, there has been
no change in the business, prospects, or condition, financial or otherwise, of
Unit, except as set forth in the SEC Filings and changes in the Ordinary Course
of Business that in the aggregate have not been materially adverse. To the
knowledge of Unit, except as set forth in the SEC Filings, there are no new
developments in any business conducted by Unit, nor any new or improved
materials, products, processes, or services useful in connection with the
business of Unit or its customers or suppliers, which can reasonably be expected
to have a Material Adverse Effect.
5.5 VALIDITY OF UNIT COMMON STOCK. The Unit Common Stock to be
issued pursuant to the provisions of this Agreement in connection with the
Merger will be, when issued upon the terms and for the consideration specified
in this Agreement , validly issued and outstanding, fully paid and
nonassessable.
5.6 CAPITAL STOCK OF MERGER SUB. The authorized capital stock of
Merger Sub consists of 1,000 shares of Merger Sub Common Stock, all of which
shares are validly issued and outstanding, fully paid and nonassessable, and
owned by Unit as of the date hereof.
5.7 INVESTMENT INTENT. The CSI Stock to be acquired by Unit as a
result of the Merger is being and will be acquired by Unit for its own account
for investment and not with any present intention of distribution thereof.
5.8 UNIT FINANCIAL STATEMENTS. The financial statements of Autoclave
included in its Annual Report on Form 10-K for its fiscal year ended May 31,
1995 and its Quarterly Report on Form 10-Q for the quarter ended August 31, 1995
and the financial statements of Unit included in its Quarterly Reports on Form
10-Q for the quarters ended December 2, 1995 and March 2, 1996 are complete and
correct in all material respects in accordance with the books of account and
records of Autoclave and Unit, respectively, and present fairly the financial
position of Autoclave and Unit, respectively, at the dates indicated and the
results of its operations and the changes in their respective shareholders
equity for the periods then ended, in accordance with generally accepted
accounting principles consistently applied.
5.9 BROKERS. Neither Unit nor Merger Sub is a party to or in any way
obligated under any contract or other agreement regarding, and there are no
outstanding claims against either of them for the payment of, any broker's or
finder's fee in connection with the origin, negotiation, execution, or
performance of this Agreement or the transactions contemplated hereby.
5.10 AUTHORIZED CAPITAL STOCK OF UNIT. As of the date hereof, the
authorized capital stock of Unit consists of 12,000,000 shares of Common Stock,
$0.15 par value per share, of which 4,083,646 shares were validly issued and
outstanding as of March 2, 1996, fully paid and nonassessable and not issued in
violation of the preemptive rights of any shareholder, and 2,000,000 shares of
Preferred Stock, none of which is outstanding. As of the date hereof, Unit has
options and warrants to purchase an aggregate of 980,400 shares of Common Stock
outstanding.
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5.11 FULL DISCLOSURE. All of the representations and warranties made
by Unit in this Agreement, and all statements set forth in the certificates
delivered by Unit at the Closing pursuant to this Agreement, are true, correct
and complete in all material respects and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
such representations, warranties or statements, in light of the circumstances
under which they were made, misleading.
6. COVENANTS OF CSI. CSI covenants with Unit and Merger Sub that:
6.1 CONDUCT OF BUSINESS. Except as specifically contemplated in this
Agreement, from the date of this Agreement to the Effective Time of the Merger,
the business of CSI will be operated diligently and only in the Ordinary Course
of Business, and, in particular, CSI, without the prior written consent of Unit,
which will not be unreasonably withheld, will not:
(i) cancel or permit any insurance of a material nature to
lapse or terminate, unless renewed or replaced by like
coverage;
(ii) change its Articles of Incorporation or Bylaws;
(iii) be in material default under any material contract,
agreement, commitments or undertaking of any kind;
(iv) violate or fail to comply with any laws applicable to it
or its properties or business where the effect of the
failure to so comply would have a Material Adverse
Effect;
(v) commit any act or permit the occurrence of any event or
the existence of any condition of the type described in
clauses (i) through (xiii) of Section 4.6 hereof;
(vi) enter into any contract, agreement or other commitment of
the type described in clauses (i) through (v) and (vii)
of Section 4.14 hereof;
(vii) fail to maintain and repair any material amount of its
assets in accordance with good standards of maintenance
and as required in any leases or other agreements
pertaining thereto;
(viii) acquire, purchase, or redeem any CSI Stock;
(ix) issue or enter into any subscriptions, options,
agreements or other binding commitments in respect of the
issuance, transfer, sale, registration, or encumbrance of
any shares of CSI Stock; or
(x) cause or voluntarily permit a change in any method of
accounting for tax purposes during or applicable to its
current tax year which would render inaccurate,
misleading or incomplete the information concerning taxes
set forth or referred to in Section 4.9 hereof, or that
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would have a Material Adverse Effect for any period prior
to the Effective Time of the Merger.
6.2 ACCESS TO INFORMATION. From and after the date of this
Agreement, CSI shall give to Unit, its counsel, accountants, engineers, and
other representatives, reasonable access to all the properties, books,
contracts, commitments and records of CSI so that Unit may haver the opportunity
to make such investigation as it deems necessary, provided that such
investigation shall not (i) unreasonably interfere with the employees, business,
or operations of CSI, or (ii) violate any governmental regulations or laws or
any customers or vendor confidentiality agreements now in effect and to which
CSI is a party. Any such investigation shall not affect the representations and
warranties of CSI contained in this Agreement.
6.3 PRESERVATION OF GOODWILL. CSI will use its best efforts to
preserve its business organization, to keep available to Unit the services of
the respective officers and employees of CSI and to preserve for Unit the
goodwill of all suppliers, customers, and others having business relations with
CSI.
6.4 SHAREHOLDERS' APPROVAL. This Agreement and the transaction
contemplated hereby have been approved by the Board of Directors of CSI. The
Board of Directors of CSI shall solicit the unanimous written consent or call a
special meeting of its shareholders for the purpose of approving the terms and
provisions of this Agreement and the Merger as soon as practicable after the
date hereof. The Board of Directors of CSI shall recommend that CSI's
shareholders approve this Agreement and the Merger, and shall endeavor to secure
such approval.
6.5 TRADE SECRETS. From and after the date hereof, CSI will not use
or divulge to any competitor of CSI or any unauthorized person, and will use its
best efforts to insure that the employees and agents of CSI do not use or
divulge, any confidential information, trade secrets, processes, formulas or
know-how relating to the business or properties of CSI at the date hereof.
6.6 FURTHER ASSURANCES. CSI hereby agrees to execute and deliver
from time to time at the request of Unit and without consideration such
additional instruments of conveyance and transfer and to take such other actions
as Unit may reasonably require to more effectively carry out and effectuate the
Merger and the transactions contemplated hereby.
7. MUTUAL COVENANTS. Unit, Merger Sub, and CSI covenant and agree, each
with the other, that:
7.1 BLUE SKY COMPLIANCE. Unit will use its best efforts to obtain
prior to the Effective Time of the Merger all necessary state securities law and
blue sky act permits and approvals required to permit the issuance of the shares
of Unit Common Stock to be issued in connection with the Merger, and CSI shall
furnish to Unit all information concerning CSI and the holders of the CSI Common
Stock that Unit may reasonably request in connection with any such action.
7.2 PUBLIC ANNOUNCEMENTS. Neither Unit nor CSI shall make any public
announcement or statement with respect to this Agreement or the Merger without
the prior written consent of the other party; provided, however, Unit may
-------- -------
disclose the existence and terms of this Agreement or the Merger if, in its
judgment, it is required to do so under applicable securities laws.
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If any party desires to make a joint announcement or statement, the parties will
consult with each other and exercise reasonable efforts to agree upon the text
of a joint public announcement or statement to be made by Unit and CSI.
7.3 CONFIDENTIALITY OF INFORMATION FURNISHED. The parties will
comply with the provisions of that certain Confidentiality Agreement dated
January 31, 1996, between Unit and CSI regarding confidential information
disclosed by the parties to each other in connection with the Merger.
7.4 REASONABLE EFFORTS TO SATISFY CONDITIONS. Consistent with
applicable law and with their fiduciary duties to their respective shareholders,
(i) CSI agrees to use its best efforts to bring about the satisfaction of the
covenants and conditions specified in Sections 6, 7, 9, and 10 hereof, and (iii)
Unit and Merger Sub agree to use their best efforts to bring about the
satisfaction of the covenants and conditions specified in Sections 7, 8, and 10
hereof.
8. CONDITIONS TO OBLIGATIONS OF CSI. The obligations of CSI under this
Agreement shall, at the option of CSI, be subject to the following conditions:
8.1 UNIT'S AND MERGER SUB'S REPRESENTATIONS AND WARRANTIES TRUE AT
CLOSING. CSI shall not have discovered any material error, misstatement or
omission in the representations and warranties made by Unit and Merger Sub in
Section 5 hereof; the representations and warranties made by Unit and Merger Sub
herein shall be deemed to have been made again at and as of the time of Closing
and shall then be true in all material respects; Unit and Merger Sub shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed by them at or prior to the Closing; and CSI shall have
received a certificate, dated the Closing Date, of the President or a Vice
President of each of Unit and Merger Sub to the effect set forth in this Section
8.1.
8.2 OPINION OF UNIT'S AND MERGER SUB'S COUNSEL. CSI shall have
received an opinion of Stradling, Yocca, Carlson & Rauth, A Professional
Corporation, counsel for Unit and Merger Sub, dated the Closing Date,
substantially in the form and to the effect of Exhibit F hereto.
8.3 NO MATERIAL ADVERSE CHANGES. Prior to Closing there shall have
been no changes in the business, properties, or operations of Unit since
December 2, 1995 which would have a Material Adverse Effect.
9. CONDITIONS TO OBLIGATIONS OF UNIT AND MERGER SUB. The obligations of
Unit and Merger Sub under this Agreement shall, at the option of Unit and Merger
Sub, be subject to the following conditions:
9.1 CSI'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Unit and
Merger Sub shall have not discovered any material error, misstatement, or
omission in the representations and warranties made by CSI in Section 4 hereof;
provided, however, that no such representation or warranty shall be deemed
- -------- -------
materially incorrect if (i) it results from the consummation of any transactions
specifically permitted or contemplated by this Agreement, (ii) it is not
materially adverse and significant to the business, financial condition, or
operations of CSI taken as a whole, or (iii) its effect could not reasonably be
expected to have a Material Adverse Effect. CSI shall have performed and
complied with all material agreements required by this Agreement to be performed
or complied
21
<PAGE>
with by it at or prior to the Closing; and Unit and Merger Sub shall have
received a certificate, dated the Closing Date, signed by the President of CSI
to the effect set forth in this paragraph (a).
9.2 OPINION OF CSI'S COUNSEL. Unit shall have received an opinion of
Barnett & Scott, counsel for CSI, dated the Closing Date, substantially in the
form and to the effect of Exhibit G hereto.
9.3 NO DAMAGE OR DESTRUCTION. Prior to Closing there shall not have
occurred any casualty to any facility, property, or equipment owned or used by
CSI which is materially adverse and significant to the business, financial
condition, or operations of CSI taken as a whole.
9.4 RESIGNATIONS. Unit shall have received a written resignation
dated the Closing Date and effective as of the Effective Time of the Merger,
from each director of CSI, as requested by Unit.
9.5 EMPLOYMENT AGREEMENTS. CSI shall have entered into Employment
Agreements, substantially in the form attached hereto as Exhibits B-1 and B-2,
with each of Thomas Barr and Christopher V. Barr, respectively.
9.6 CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS. All personnel of
CSI shall have executed Unit's standard nondisclosure and inventions assignment
agreement in the form of Exhibit C hereto and each of Thomas Barr and
Christopher V. Barr shall have entered into non-competition agreements in the
form of Exhibits D-1 and D-2, respectively hereto.
9.7 INTENTIONALLY OMITTED.
9.8 NO MATERIAL ADVERSE CHANGES. There shall have been no change in
the business, financial condition, or results of operations of CSI since the
date hereof which has had a Material Adverse Effect or could reasonably be
expected to have a Material Adverse Effect.
9.9 BLUE SKY MATTERS. All state securities law and blue sky act
permits or approvals required to carry out the transactions contemplated hereby
shall have been received.
9.10 CSI SHAREHOLDERS' APPROVAL. The shareholders of CSI shall have
unanimously approved the terms and provisions of this Agreement at the special
meeting of CSI shareholders called by CSI or by unanimous written consent
pursuant to Section 6.4 hereof in accordance with applicable provisions of the
New Mexico Business Corporation Act and the Articles of Incorporation and Bylaws
of CSI.
9.11 NO OPTIONS. Immediately prior to the Effective Time of the
Merger, there shall be no outstanding options or warrants in respect of any CSI
Stock, or any other securities convertible into or exchangeable for any shares
of CSI Stock.
10. MUTUAL CONDITIONS TO OBLIGATIONS OF UNIT, MERGER SUB, AND CSI. The
obligations of Unit, Merger Sub, and CSI under this Agreement shall, at the
option of any of them, be subject to the following conditions.
22
<PAGE>
10.1 APPROVALS. Unit, Merger Sub, and CSI shall have received any
necessary consents to, or approvals of, the transactions contemplated by this
Agreement of any governmental agencies and authorities, and such approvals and
the transactions contemplated hereby shall not have been contested by any
federal or state governmental authority by formal proceeding and no party hereto
shall have any knowledge of the existence of any fact or the occurrence of any
event forming the basis for a reasonable belief that such approvals or the
transactions contemplated hereby will be contested by any federal or state
governmental authority or by any other third party by formal proceeding.
10.2 NO LITIGATION. No material claim, action, suit, proceeding,
litigation, or investigation which challenges the consummation of the
transactions contemplated in this Agreement or which seeks to enjoin any of the
transactions contemplated herein, shall be instituted or threatened against any
party hereto by any governmental authority or by any other third party and no
party hereto shall have any knowledge of the existence of any fact or the
occurrence of any event forming the basis for a reasonable belief that any such
claim, action, suit, proceeding, litigation, or investigation will be instituted
or threatened against any party hereto.
10.3 NATURE OF STATEMENTS. All covenants, agreements, and statements
contained herein, in any Schedule hereto or in any certificate or other
instrument delivered by or on behalf of CSI or Unit and Merger Sub pursuant to
this Agreement or in connection with the transactions contemplated hereby, shall
be deemed representations and warranties by CSI or Unit and Merger Sub, as the
case may be.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
provided in this Agreement, all representations and warranties made in this
Agreement or in any certificate delivered pursuant hereto or otherwise shall
survive the consummation of the transactions contemplated hereby for a period of
three (3) years following the Closing and after three (3) years shall be
terminated and extinguished (except for the representations and warranties made
in Sections 4.1 and 4.2, which shall not expire, and the representations and
warranties made in Section 4.10, which shall survive all applicable statutes of
limitations and extensions thereof granted by CSI), except insofar as the
damaged party shall have asserted in writing a specific claim setting forth the
specific facts and circumstances relating thereto with respect to such
representations, warranties, covenants and agreements prior to the expiration of
such rights, in which event the party liable shall remain liable with respect to
such claim.
11. INDEMNITY.
11.1 INDEMNIFICATION OF UNIT. Subject to the limitations contained in
this section, CSI and the Principal Shareholders shall jointly and severally
defend, indemnify and hold harmless Unit, its officers, directors, employees and
agents from and against any and all losses, claims, judgments, liabilities,
demands, charges, suits, penalties, costs or expenses, including court costs and
attorneys' fees ("Claims and Liabilities") with respect to or arising from (i)
the breach of any warranty or any inaccuracy of any representation made by CSI
or the Principal Shareholders, or (ii) the breach of any covenant or agreement
made by CSI or the Principal Shareholders in this Agreement.
11.2 LIMITATIONS. Anything to the contrary notwithstanding, (i) Unit
shall not be indemnified and held harmless in respect of any Claims and
Liabilities which are covered by
23
<PAGE>
insurance owned by CSI and assigned to Unit to the extent that any net loss is
reduced by such insurance, (ii) Unit shall not be indemnified and held harmless
in respect of any liability or claim unless and until the total of all Claims
and Liabilities covered by indemnification under this section exceeds Seventy-
Five Thousand Dollars ($75,000), at which point all Claims and Liabilities
(including such $75,000) shall be covered by such indemnification obligation,
and (iii) the liability of the Principal Shareholder shall be limited to an
aggregate amount equal to the value of the Common Stock of Unit received by such
shareholder pursuant to Section 2.4 hereof.
11.3 INDEMNIFICATION OF CSI. Unit shall defend, indemnify and hold
harmless CSI, and its officers, directors, employees and agents and the
Principal Shareholders against and in respect to all Claims and Liabilities with
respect to or arising from (i) breach of any warranty or any inaccuracy of any
representation made by Unit or Merger Sub, or (ii) breach of any covenant or
agreement made by Unit or Merger Sub in this Agreement.
11.4 CLAIMS PROCEDURE. Promptly after the receipt by any indemnified
party (the "Indemnitee") of notice of the commencement of any action or
proceeding against such Indemnitee, such Indemnitee shall, if a claim with
respect thereto is or may be made against any indemnifying party (the
"Indemnifying Party") pursuant to this Section 12, give such Indemnifying Party
written notice of the commencement of such action or proceeding and give such
Indemnifying Party a copy of such claim and/or process and all legal pleadings
in connection therewith. The failure to give such notice shall not relieve any
Indemnifying Party of any of his or its indemnification obligations contained in
this Section 12, except where, and solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have, upon request within sixty (60) days after receipt
of such notice, but not in any event after the settlement or compromise of such
claim, the right to defend, at his or its own expense and by his or its own
counsel, any such matter involving the asserted liability of the Indemnitee;
provided, however, that if the Indemnitee determines that, as a result of an
- -------- -------
existing or prospective business relationship between Unit or any of its
subsidiaries on the one hand and any other party or parties to such claim on the
other hand, or as a result of other reasonable circumstances, there is a
reasonable probability that a claim may materially and adversely affect him or
it, other than solely as a result of money payments required to be reimbursed in
full by such Indemnifying Party under this Section 12, the Indemnitee shall have
the right to defend, compromise or settle such claim or suit; and, provided,
--------
further, that such settlement or compromise shall not, unless consented to in
- -------
writing by such Indemnifying Party, be conclusive as to the liability of such
Indemnifying Party to the Indemnitee. In any event, the Indemnitee, such
Indemnifying Party and his or its counsel shall cooperate in the defense
against, or compromise of, any such asserted liability, and in cases where the
Indemnifying Party shall have assumed the defense, the Indemnitee shall have the
right to participate in the defense of such asserted liability at the
Indemnitee's own expense. In the event that such Indemnifying Party shall
decline to participate in or assume the defense of such action, prior to paying
or settling any claim against which such Indemnifying Party is, or may be,
obligated under this Section 12 to indemnify an Indemnitee, the Indemnitee shall
first supply such Indemnifying Party with a copy of a final court judgment or
decree holding the Indemnitee liable on such claim or, failing such judgment or
decree, the terms and conditions of the settlement or compromise of such claim.
An Indemnitee's failure to supply such final court judgment or decree or the
terms and conditions of a settlement or compromise to such Indemnifying Party
shall not relieve such Indemnifying Party of any of his or its indemnification
obligations contained in this Section 12, except where, and solely to the extent
that, such failure actually and materially prejudices the rights of such
Indemnifying Party. If the Indemnifying Party is defending the claim as set
forth above, the
24
<PAGE>
Indemnifying Party shall have the right to settle the claim only with the
consent of the Indemnitee; provided, however, that if the Indemnitee shall fail
-------- -------
to consent to the settlement of such a claim by the Indemnifying Party, which
settlement (i) the claimant has indicated it will accept, and (ii) includes an
unconditional release of the Indemnitee and its affiliates by the claimant and
imposes no material restrictions on the future activities of the Indemnitee and
its affiliates, the Indemnifying Party shall have no liability with respect to
any payment required to be made to such claimant in respect of such claim in
excess of the proposed amount of settlement. If the Indemnitee is defending the
claim as set forth above, the Indemnitee shall have the right to settle or
compromise any claim against it after consultation with, but without the prior
approval of, any Indemnifying Party; provided, however, that such settlement or
-------- -------
compromise shall not, unless consented to in writing by such Indemnifying Party,
be conclusive as to the liability of such Indemnifying Party to the Indemnitee.
11.5 ALLOCATION AMONG PRINCIPAL SHAREHOLDERS. Except with respect to
claims by Unit with respect to (i) any of the representations or warranties
contained in Section 4.31 and Section 4.35.2 or in any Schedule referred to in
any such Section, or (ii) any breach or violation of any covenant or agreement
made by or on behalf of such Principal Shareholders in this Agreement or any
document, instrument or certificate delivered pursuant hereto, the liability of
each Principal Shareholder in respect of any claim by Unit under this Section 11
shall not exceed his Payment Percentage of such claim. With respect to claims
referred to in clauses (i) and (ii) of the first sentence of this Section 11.5,
each Principal Shareholder shall be liable in respect of the full amount of any
claim by Unit in respect of any representations or warranties or covenants or
agreements of such Principal Shareholder, but no Principal Shareholder shall
have any liability in respect of any representations or warranties or covenants
or agreements of any other Principal Shareholder. As used herein, the term
"Payment Percentage" shall mean as to each Principal Shareholder the percentage
set forth under that caption opposite such Principal Shareholder's name in
Schedule 11.5 hereto.
12. REGISTRATION; INDEMNIFICATION.
12.1 REGISTRATION. Promptly following that date (the "Registration
Date") which is one hundred eighty (180) days following the Closing, Unit will,
at its own expense, file with the Commission a Registration Statement on Form S-
3 under the Securities Act, and file all registration applications required
under applicable state securities laws and blue sky acts, for resale by the
Principal Shareholders of all of the shares of Unit Common Stock to be delivered
pursuant to this Agreement and held by the Principal Shareholders. Unit will
use its best efforts to cause such Registration Statement to be declared
effective as soon as possible thereafter and to keep effective any such
Registration Statement until all such shares of Unit Common Stock so registered
thereunder have been disposed of by the Principal Shareholders. The foregoing
notwithstanding, in no event shall Unit be required to keep current or
supplement a prospectus or keep a Registration Statement effective more than
eighteen (18) months after the effective date of the Registration Statement.
Each Principal Shareholder shall provide Unit with such information as Unit may
reasonably require in order to prepare such Registration Statement. Upon
receiving a notice of effectiveness of such registration statement from the
Commission, Unit will provide a copy of such notice to each Principal
Shareholder.
12.2 EXPENSES. All expenses incurred in connection with the
Registration Statement on Form S-3 referred to above, including, without
limitation, all registration, filing and
25
<PAGE>
qualification fees (including state securities and blue sky fees and expenses),
printing expenses, fees and disbursements of counsel for Unit, and expenses of
any special audits incidental to or required by such registration, shall be
borne by Unit; provided, however, that Unit shall not be required to pay stock
-------- -------
transfer taxes, underwriters' discounts or commissions relating to the
securities registered or fees and disbursements of counsel for the Principal
Shareholders. Unit agrees to deliver to each selling Principal Shareholder a
sufficient number of prospectuses in order to assure compliance with the
Securities Act.
12.3 INDEMNIFICATION BY UNIT. Unit will indemnify and hold harmless
each Principal Shareholder, with respect to the registration, qualification or
compliance effected by Unit under this Section 12, against all claims, losses,
damages and liabilities (or actions in respect thereto) to which they may become
subject under the Securities Act, the Securities Exchange Act of 1934, as
amended, or other federal or state securities laws or blue sky acts arising out
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact by Unit contained in any prospectus, offering circular, or other
similar document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based upon any omission (or alleged omission) of Unit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any violation or alleged violation by Unit of
any federal, state or common law rule or regulation applicable to Unit in
connection with such registration, qualification or compliance, and will
reimburse, as incurred, each such Principal Shareholder, for any legal and other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that Unit will
-------- -------
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense, arises out of or is based on any untrue statement or
omission based upon written information furnished to Unit by a Principal
Shareholder pursuant to an instrument duly executed by such Shareholder and
stated to be specifically for use therein; provided further that Unit will not
-------- -------
be liable for any claim, loss, damage, liability or action that arises from the
failure of a Principal Shareholder to deliver the most recent prospectus,
offering circular or other similar document.
12.4 INDEMNIFICATION BY SHAREHOLDERS. The Principal Shareholders will
indemnify and hold harmless Unit and each of Unit's officers, directors,
employees and agents, and each person controlling Unit, with respect to the
registration, qualification or compliance effected by Unit under this Section
12, against all claims, losses, damages and liabilities (or actions in respect
thereto) to which they may become subject under the Securities Act, the
Securities Exchange Act of 1934, as amended, or other federal or state
securities laws or blue sky acts arising out of or based on (i) any untrue
statement (or alleged untrue statement) of a material fact by such Principal
Shareholder contained in any prospectus, offering circular, or other similar
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or based
upon any omission (or alleged omission) of such Principal Shareholder to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading which was based upon written information
furnished to Unit by such Principal Shareholder delivered specifically for use
therein, or (ii) any violation or alleged violation by Principal Shareholder of
any federal, state or common law rule or regulation applicable to Principal
Shareholder in connection with such registration, qualification or compliance,
and will reimburse, as incurred, Unit and each such director, officer, employee,
agent and controlling person, for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that such shareholder will not
-------- -------
be liable in any such case to the extent that any such claim, loss, damage,
liability or expense, arises out of
26
<PAGE>
or is based on any untrue statement or omission based upon written information
furnished to Unit by a Principal Shareholder pursuant to an instrument duly
executed by such Principal Shareholder and stated to be specifically for use
therein.
13. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval by the
shareholders of CSI and Merger Sub:
(i) by the mutual consent of the respective Boards of Directors of
Unit, Merger Sub, and CSI;
(ii) by the Board of Directors of Unit if any condition to the
obligation of Unit or Merger Sub under this Agreement to be
complied with or performed by CSI at or before the Closing
shall not have been complied with or performed at the time
required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by
Unit;
(iii) by the Board of Directors of CSI if any condition to the
obligation of CSI under this Agreement to be complied with or
performed by Unit or Merger Sub at or before the Closing shall
not have been complied with or performed at the time required
for such compliance or performance and such noncompliance or
nonperformance shall not have been waived by CSI; or
(iv) by the Board of Directors of either CSI or Unit if the Closing
shall not have been consummated on or before July 31, 1996;
Notice of such termination by any party hereto pursuant to this Section 13 shall
be given as soon as practicable to the other parties hereto. In the event of a
termination of this Agreement pursuant to this Section 13, this Agreement, and
any further obligation of Unit, CSI and the Principal Shareholders under this
Agreement, shall terminate without any obligation or liability of any party to
any other parties hereto.
14. DEFINITIONS.
14.1 CROSS REFERENCE TABLE. The following terms defined elsewhere in
this Agreement in the Sections set forth below shall have the respective
meanings therein defined:
<TABLE>
<CAPTION>
Term Definition
------------------------ ----------
<S> <C>
Agreement Preamble
Balance Sheet Date 4.4
Claims and Liabilities 11.1
Closing 3
Closing Date 3
Code Recitals
Commission 5.3
ERISA 4.21
Exchange Agent 2.5
Holder 2.5
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
Indemnifying Party 11.4
Indemnitee 11.4
Intellectual Property 4.15
Merger Recitals
NASDAQ 2.6
Payment Percentage 11.5
Principal Shareholders Preamble
CSI Preamble
CSI Balance Sheet 4.4
CSI Stock Recitals
SEC Filings 5.3
Securities Act 4.2
Unit Preamble
Unit Common Stock Recitals
Merger Sub Preamble
Merger Sub Common Stock 2.3
To the best knowledge of 4
</TABLE>
14.2 CERTAIN DEFINITIONS. The following terms shall have the following
meanings:
14.2.1 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The term
"generally accepted accounting principles" shall mean generally accepted
accounting principles, as defined by the Financial Accounting Standards Board as
of the date hereof.
14.2.2 MATERIAL ADVERSE EFFECT. The term "Material Adverse
Effect" shall mean any change in or effect on the business, operations, assets,
prospects or condition, financial or otherwise, of CSI or Unit, as applicable,
which is materially adverse to CSI or Unit.
14.2.3 MEMBER OF THE IMMEDIATE FAMILY. The term "Member of the
Immediate Family" shall mean, with respect to any individual, each spouse,
parent, brother, sister or child of such individual, each trust created in whole
or in part for the benefit of the aforementioned and each custodian or guardian
of any property of one or more of the aforementioned.
14.2.4 ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of
Business" shall mean the ordinary course of business consistent with past custom
and practice (including, without limitation, with respect to quantity and
frequency).
15. MISCELLANEOUS.
15.1 EXPENSES. Whether or not the merger is consummated, each party
hereto shall pay its own expenses (including, without limitation, counsel and
accounting fees and expenses) incident to the presentation and carrying out of
this Agreement and the consummation of the transactions contemplated herein.
15.2 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
properly given or made on the date personally delivered or on the date mailed,
by first class registered or certified mail with postage prepaid, or
28
<PAGE>
telegraphed and confirmed, if delivered, mailed, or telegraphed to the
respective parties hereto at the following addresses:
If to Unit or Merger Sub, to:
Unit Instruments, Inc.
22600 Savi Ranch Parkway
Yorba Linda, California 92687
Attention: Mr. Gary Patten
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
If to CSI, to:
Control Systems, Inc.
541 Laser Road N.E.
Rio Rancho, New Mexico 87124
Attention: Mr. Thomas Barr
With a copy to:
Barnett & Scott
10200 Menaul Street, N.E.
Albuquerque, New Mexico 87112
Attention: Mickey Barnett, Esq.
Any party hereto may designate a different address by providing written
notice of such new address to the other parties hereto.
15.3 ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the written consent of the other parties hereto.
15.4 SUCCESSORS BOUND. Subject to the provisions of Section 15.3,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
15.5 CAPTIONS. The captions of the sections and paragraphs of this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
29
<PAGE>
15.6 AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
15.7 ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates, and documents referred to herein constitute the entire agreement
of the parties hereto, and supersede all prior understandings with respect to
the subject matter hereof, and no representation or warranty not included herein
has been relied upon by any party hereto.
15.8 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute the
same instrument.
15.9 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
15.10 ATTORNEYS' FEES. In the event of any dispute, controversy, or
proceeding between the parties concerning this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to receive from the
other party its costs and expenses, including attorneys' fees.
15.11 WAIVER. All waivers hereunder must be made in writing, and
failure of any party at any time to require another party's performance of any
obligation under this Agreement shall not affect, limit or waive a party's right
of any time to require strict performance of that obligation thereafter. Any
waiver of any breach of any provision of this Agreement shall not be construed
in any way as a waiver of any continuing or succeeding breach of such provision
or waiver or modification of the provision.
15.12 SEVERABILITY. In the event any court, administrative agency or
other governmental entity with appropriate jurisdiction and authority determines
that any term or part of this Agreement is invalid or unenforceable, the
remainder of this Agreement shall remain in full force and effect.
30
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
UNIT INSTRUMENTS, INC.
By: /s/ Michael J. Doyle
--------------------
Its: President
---------
CSI ACQUISITION CORPORATION
By: /s/ Michael J. Doyle
--------------------
Its: President
---------
CONTROL SYSTEMS, INC.
By: /s/ Thomas Barr
---------------
Thomas Barr,
President and Chief Executive Officer
THOMAS BARR and JAIME BARR,
husband and wife, as community property
/s/ Thomas Barr
---------------
/s/ Jaime Barr
--------------
CHRISTOPHER V. BARR, individually
/s/ Christopher V. Barr
-----------------------
31
<PAGE>
SCHEDULE 2.4
CONTROL SYSTEMS, INC.
LIST OF SELLING SHAREHOLDERS
AND
TOTAL CONSIDERATION
1. THOMAS A. AND JAMIE C. BARR SS#: ###-##-#### AND ###-##-####
2101 Alhambra SW
Albuquerque, NM 87104
CSI Shares Owned: 14,640
Unit Consideration:
Cash $1,200,000
Unit Stock 187,289
2. CHRISTOPHER V. BARR SS#: ###-##-####
307 Rio Grande SW
Albuquerque, NM 87104
CSI Shares Owned: 3,904
Unit Consideration:
Unit Stock 74,306
3. JAMES C. ELLIOTT SS#: ###-##-####
8116 Oakland NE
Albuquerque, NM 87122
CSI Shares Owned: 976
Unit Consideration:
Unit Stock 18,577
32
<PAGE>
CONTROL SYSTEMS INC.
LIST OF SELLING SHAREHOLDERS
AND TOTAL CONSIDERATION
PAGE 2
4. MICHAEL J. BARR SS#: ###-##-####
1310 Camino Real
Fairview, TX 75069
CSI Shares Owned: 200
Unit Consideration:
Unit Stock 3,806
5. JOHN A. FLANIGAN SS#: ###-##-####
4320 Eubank NE#1
Albuquerque, NM 87111
CSI Shares Owned: 160
Unit Consideration:
Unit Stock 3,045
6. DIRK A. FREW SS#: ###-##-####
9621 Rosa Avenue NE
Albuquerque, NM 87109
CSI Shares Owned: 100
Unit Consideration:
Unit Stock 1,904
33
<PAGE>
CONTROL SYSTEMS INC.
LIST OF SELLING SHAREHOLDERS
AND TOTAL CONSIDERATION
PAGE 3
7. CHRISTOPHER W. COLLINS SS#: ###-##-####
13229 S. 48th Street #3021
Phoenix, AZ 85044
CSI Shares Owned: 20
Unit Consideration:
Unit Stock 381
34
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
Year Ending May 31, 1996 1995
- ------------------- ------ ------
<S> <C> <C>
Net income from continuing operations $4,778 $ 705
------ ------
Net income $6,982 $3,002
====== ======
Weighted average number of common shares
outstanding 4,133 4,218
Common share equivalents assuming
exercise of stock options and
warrants 260 122
------ ------
Average shares used in computing
earnings per share 4,393 4,340
Net income per share from continuing
operations $ 1.09 $ 0.16
Net income per share from discontinued
operations 0.50 0.53
------ ------
Total earnings per share $ 1.59 $ 0.69
====== ======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
The following is a list of the subsidiaries of Autoclave Engineers, Inc. The
Company owns, directly or indirectly, 100% of the voting securities of each
subsidiary.
<TABLE>
<CAPTION>
State of Jurisdiction
Name or Incorporation
- ---- ---------------------
<S> <C>
Unit Foreign Sales Corporation Virgin Islands
Unit Instruments, Inc. California
Unit Instruments Ireland Limited Ireland
Unit Instruments Japan, Inc. Japan
Unit Instruments, GmbH Germany
Unit Instruments Korea Ltd. South Korea
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (File Nos. 33-37292 and 33-58550) of Unit Instruments,
Inc. of our report dated July 12, 1996, appearing on Page 20 of this Form 10-K.
Price Waterhouse LLP
Costa Mesa, California
July 12, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET/INC. STMT. 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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0
0
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