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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 3, 1997
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
This Report consists of eight (8) pages.
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ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
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On September 3, 1997, A. Wade Blackman resigned from the Registrant's Board of
Directors. In his letter of resignation, Mr. Blackman expressed disagreement
with the strategic direction for the Registrant favored by management of the
Registrant and a majority of the Registrant's Board of Directors.
Mr. Blackman had not been nominated for reelection as a director of the
Registrant. As such, Mr. Blackman's term as a director would have terminated at
the Registrant's Annual Shareholder Meeting to be held on October 24, 1997.
The Registrant believes that Mr. Blackman's contentions are misleading and
factually inaccurate. All Minutes of the Board of Director meetings held since
the Registrant became an independent company in November, 1995 have been
approved by a unanimous vote of the full Board, of which Mr. Blackman was a
member during this period. The Registrant's election not to respond to the
balance of Mr. Blackman's contentions should not be viewed as its agreement with
any of such contentions. A copy of Mr. Blackman's letter of resignation is
attached as Exhibit 99.1 to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(a) Financial statements of businesses acquired: None
(b) Pro forma financial information: None
(c) Exhibits:
(1) 99.1 Letter of resignation from A. Wade Blackman dated
September 3, 1997
(2) 99.2 Press release dated September 5, 1997
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SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be singed on its behalf by the undersigned
hereunto duly authorized.
UNIT INSTRUMENTS, INC.
Date: September 8, 1997 By /s/ Gary N. Patten
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Gary N. Patten
Chief Financial Officer
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Unit Instruments, Inc.
Exhibit 99.1
A. WADE BLACKMAN
28 Longfellow Rd.
Wellesley Hills, MA 02181
September 3, 1997
VIA TELECOPY AND FEDERAL EXPRESS
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The Board of Directors of Unit Instruments, Inc.
c/o Michael Doyle, Chief Executive Officer
Unit Instruments, Inc.
22600 Savi Ranch Parkway
Yorba Linda, CA 92887
Dear Fellow Directors:
For some time, the Chairman of the Board of Unit Instruments (Jim Levinson)
and I have taken the position that the shareholders' interests will be best
served by selling Unit in a manner calculated to achieve the highest value. I
believe that the procedures which have recently been adopted by the Board for
the sale of Unit will not achieve this result. Therefore, in order to avoid any
possible suggestion that I condone, or am complicit in, the policies and actions
of the Board and management of Unit, I am compelled, after serving more than 12
years on the Board of Unit and its predecessor company, to resign as a director,
effective immediately.
BACKGROUND
On August 12, 1996, Needham & Company was invited to present to the Board
an analysis of the strategic alternatives available to Unit. The Board requested
this presentation because of the drop in Unit's stock price which had occurred
since it was spun out of Autoclave in 1995. On September 24, 1996, I circulated
a memo to the Board which discussed the analysis presented by Needham and which
presented my rationale for the sale of Unit. In the Board meeting of October 15,
1996, management presented their view on Unit's strategic options and argued
that Unit should not be sold. At a meeting held on January 17, 1997, Needham
made a detailed presentation relating to the sale of Unit and the reasons why
market conditions suggested that the full auction of Unit would be the optimal
course to maximize shareholder value. Based on those and other Company-related
reasons, the Board, by unanimous vote, formally adopted resolutions to (i) begin
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the sale process and (ii) engage Needham to assist with the sale process.
The Board held its next meeting on April 15, 1997. At this meeting, I
questioned why the resolutions approving the sale process adopted at the January
17, 1997 meeting did not appear in the minutes of that meeting (which were
prepared by management). To date, no satisfactory explanation has been
forthcoming and those minutes are still not correct. At the April 15, 1997
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Board of Directors of Unit Instruments, Inc.
September 3, 1997
Page 2
Board meeting, at my request and by formal resolution, we ratified our earlier
decisions to begin the sale process and engage Needham. The vote was again
unanimous, but with Mike Doyle abstaining. Despite the fact that the Board
formally took this action at the April 15th meeting, the minutes of that meeting
(also prepared by management) do not in my opinion accurately reflect the
resolution that I proposed and that was adopted.
Needham has consistently advised the Board that the most effective way to
maximize shareholder value is to conduct a full auction of Unit to a broad group
of potential buyers following a public announcement of the sale. Jim Levinson
and I became very concerned in July, l997 when, despite Needham's advice,
management (i) refused to issue a press release to announce that the Company is
for sale, (ii) revised the offering memorandum to be given to prospective buyers
to say that we were seeking a strategic partner rather than a buyer for the
Company, and (iii) instructed Needham to contact only a limited number of
strategic players hand-picked by management rather than conducting a full
auction of the Company. Management excluded obvious potential buyers, identified
by Needham, that had expressed an interest in Unit's competitor, Tylan, which
was sold in 1996.
Jim Levinson and I wrote a detailed memorandum in July to the other
directors outlining our concerns in the hope of persuading either Ed Rogas or
George Boyadjieff to join with us at our August 11, 1997 Board meeting to get
the sale process on track. We argued that the sale of the Company is clearly in
the best interests of shareholders and, as Needham has repeatedly advised, a
full auction is the best way to maximize shareholder value. We also suggested
that a special committee of outside directors be established to manage the sale
process.
At its meeting on August 11, 1997, the Board passed resolutions stating
that selling Unit is in the best interest of the Company and its shareholders
and ratifying the retention of Needham to assist in pursuing a sale transaction.
However, the Board did not decide to establish a special committee to manage the
sale process but left this process under the authority of management. The Board
also declined to pursue a full auction of the Company and restricted the
solicitation of offers to a list proposed by management.
A press release prepared by management was issued by the Company on August
13, 1997. Not surprisingly, it watered-down the announcement that the Company is
for sale. At the August 11th Board meeting, the Board directed Mike Doyle and
Needham "to proceed as prudently as possible to pursue a sale transaction."
Rather than saying that the Company is for sale, the press release said that the
Company is "evaluating strategic alternatives" and allowed that one strategic
alternative that may maximize shareholder value is "the formation of strategic
alliances or joint ventures." This idea is directly contrary to Needham's advice
that the best way to maximize shareholder value is to sell the Company in a full
auction, and it is also directly contrary to the action taken by the Board.
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Board of Directors of Unit Instruments, Inc.
September 3, 1997
Page 3
Also at the August 11th Board meeting, at management's recommendation a
majority of the Board voted not to renominate me for election as a director at
the upcoming annual shareholders meeting. Management thus achieved its two
objectives: they limited the sale process, and if a sale transaction somehow
gets to the full Board, they have positioned the Board so that management can
block the transaction with the vote of my replacement (who will probably be
sympathetic to management) and one of the independent directors; or if I am not
replaced, by just convincing one of the independent directors to go along with
them. At the very least, they eliminated one of two vocal advocates for a full
auction of the Company.
It is my expectation that offers will be received from competitors and
others who are currently excluded from management's list of solicitation
candidates, and these offers may be much better than those we receive from those
on management's list. If these offers excluded from the list are turned down and
if the current restricted solicitation process does not produce an acceptable
buyer, the Board should take control of the sale process, extend the cut-off
date for bids, and re-solicit bids on the basis of a full auction.
IT IS CLEAR THAT UNIT SHOULD BE SOLD, AND THAT A FULL AUCTION IS THE WAY TO SELL
UNIT.
Inasmuch as I will have an equity interest in Unit even after my
resignation, I feel that I should remind the Board why Unit should be sold and
make one last appeal for the Board to take direct control of the sale process:
Management has not created any positive shareholder value since 1991. In
order to create shareholder value, the return on invested capital must be
greater than the cost of capital. Unit's return on invested capital has not
exceeded the cost of capital since 1991 (before current management took charge).
McKinsey & Company and other analysts agree that until a company achieves
positive shareholder value, the stock market will generally not reward a company
with high market values relative to book values.
Management missed an opportunity to create shareholder value in 1995. In
1995, Unit's management squelched an important opportunity to create shareholder
value and liquidity by merging Unit with a large semiconductor equipment
manufacturer. The discussions broke down when the CEO of the potential acquiror
became concerned with Mike Doyle's attitude regarding the sale. The potential
acquiror is a well-managed company which has a significantly better operating
margin and return on invested capital than Unit. The combined return on invested
capital would have greatly exceeded the cost of capital. Furthermore, because
the potential acquiror's market to book ratio was significantly better than
Unit's, the stock price of the combined entity would have been expected to have
a lot of upward momentum during the next up cycle in the stock market and, as we
know, 1996 and 1997 have seen record highs in the market (highs which have
largely not affected the value of Unit's stock).
Management has not developed a long-term strategic plan for Unit. No one is
suggesting that Unit should be sold just for the sake of selling the Company.
But Unit is
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Board of Directors of Unit Instruments, Inc.
September 3, 1997
Page 4
consistently at the bottom of almost any industry peer group comparison of
financial measures. Moreover, management has not demonstrated that it has the
skill to maintain profitability in a highly cyclical business environment. And
finally, except for the acquisition of CSI, which has not been successful
because of its low margins, management has not established any significant
strategic relationships. In order to remain independent, management must
articulate a strategic vision for the Company that will deliver greater
shareholder value than would a sale and they must demonstrate that they are
capable of carrying out that vision. Management has done neither in my opinion.
Management has missed opportunities to create liquidity for shareholders.
Liquidity in a company's stock is created through increasing shareholder float,
obtaining investment banker support, increasing the number of market makers, and
obtaining research coverage from several firms. These are typically achieved
through a public offering of a company's stock. At an Autoclave Board meeting on
April 15, 1995, based upon a recommendation of Needham, Unit's management was
instructed to effect a stock offering "as soon as practicable" to achieve, among
other things, increased liquidity for Unit's shareholders. In spite of this
directive, management did not act quickly enough and the window of opportunity
for a successful offering closed around March 1996.
Management's expectation of improving performance argues for a sale. Since
the April 15, 1997 Board meeting, management has informed the Board and stated
publicly that it expects that the sales and earnings performance of Unit will
improve in the near term. These expectations of management, if correct, actually
support the argument for a full auction of Unit as soon as possible. The sale
price of Unit will be based, in part, on the projected earnings of Unit. The
shareholders of Unit can thus realize the value of those projected increases now
through a full auction of the Company.
Market conditions are right for a sale. At both the January 17, 1997 and
April 15, 1997 Board meetings, Needham made a detailed presentation of the
reasons why a full auction of Unit at this time would maximize shareholder
value. They pointed out that: there is significant consolidation in the
industry, meaning that there are a number of interested strategic buyers looking
for a transaction (the sale of Tylan in 1996 created a group of eager buyers
looking for a similar transaction); financial players are also potential buyers
at this time because they are cash rich and looking to invest; and financing
rates are at an all time low. Needham also pointed out that investors are moving
away from small cap stocks, meaning that Unit is much less attractive from the
market's perspective. All of these factors argue that market conditions are
favorable for the sale of Unit at this time.
CONCLUDING REMARKS
Management has somehow persuaded at least two independent directors to
conclude that it is in the shareholders' interest not to proceed with a full
auction of the Company.
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Board of Directors of Unit Instruments, Inc.
September 3, 1997
Page 5
Management's reluctance to cooperate in a full auction and the Board's
unwillingness thus far to assert control over the sale process in my opinion
make it unlikely that a transaction which maximizes shareholder value will
occur.
I am resigning as a director because of a disagreement on matters relating
to the Company's operations, policies and practices and I request that this
communication be disclosed in a Current Report on Form 8-K and in any other
filing requiring disclosure of material information.
Very truly yours,
/s/ A. Wade Blackman
A. Wade Blackman
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Exhibit 99.2
News Release
[LETTERHEAD OF UNIT INSTRUMENTS, INC.]
CONTACT: Gary N. Patten
Chief Financial Officer
714/921-2640
Roger S. Pondel
Pondel Parsons & Wilkinson
310/207-9300
UNIT INSTRUMENTS ANNOUNCES RESIGNATION OF DIRECTOR
YORBA LINDA, CA - September 5, 1997 -- Unit Instruments, Inc. (Nasdaq: UNII)
today announced that A. Wade Blackman had resigned as a director of the Company.
In his resignation letter, Mr. Blackman expressed disagreement with the
strategic direction for Unit that is supported by management and the majority of
its Board of Directors.
Mr. Blackman had not been nominated for reelection as a director of the
Company. As such, Mr. Blackman's term as a director would have terminated at the
Company's Annual Shareholder Meeting to be held next month.
Unit Instruments is traded on the Nasdaq National Market under the symbol
UNII. Unit's web site is http://www.unit.com.
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