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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, 1998
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 XXX 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. [X]
On August 3, 1998, 3,867,814 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 on August 3, 1998 was $37,228,000.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
CLASSES OUTSTANDING AT AUGUST 3, 1998:
--------------------------------- ------------------------------
Common Stock $.15 Par Value....... 3,995,118
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PART I
ITEM 1. BUSINESS
GENERAL
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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. Also included in
this segment is the design, manufacture and marketing of ultra high-purity gas
isolation boxes, gas panels and valve manifold boxes for use in semiconductor
wafer manufacturing processes. 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.
ACQUISITION OF CONTROL SYSTEMS, INC.
- ------------------------------------
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996. CSI
fabricates high-purity gas isolation boxes and gas panels for semiconductor
manufacturers. The acquisition of CSI was accounted for as a purchase with
consideration of $1.2 million in cash and 289,000 shares of Common Stock valued
at approximately $4.0 million. This acquisition resulted in the
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recording of goodwill of approximately $4.8 million. CSI was based in Rio
Rancho, New Mexico and was operated as a wholly-owned subsidiary of the Company.
During fiscal 1998, the Company consolidated most of the operations of CSI's Rio
Rancho facility into its facility in Chandler, Arizona. See Management
Discussion and Analysis of Financial Condition and Results of Operations for
discussion of 1998 restructuring plan, including the write-off of $4,125,000 of
CSI goodwill.
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. 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
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On July 2, 1998, United States Filter Corporation ("U.S. Filter"),
Kinetics Acquisition Corp., a California corporation and wholly-owned subsidiary
of U.S. Filter ("Subcorp"), and Unit Instruments, Inc. ("Unit") executed an
Agreement and Plan of Merger whereby Subcorp will be merged with and into Unit
(the "Merger") and Unit will survive the merger (the "Surviving Corporation")
and become a wholly-owned subsidiary of U.S. Filter.
Pursuant to the terms of the Agreement and Plan of Merger, U.S. Filter
had a 30-day period, ending on July 31, 1998, to complete due diligence. On July
31, 1998, U.S. Filter notified Unit that it was dissatisfied with certain items
relating to the Company that resulted from their due diligence review, including
the declining prospects for the Company and its business due to the
deteriorating fundamentals in the semiconductor equipment market, and indicated
that they intended to terminate the Agreement and Plan of Merger unless these
items were cured or
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resolved to U.S. Filter's satisfaction within 30 days. On August 5, 1998, U.S.
Filter and Unit agreed to amend the terms of the Agreement and Plan of Merger
and executed the First Amendment to the Agreement and Plan of Merger,
collectively ("the Merger Agreement"). With the execution of the First
Amendment, U.S. Filter has agreed that their due diligence condition has been
satisfied, except for the requirement that Needham & Company, Inc. ("Needham")
terminate certain registration rights associated with a warrant held by Needham
for 100,000 shares of the Company's common stock.
On July 7, 1998, Unit filed Form 8-K which summarized the Agreement and
Plan of Merger and included a complete copy of the Agreement and Plan of Merger.
Included with Unit's Form 10-K, for the period ending May 31, 1998, is Exhibit
10.14, First Amendment to the Agreement and Plan of Merger, dated August 5,
1998. The below-referenced summary of the terms of the Merger Agreement is
qualified in its entirety by reference to the full text of the Agreement and
Plan of Merger and to First Amendment to the Agreement and Plan of Merger.
Upon the effectiveness of the Merger, each outstanding share of common
stock, par value $0.15 per share ("Common Stock"), of Unit, with the exception
of shares held by shareholders who properly exercise dissenters' rights under
the Corporations Code of the State of California, will be converted into a
number of shares of U.S. Filter's common stock equal to the Exchange Ratio (as
defined below), collectively, the "Merger Consideration."
The exchange ratio (the "Exchange Ratio") will be calculated as follows:
(a) if the average daily closing price (the "Average Closing Price") on the New
York Stock Exchange of U.S. Filter's common stock during the 20 consecutive
trading days ending five days prior to the Closing Date is above $26.00, the
Exchange Ratio will be equal to $11.03 divided by the Average Closing Price; and
(b) if the Average Closing Price is equal to or less than $26.00, the Exchange
Ratio will be equal to $11.03 divided by $26.00. If the Average Closing Price is
less than $24.00, Unit may terminate the Merger Agreement.
The closing of the Merger is subject to certain conditions, but not
limited to, the termination of certain registration rights held by Needham,
expiration of the Hart-Scott-Rodino waiting period, and approval by Unit
shareholders. The transaction is expected to close in October, 1998. Following
the merger, Unit will become a wholly-owned subsidiary within U.S. Filter's
Kinetics Group ("USF Kinetics").
At the effective time (the "Effective Time"), each outstanding stock
option or warrant to purchase Unit stock shall automatically convert into an
option to purchase a number of shares of U.S. Filter common stock equal to (x)
the number of shares of Unit Common Stock issuable immediately as of the date of
this Agreement upon exercise of such Unit stock option or warrant multiplied by
(y) the Exchange Ratio with an exercise price equal to the exercise price which
existed under the corresponding Unit stock option or warrant divided by the
Exchange Ratio, and with such other terms and conditions, subject to U.S.
Filter's approval, as were in effect under such Unit stock option or warrant as
of the date of this Agreement.
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Fractional shares will not be issued, but the pro rata portion of the
net proceeds of the sale of all such shares will be paid in cash to the persons
entitled thereto. As a result of the conversion of the Unit Common Stock, the
Unit Common Stock will be de-listed from the Nasdaq National Market tier of The
Nasdaq Stock Market and will not be listed on any national securities exchange
or quoted in any inter-dealer quotation system, and holders of Unit Common Stock
will become shareholders of U.S. Filter.
On July 17, 1998, the Company announced in a press release that it intends to
reduce its worldwide workforce by approximately 15% and is initiating partial
domestic plant shutdowns in response to the continuing downturn in the
semiconductor equipment market.
The partial plant shutdowns will be effected by closing domestic
facilities on Fridays, allowing for only limited services and production on such
days. The magnitude and financial impact of these actions has not yet been
determined, but will be included in the Company's quarterly report on Form 10-Q
for the first fiscal quarter ending August 29, 1998.
PRODUCTS
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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.
Unit's 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.
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 also designs, manufactures and markets
ultra high-purity gas delivery systems. These products include valve manifold
and gas distribution boxes, custom gas distribution systems and gas panels.
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The Company introduced an expanded line of mass flow controllers during
fiscal 1997. These new products include analog/digital MFCs, full digital MFCs
that are compliant with the Device Net protocol, two new models of MFCs that are
specially designed for use with Safe Delivery Source ("SDS"(TM)) for ion implant
processes, and a "mini" MFC that has a reduced footprint. In fiscal 1998, the
Company introduced a digital high flow MFC and its patented Z-Bloc(TM) modular
gas system.
The Company has been developing a modular gas delivery system for the
past several years and during the latter part of 1997, several prototype ("Z-
Bloc") systems were delivered for evaluation. The Z-Bloc system features down-
ported components that are mounted with Unit's proprietary Z-Seal metal seals on
machined blocks, reducing the gas box size and providing significantly easier
maintenance than conventional "welded" gas delivery systems. During fiscal 1998,
the Company continued to supply customers with prototype Z-Bloc systems and made
several design improvements to lower cost and enhance ease of fabrication.
Customer service is provided through five domestic and ten international
service centers. MFCs and related parts and service represented over 80% of
Unit's sales for fiscal 1998, 1997 and 1996.
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 52%
of total MFC related Company sales in fiscal 1998, with the balance of sales
attributable to end users and industrial (non-semiconductor) customers.
Unit primarily markets its products through a domestic direct sales force
augmented by manufacturer representatives. Internationally, Unit markets
through a direct sales force, manufacturer representatives and distributors.
The Company has nine 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 1998, Applied Materials Inc. accounted for 22% of Unit's total
sales and Lam Research Corporation accounted for 7% of total sales.
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Export and international sales were approximately 21%, 19% and 17% of total
sales in fiscal 1998, 1997 and 1996, 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.
BACKLOG
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The Company's backlog at May 31, 1998 was approximately $1.2 million, compared
to backlog at May 31, 1997 of approximately $2.0 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
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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 four manufacturing facilities: the main facility in Yorba
Linda, California, two smaller facilities in Japan and Ireland, and a facility
in Chandler, Arizona that produces gas panel products. 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 and in fiscal 1997
achieved registration under ISO 9001 for its service facility in Austin, Texas.
In fiscal year 1998, the Company achieved ISO 9001 registration for its Z-Bloc
operation in Yorba Linda, California, its fabricated gas system manufacturing
facility in Chandler, Arizona, and its MFC service center, also in Chandler.
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 raw materials are obtained
from a limited number of suppliers and have an extended lead-time. Although the
Company seeks to limit its dependency on limited sources suppliers and extended
lead-times for raw materials, the partial or complete loss of these suppliers,
or an abrupt increase in lead-times for raw material, could have a material
adverse effect on the Company's results of operations.
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The Company's standard warranty period ranges from one to three years. The
Company has one end user customer to which it has issued a ten year warranty in
conjunction with an exclusive MFC supplier agreement. This warranty agreement
includes a five year unconditional warranty and a limited five year warranty
term. The Company does not consider physical damage from abuse or misuse as
covered by the unconditional warranty. The Company has established a warranty
reserve for this extended warranty agreement based upon mean time between
failure data that it believes to be the most appropriate criteria for estimating
this warranty liability. Management believes the costs associated with the
extended ten-year warranty will not have a material impact on the consolidated
results of operations; however, there can be no assurance that its methodology
for establishing the warranty reserve will be adequate during the duration of
the extended warranty period.
INTELLECTUAL PROPERTY
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The Company holds various U.S. and foreign patents on certain design and
functional aspects of its mass flow controllers. In addition, the Company has
patent applications pending on the Z-Seal and Z-Bloc. 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 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
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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.
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PRODUCT DEVELOPMENT
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The Company is a leader in the development of mass flow controllers and
peripheral accessories. The Company's product development activities are
focused on 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,
sensor technology and software development. 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 1998, 1997 and 1996, the Company spent $4,533,000, $4,035,000 and
$3,757,000, respectively, for research, development and engineering activities.
INVENTORY AND WORKING CAPITAL
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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. As a general policy, returns, for customer
convenience, are not allowed by the Company.
ENVIRONMENTAL COMPLIANCE
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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 $661,000 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
12 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.
YEAR 2000 COMPLIANCE
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The Company has performed an examination of its major software applications to
determine whether each system will be able to process date-based information
correctly as the year 2000 approaches. The review included an examination of
the software code currently utilized by the Company and obtaining confirmation
from others with whom it does significant
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business to determine their year 2000 compliance status.
The Company anticipates it will be year 2000 compliant by December, 1998 for
all accounting and MIS systems application software. Accordingly, the Company
believes that, based on its current examination, the year 2000 will not have a
material adverse impact on the Company's operations and that the costs to
accommodate the year 2000 will not be material. However, there can be no
assurance that software incompatibility with the year 2000 on the part of the
Company or any of its significant suppliers or customers will not cause an
interruption of operations or other system functionality, or that the Company
will not incur substantial costs to avoid such events.
EMPLOYEES
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At May 31, 1998, the Company and its subsidiaries had 315 employees, of which
198 were in manufacturing and service support, 48 in marketing, sales and
applications engineering, 39 in research, development and engineering and 30 in
finance and administration. As of the end of fiscal 1998, the Company had 265
employees in the United States, 29 in Europe and 21 in the Pacific Rim. None of
the Company's employees are represented by a union or other collective
bargaining agent, and the Company considers its relations with its employees to
be good.
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; and has four
leased service centers in San Jose, California, Chandler, Arizona, Dallas and
Austin, Texas. The Chandler, Arizona facility manufacturers high-purity gas
fabrication systems, as well as providing facilities for an MFC service center.
The Rio Rancho, New Mexico leased facility is no longer used. Its lease
terminates on December 31, 1998 and the Company is currently undertaking efforts
to find a replacement lessee. Internationally, Unit has leased service centers
in Kyusha Island and Osaka, Japan and Sungnam, Korea.
The Company believes that the existing facilities are generally suitable and
adequate for its business.
ITEM 3. LEGAL PROCEEDINGS
The Company filed suit against six suppliers of zinc-plated fasteners in July,
1997 in Superior Court of the State of California for the County of Orange. The
Company is seeking actual and consequential damages to be determined. The suit
alleges that Unit
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was shipped a defective batch of fasteners that failed in MFC products. Each
defendant in such suit has responded to the Company's complaint. None of such
defendants has filed a counterclaim against the Company.
The Company is not involved in any material pending legal proceedings to which
it is a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
COMMON EQUITY MARKET DATA
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The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the Symbol: UNII. High and low closing prices for
the Company's Common Stock, as reported on Nasdaq, and cash dividends paid per
share, for the fiscal quarters indicated, were as follows:
<TABLE>
<CAPTION>
DIVIDENDS
PERIOD HIGH LOW PAID
---------- ------------ --- ----
<S> <C> <C> <C> <C>
1997 First Quarter $14.500 $8.625 --
Second Quarter 10.625 8.250 --
Third Quarter 10.625 8.125 --
Fourth Quarter 9.625 7.250 --
1998 First Quarter $14.500 $8.938 --
Second Quarter 14.250 9.750 --
Third Quarter 10.500 8.500 --
Fourth Quarter 9.750 6.375 --
</TABLE>
The Company had 263 holders of record of its Common Stock on May 31, 1998.
Based on the information available to the Company, there are approximately 1,571
beneficial shareholders. 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
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(amounts in thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED MAY 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $52,234 $43,271 $65,568 $48,256 $33,141
Income (loss) from continuing
operations before cumulative
effect of accounting change (4,649) (4,308) 4,778 705 (212)
Discontinued operations:
Income, net -- -- 750 1,334 1,186
Gain on disposal, net -- -- 1,454 963 --
Net income (loss) (4,649) (4,308) 6,982 3,002 1,198
------------------------------------------------------------------------------
Basic earnings per share:
Income (loss) from continuing
operations before cumulative
effect of accounting change $ (1.08) $ (0.99) $ 1.16 $ 0.17 $ (0.05)
Discontinued operations -- -- 0.53 0.54 0.28
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Net income (loss) (1.08) (0.99) 1.69 0.71 0.28
Diluted earnings per share:
Income (loss) from continuing
operations before cumulative
effect of accounting change $ (1.08) $ (0.99) $ 1.09 $ 0.16 $ (0.05)
Discontinued operations -- -- 0.50 0.53 0.28
------------------------------------------------------------------------------
Net income (loss) (1.08) (0.99) 1.59 0.69 0.28
Cash dividends declared per share -- -- $ 0.06 $ 0.24 $ 0.24
Average shares used in computing
earnings per share
Basic 4,295 4,375 4,125 4,218 4,214
Diluted 4,295 4,375 4,393 4,340 4,268
MAY 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $19,722 $23,696 $26,724 $27,573 $25,128
Total assets 40,103 50,964 52,780 51,902 58,250
Long-term debt -- 58 -- 453 952
Shareholders' equity 33,010 42,661 43,224 38,478 37,721
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The selected financial data should be read with the related consolidated
financial statements and notes thereto, included herein.
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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.
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.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Operating Percentages
------------------------------------------------
1998 1997 1996
--------------- -------------- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of net sales 69.2% 77.6% 60.2%
Selling and administrative expenses 23.1% 28.5% 22.2%
Restructuring costs 9.4% 1.3% 0.6%
Research and development expenses 8.7% 9.3% 5.7%
Income (loss) from operations (10.5%) (16.7%) 11.2%
Income (loss) from continuing operations (10.1%) (10.0%) 7.3%
Discontinued operations 0.0% 0.0% 3.4%
Net income (loss) (8.9%) (10.0%) 10.6%
</TABLE>
1998 COMPARED TO 1997
- ---------------------
Sales for fiscal 1998 increased 20.7% to $52.2 million from $43.3 million in
fiscal 1997. Management believes the increase in sales was primarily due to the
recovery in the semiconductor market that began approximately at the beginning
of calendar 1997. This recovery continued until approximately the beginning of
calendar 1998 when another, more severe, downward trend became apparent in the
semiconductor equipment market. The Company was able to increase sales on a
fiscal year basis because the most recent downturn did not affect the first and
second quarters, and only negatively impacted the latter part of the third
fiscal quarter.
The gross profit margin for fiscal 1998 increased to 30.8%, from 22.4% in
fiscal 1997. The increase was mainly the result of increased efficiency due to
higher manufacturing volume, lower overhead rates due to higher volume, and cost
cutting programs affecting material acquisition costs and labor efficiency.
14
<PAGE>
Selling, general and administrative expenses ("SG&A") decreased as a
percentage of sales in fiscal 1998 to 23.1%, from 28.5% in fiscal 1997. This
was due to the increased sales base and a 2% reduction in actual SG&A expenses
from fiscal 1997 to fiscal 1998. The reductions in expenses were attributable
to cost cutting and the third quarter fiscal 1998 restructuring that began to
result in cost savings in the fourth quarter of fiscal 1998.
During the third quarter of fiscal 1998, the Company approved a
restructuring plan that included the closure of the CSI Rio Rancho, New Mexico
manufacturing and administrative facility. Operations and administrative
functions for the Rio Rancho facility were transferred to the Chandler, Arizona
facility and the Yorba Linda, California corporate office, respectively. The
restructuring was effected to lower the cost of operations of high-purity gas
systems production and to improve efficiency by centralizing certain
administrative and marketing functions.
The categories of costs included in the restructuring charge are as follows:
<TABLE>
<CAPTION>
<S> <C>
Severance and other employee related costs $ 288,000
Facility closure costs 136,000
Impairment of CSI goodwill 4,125,000
Fixed asset disposition and write-off 382,000
----------
Total restructuring costs $4,931,000
==========
</TABLE>
Thirteen employees were terminated as a result of the restructuring,
including two officers of the Company, resulting in a charge of $288,000, of
which $135,000 has been paid and $153,000 is recorded as a current liability as
of fiscal year end.
The CSI Rio Rancho facility is no longer utilized, except for a few
engineering employees and a sales representative who temporarily remain at the
facility. Costs to maintain the facility and remove the leasehold improvements
were accrued in the third quarter in the amount of $136,000. As of May 31,
1998, $95,000 of this accrual remains as a current liability. The Company is
looking for a tenant to sublease the building or to arrange to terminate the
lease in exchange for providing the lessor with a new lessee. The lease of the
Rio Rancho facility expires on December 31, 1998.
Due to the decline in expected sales volume of high-purity gas systems, and
a curtailment of product offerings, management determined, in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived to Be Disposed of" ("SFAS
121") that an asset impairment exists. Management has determined that future
undiscounted cash flows from the high-purity gas system business are not
sufficient to recover the carrying value of the related goodwill over its
remaining life of approximately 10 years. Therefore, the Company determined that
the high-purity gas system related goodwill, with a remaining unamortized
carrying value of $4,125,000, is fully impaired
15
<PAGE>
and has written-off the entire carrying amount of such goodwill. No tax
deduction is allowed for this goodwill write-off. The fixed assets of the CSI
Rio Rancho facility that are useable were relocated to Yorba Linda or Chandler.
The fixed assets that were not useable or removable were written-off in the
amount of $382,000.
During fiscal 1997, a restructuring charge of $558,000 was incurred for
severance related costs associated with the consolidation of the Tempe, Arizona
service center into the Chandler, Arizona facility.
Research, development and engineering expense ("RD&E") for fiscal 1998
increased by 12.3% over fiscal 1997 RD&E expenses. As a percentage of sales,
RD&E expenses were slightly reduced to 8.7% in fiscal 1998, as compared to 9.3%
in fiscal 1997. The Company is continually applying resources to the
enhancement of existing products and the development of new products and new
versions of existing products. The Company believes that these efforts are
essential to maintaining and increasing its competitive position.
Interest income declined 10.6% in fiscal 1998, as compared to fiscal 1997,
due to lower average cash balances.
Other expense was $441,000 in fiscal 1998, as compared to $39,000 of income
for fiscal 1997. Of the $441,000 expense, $265,000 was due to currency
transaction losses incurred by the Company's Japanese subsidiary. The value of
the Japanese yen, as measured in U.S. dollars, declined during fiscal 1998.
A loss before income taxes of $5,283,000 was recorded in fiscal 1998, as
compared to a loss before income taxes of $6,528,000 recorded in 1997. Without
the restructuring charge of $4,931,000, the fiscal 1998 pre-tax loss was
$352,000, compared to fiscal 1997 pre-tax loss of $5,970,000, excluding the
fiscal 1997 restructuring charge of $558,000.
The tax benefit for fiscal 1998 is $634,000, which is 12% of pre-tax loss,
as compared to a tax benefit of $2,220,000 in fiscal 1997, which was 34% of
fiscal 1997 pre-tax loss. The fiscal 1998 tax benefit was only 12% of pre-tax
loss, mainly because the goodwill write-off of $4,125,000, described in the
restructuring paragraphs above, is not deductible for income tax purposes.
A net loss of $4,649,000, or $1.08 per share, was recorded in fiscal 1998,
as compared to a net loss of $4,308,000 in fiscal 1997, or $0.99 per share. The
net loss of fiscal 1998 was largely due to restructuring charges of $4,931,000,
of which $4,125,000 was a non-tax deductible charge.
The Company has performed an examination of its major software applications
to determine whether each system will be able to process date-based information
correctly as the year 2000 approaches. The review included an examination of the
software code currently
16
<PAGE>
utilized by the Company, and obtaining confirmation from others with whom it
does significant business, to determine their year 2000 compliance status.
The Company anticipates it will be year 2000 compliant by December, 1998 for
all accounting and MIS systems application software. Accordingly, the Company
believes that, based on its current examination, the year 2000 will not have a
material adverse impact on the Company's operations and that the costs to
accommodate the year 2000 will not be material. However, there can be no
assurance that software incompatibility with the year 2000 on the part of the
Company or any of its significant suppliers and customers will not cause an
interruption of operations or other system functionality, or that the Company
will not incur substantial costs to avoid such events.
1997 COMPARED TO 1996
- ---------------------
Sales from continuing operations for fiscal 1997 decreased 34% to $43.3
million from $65.6 million in fiscal 1996. Management believes that this sales
decline was mainly attributable to the industry slowdown that started
approximately in the middle of 1996, and that the downturn appeared to bottom
out near the end of calendar year 1996. Since that time, the Company has
experienced a slow recovery in sales activity from the depressed business levels
of late 1996 until January of 1998 when another industry downturn began to have
a negative impact on the Company's sales orders.
The Company primarily sells to original equipment manufacturers ("OEMs") that
supply equipment used for the production of semiconductors. Therefore, the
downturn in the semiconductor equipment industry had a strong negative impact on
the Company's sales. As the market weakened, the Company's OEM customers
immediately and substantially reduced their purchases of MFCs. Some OEMs began
to liquidate their inventories of MFCs, which exacerbated the effect the
industry downturn had on the Company's sales volume. In addition, the Company
generally has a limited backlog due to a short production cycle which
accentuates fluctuations in order rates. The reduction in sales was partially
offset by sales generated from CSI, which was acquired on June 3, 1996 (fiscal
1997) of approximately $5.1 million. Sales of CSI's gas distribution systems
were also lower than expected due mainly to a reduction in capital spending by
CSI's largest customer. The downturn in the semiconductor equipment market has
been worldwide and has had a negative impact on both domestic and international
sales of the Company.
The gross profit margin for fiscal 1997 was 22.4%, as compared to 39.8% in the
prior year. This reduction can be attributed to the large decrease in
production due to substantially lower sales volume. The reduction in production
reduced overhead absorption rates and labor efficiency, thereby negatively
impacting the gross profit margin. Substantial layoffs in the production
departments were made as a result of the reduced volumes and organization and
cost cutting measures were implemented in response to the downturn.
17
<PAGE>
Selling, general and administrative expenses for fiscal 1997 decreased by
15.4% from fiscal 1996. However, as a result of the reduced sales volume, these
expenses as a percent of sales for fiscal 1997 increased to 28.5% of sales as
compared to 22.2% in the prior year. The expenses were reduced by restructuring
some functions, reducing the workforce and reducing costs.
A restructuring charge of $558,000 was incurred in fiscal 1997 for severance
related expenses and costs associated with the consolidation of facilities. In
fiscal 1996, a restructuring charge of $373,000 was recorded for employee
severance expense, legal fees and other expenses associated with the closure of
the Erie, Pennsylvania corporate office.
Research, development and engineering expenses for fiscal 1997 increased by
7.4% over fiscal 1996. As a percent of sales, such expenses increased to 9.3%
from 5.7% in fiscal 1996. The Company is committed to a strong research and
engineering function, hence these expenses were not reduced in response to the
change in sales activity. The Company believes that the continued timely
development of new products and enhancement of existing products is essential to
maintaining and increasing its competitive position.
Interest income increased to $822,000 in fiscal 1997, from $690,000 in fiscal
1996, because the cash balances from the sale of AEG were available for the
entire fiscal year.
A loss from continuing operations before income taxes of $6.5 million was
incurred in fiscal 1997 compared to income from continuing operations before
income taxes of $7.8 million in fiscal 1996. This $14.3 million reduction in
operating earnings, before income taxes, is almost entirely due to the reduction
of $22.3 million of sales from fiscal 1996 to fiscal 1997.
An income tax benefit on continuing operations was provided for at a rate of
34.0% for fiscal 1997. Income tax expense was provided for at a rate of 38.7%
for fiscal 1996 on continuing operations. Both rates are negatively effected by
the non-deductibility of goodwill amortization.
A net loss of $4.3 million, or $.99 a share, was incurred for fiscal 1997. In
fiscal 1996, the Company recorded income from continuing operations of $4.8
million, or $1.09 a share. In fiscal 1996, income from discontinued operations
resulted from Autoclave Engineers Group operations through the date of sale in
September, 1995. A net gain of $1.5 million was recorded on the sale of
Autoclave Engineers Group. Net income for fiscal 1996 was $7.0 million, or
$1.59 per share.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In fiscal 1998, the Company generated $4,150,000 in cash from its operating
activities. Contributing to the operating cash flow were depreciation and
amortization expenses of $2,772,000, reductions in inventories of $1,062,000,
and net tax refunds of $1,482,000. In addition to generating cash from
operations, the Company obtained cash from the exercise of employee stock
options and related tax benefit of $1,123,000. The reductions in inventories
were due to an effort to reduce the amount of inventory on-hand and maintain the
same level of response time of filling orders, generally within two weeks of
receipt. Contributing to the net tax refund were refunds of federal income
taxes received due to the carryback of the fiscal 1997 loss. The unusually
large amount of cash received from the exercise of employee stock options was
generally the result of a favorable stock market value in conjunction with a
large number of option contracts expiring during fiscal year 1998.
The Company used $1,192,000 for the acquisition of fixed assets, of which
$472,000 was used to establish a service center in Virginia. The Company used
$6,042,000 to buy 519,000 shares of Company stock. 412,000 of these shares were
purchased from a former director and his family members. The net cash used by
the Company in fiscal 1998 was $2,261,000.
Cash balances as of May 31, 1998 were $9,942,000, as compared to cash of
$12,203,000 as of May 31, 1997. The major reason for the cash reduction was the
purchase of Company stock. Inventory balances as of May 31, 1998 were
$7,638,000, as compared to $8,700,000 as of May 31, 1997. The reduction was
mainly the result of efforts to streamline the purchasing and inventory
functions, as well as to reduce the cost of purchased parts. Goodwill, as of
May 31, 1998, was $4,034,000 and was $8,577,000 as of May 31, 1997. The
reduction in the carrying value of goodwill was due to the goodwill write-off,
which is part of the restructuring charge of $4,931,000.
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, 1999. Interest is
payable monthly at prime, or an Offshore Rate plus 1.5%. The credit facility
provides for the issuance of letters of credit not to exceed $5,000,000. The
revolving credit agreement contains certain financial covenants with which the
Company was not in compliance as of May 31, 1998. At May 31, 1998, there were
no amounts borrowed under this agreement. A $1,900,000 standby letter of credit
was issued to support a loan from a Japanese bank, that has a balance of
$1,428,571 as of May 31, 1998, to Unit Instruments Japan Inc., a subsidiary of
the Company. Subsequent to May 31, 1998, the Company repaid its borrowing from
the Japanese Bank on July 15, 1998 and canceled the outstanding letter of
credit. Additionally, the Company terminated its revolving credit agreement
with the bank on July 29, 1998.
19
<PAGE>
The Company's financial position remains strong. As of May 31, 1998, the
Company had $9,942,000 in cash and no long-term debt. The Company expects that
current cash balances and anticipated cash flow from operations will be adequate
to meet its near-term financing needs.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-looking statements made
in good faith by the Company pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. In connection with these "safe
harbor" provisions, the Company identifies important factors that could cause
actual results to differ materially from those contained in any forward-looking
statements made by, or on behalf of, the Company. Any such statements are
qualified by reference to the following cautionary statements.
The Company's businesses operate in a highly competitive market and are subject
to many risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the Company's dependence on a few large customers, the Company's
dependence on the semiconductor market, which is subject to cyclicality and
periodic fluctuations in demand, current economic and financial conditions in
Asia and, in particular, Korea, the magnitude and duration of the current
industry downturn, the successful development and industry acceptance of new
products, failure to gain or maintain market share, the replacement of the
Company's products with new technology, pricing pressures, the potential change
in competitive conditions within the markets served by the Company, expenses for
the extended product warranties, industry consolidation, the failure to retain
key technical and management personnel, adverse changes in the Company's
operations or businesses, failure to diversify into markets other than the
semiconductor equipment market, failure to reduce product costs, failure to
commercialize the Z-Bloc(TM) gas distribution system and failure to anticipate
demand for the Company's products.
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 within a single industrial segment and are
dependent on a few large customers. This concentration on a single market and
limited customer base subjects the Company to substantial risks, which increases
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
for the Company will be achieved.
20
<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 index
appearing under Item 14 (a) (1) and (2) on page 55 present fairly, in all
material respects, the financial position of Unit Instruments, Inc. and its
subsidiaries at May 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended May 31, 1998,
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.
PricewaterhouseCoopers LLP
Costa Mesa, California
July 17, 1998
21
<PAGE>
<TABLE>
<CAPTION>
UNIT INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, 1998 AND 1997
(amounts in thousands, except share data)
1998 1997
----- -----
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 9,942 $12,203
Accounts receivable, less reserves of $135 in 1998 and $149 in 1997 6,529 7,032
Inventories (Note 3) 7,638 8,700
Income taxes refundable (Note 6) 735 1,523
Prepaid expenses and other 277 322
Deferred taxes 1,114 1,333
------- -------
Total current assets 26,235 31,113
Fixed assets, net (Note 4) 8,477 10,149
Goodwill, net of accumulated amortization of $2,027 in 1998
and $2,275 in 1997 4,034 8,577
Deferred income taxes 255 --
Other assets 1,102 1,125
------- -------
Total $40,103 $50,964
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,642 $ 2,290
Accrued compensation and benefits 994 1,113
Current installments on term debt (Note 5) 1,438 1,740
Other current liabilities 2,439 2,274
------- -------
Total current liabilities 6,513 7,417
Deferred income taxes -- 203
Other long-term liabilities and deferred credits 580 683
------- -------
Total 7,093 8,303
------- -------
Commitments and contingencies (Notes 7, 11 and 12)
Shareholders' equity:
Common stock, $.15 par value; authorized shares: 12,000,000;
issued shares: 3,995,118 in 1998 and 4,384,627 in 1997 599 658
Additional paid-in capital 21,972 23,211
Retained earnings 11,010 19,280
Foreign currency translation adjustment (571) (488)
------- -------
Total shareholders' equity 33,010 42,661
------- -------
$40,103 $50,964
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEARS ENDED MAY 31, 1998, 1997 and 1996
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
----- ----- -----
Net sales $ 52,234 $ 43,271 $ 65,568
Operating costs and expenses:
Cost of goods sold 36,141 33,582 39,501
Selling and administration 12,091 12,337 14,587
Restructuring costs 4,931 558 373
Research, development and engineering 4,533 4,035 3,757
--------- --------- ---------
Operating income (loss) (5,462) (7,241) 7,350
Interest income 735 822 690
Interest expense (115) (148) (112)
Other income (expense), net (441) 39 (132)
--------- --------- ---------
Income (loss) from continuing operations (5,283) (6,528) 7,796
Provision for (benefit from) income taxes (634) (2,220) 3,018
--------- --------- ---------
Income (loss) from continuing operations (4,649) (4,308) 4,778
Discontinued operations:
Income, net of income tax provision of $521 -- -- 750
Gain on disposal, including tax provision of $1,011 -- -- 1,454
--------- --------- ---------
Net income (loss) $ (4,649) $ (4,308) $ 6,982
========= ========= ==========
Basic net income (loss) per common share:
Income (loss) from continuing operations $ (1.08) $ (0.99) $ 1.16
Discontinued operations:
Net income -- -- 0.18
Gain on disposal -- -- 0.35
Net income (loss) $ (1.08) $ (0.99) $ 1.69
========= ========= ==========
Average shares used in computing earnings per share 4,295,000 4,375,000 4,125,000
========= ========= =========
Diluted net income (loss) per common share:
Income (loss) from continuing operations $ (1.08) $ (0.99) $ 1.09
Discontinued operations:
Net income -- -- 0.17
Gain on disposal -- -- 0.33
--------- --------- ---------
Net income (loss) $ (1.08) $ (0.99) $ 1.59
========= ========= =========
Average shares used in computing earnings per share 4,295,000 4,375,000 4,393,000
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MAY 31, 1998, 1997 AND 1996
(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, 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 268 268
stock options
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
Net (loss) (4,308) (4,308)
Issuance of common
stock 289 43 3,934 3,977
Exercise of stock
options 58 10 326 336
Purchase of common
stock (52) (8) (356) (85) (449)
Tax benefit from
stock options 60 60
Foreign currency
translation (179) (179)
------- ---- -------- -------- -------- -------- -------
Balance at May 31, 1997 4,385 658 23,211 19,280 (488) -- 42,661
Net (loss) (4,649) (4,649)
Exercise of stock
options 129 19 804 823
Purchase of common
stock (519) (78) (2,343) (3,621) (6,042)
Tax benefit from
stock options 300 300
Foreign currency
translation (83) (83)
-------- ---- -------- -------- -------- -------- --------
Balance at May 31, 1998 3,995 $599 $21,972 $11,010 $(571) $ $33,010
======== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
UNIT INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MAY 31, 1998, 1997 AND 1996
(amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,649) $(4,308) $ 6,982
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization 2,772 3,145 2,023
Deferred income taxes (239) 110 (180)
Loss (gain) on disposal of property, plant and equipment 479 (1) --
Gain on sale of business -- -- (1,454)
Write-off of goodwill 4,125 -- --
Changes in assets and liabilities, net of effect of
businesses sold and acquired:
Accounts receivable 503 4,507 (636)
Inventories 1,062 2,884 (1,269)
Prepaids and other assets 14 (69) 249
Accounts payable and accrued compensation and benefits (767) (1,856) (944)
Income taxes 788 (2,956) 469
Other current liabilities 165 (162) (1,421)
Other (103) 34 126
-------- -------- ---------
Net cash flow provided from operating activities 4,150 1,328 3,945
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,192) (1,366) (5,182)
Proceeds from sale of property, plant and equipment 85 16 --
Proceeds from sale of business -- -- 12,526
Note receivable from sale of business -- -- (750)
Change in short-term investments -- -- 4,919
Issuance of note receivable -- -- (1,025)
Net cash paid for acquired business -- (1,127) --
Other -- -- (67)
-------- -------- ---------
Net cash provided from (used in) investing activities (1,107) (2,477) 10,421
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -- (254) (453)
Change in short-term borrowings (302) (734) (1,311)
Cash dividends paid -- -- (517)
Purchase of company common stock (6,042) (449) (2,585)
Stock option exercise, related tax benefits and other 1,123 396 664
-------- -------- ---------
Net cash (used in) financing activities (5,221) (1,041) (4,202)
Effect of exchange rate changes on cash and cash equivalents: (83) (179) (57)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (2,261) (2,369) 10,107
Cash and cash equivalents at beginning of year 12,203 14,572 4,465
-------- -------- ---------
Cash and cash equivalents at end of year $ 9,942 $12,203 $14,572
-------- -------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 75 $ 59 $ 112
Net (refunds) or payments of income taxes $(1,482) $ 567 $ 4,493
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
UNIT INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended May 31, 1998
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 intercompany accounts and transactions have been eliminated.
FISCAL YEAR
- -----------
The Company began ending its fiscal year on the Saturday closest to May 31st
effective fiscal year 1996. Therefore, the last three fiscal years ended on
May 30, 1998, May 31, 1997 and June 1, 1996. For clarity of presentation, all
years are reported as ending on May 31st.
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
26
<PAGE>
values are recorded at original cost.
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 three-year
warranty. In addition, the Company has one end user customer to which it has
issued a ten-year warranty in conjunction with its exclusive supplier agreement.
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 using the
straight line method over the estimated useful lives which range between twelve
and forty years. 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, except for Unit Instruments Ltd., an Irish corporation,
which maintains its accounts in U.S. dollars. Assets and liabilities are
primarily 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 gains or losses 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 reported in the other income (expense) category of the Statement of
Operations.
REVENUE RECOGNITION
- -------------------
Product sales are recorded at the time of shipment and service revenues are
recorded when the related services are performed.
27
<PAGE>
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."
EARNINGS PER SHARE
- ------------------
In February 1997, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires dual presentation consisting of Basic Earnings per Share ("Basic
EPS") and Diluted Earnings per Share ("Diluted EPS"). Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of an entity. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Accordingly, the Company adopted SFAS 128 in the third quarter of fiscal 1998.
Earnings per share for prior period have been restated in accordance with SFAS
128.
Diluted EPS was the same as Basic EPS for fiscal 1998 and fiscal 1997 due to
the net loss realized. Fiscal 1996 Diluted EPS includes 268,000 in common share
equivalents, assuming the exercise of stock options.
28
<PAGE>
The following table summarizes the calculation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years Ending May 31 1998 1997 1996
- -------------------------------------------------- ----------------- -------------- -------------
Net income (loss) available to common
shareholders from continuing operations $(4,649) $(4,308) $4,778
Net income available to common shareholders
from discontinued operations -- -- 2,204
------- ------- ------
$(4,649) $(4,308) $6,982
Net income (loss) available to common
shareholders
Basic earnings (loss) per share:
Weighted average number of shares
outstanding 4,295 4,375 4,125
Net income (loss) from continuing
operations per share (1.08) (0.99) 1.16
Net income from discontinued
operations per share -- -- 0.53
Net loss per share $ (1.08) $ (0.99) $ 1.69
======= ======= ======
Diluted earnings (loss) per share:
Weighted average number of shares
outstanding 4,295 4,375 4,125
Common share equivalents, assuming
exercise of stock options and warrants -- -- 268
Average shares used in computing
earnings per share 4,295 4,375 4,393
Net income (loss) from continuing operations
per share (1.08) (0.99) 1.09
Net income from discontinued operations
per share -- -- 0.50
------
Net loss per share $ (1.08) $ (0.99) $ 1.59
======= ======= ======
</TABLE>
29
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying amounts of cash and cash equivalents, accounts and other
receivables, accounts payable, accrued liabilities and debt approximate fair
value because of the short maturity of these instruments.
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 undiscounted
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. In fiscal 1998, the Company
recorded an impairment of a long lived asset. The impairment related to
goodwill recorded in the purchase accounting of the acquisition of Control
Systems, Inc. on June 3, 1996.
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), have to disclose, in
the Notes to Financial Statements, the pro forma impact on net income and net
income per share had the Company utilized the Fair Value Method. The Company
accounts for stock compensation awards in accordance with APB 25 with the
appropriate footnote disclosure required under SFAS 123.
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.
30
<PAGE>
RECLASSIFICATIONS
- -----------------
Certain items in the fiscal 1997 and 1996 financial statements have been
reclassified to conform to the fiscal 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which will become effective for the Company in fiscal 1999. The Company
does not expect the adoption of SFAS 130 to have a material impact on its
financial condition or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which will become effective
for the Company in fiscal 1999. SFAS 131 establishes standards for the way
publicly-held companies report information about operating segments, as well as
disclosures about products and services, geographic areas and major customers.
The Company does not expect the adoption of SFAS 131 to have a material impact
on its financial condition or results of operations.
2. RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS
On June 3, 1996, the Company acquired Control Systems, Inc. ("CSI") for cash
and stock valued at $5,177,000. Due to a severe business downturn, the Company
restructured the CSI business and other related operations.
During the third quarter of fiscal 1998, the Company approved a
restructuring plan that included the closure of the CSI Rio Rancho, New Mexico
manufacturing and administrative facility. Operations and administrative
functions for the Rio Rancho facility were transferred to the Chandler, Arizona
facility and the Yorba Linda, California corporate office, respectively. The
intent of the restructuring was effected to lower the cost of operations of
high-purity gas systems production and to improve efficiency by centralizing
certain administrative and marketing functions.
The categories of costs included in the restructuring charge are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Severance and other employee related costs $ 288,000
Facility closure costs 136,000
Impairment of CSI goodwill 4,125,000
Fixed asset disposition and write-off 382,000
----------
Total restructuring costs $4,931,000
==========
</TABLE>
31
<PAGE>
Thirteen employees were terminated as a result of the restructuring,
including two officers of the Company, resulting in a charge of $288,000, of
which $135,000 has been paid and $153,000 is recorded as a current liability as
of fiscal year end.
The Rio Rancho facility is no longer utilized, except for a few engineering
employees and a sales representative who temporarily remain at the facility.
Costs to maintain the facility and remove the leasehold improvements were
accrued in the third quarter in the amount of $136,000. As of May 31, 1998,
$95,000 of this accrual remains as a current liability. The Company is looking
for a tenant to sublease the building or to arrange to terminate the lease in
exchange for providing the lessor with a new lessee. The lease of the Rio
Rancho facility expires on December 31, 1998.
Due to the decline in expected sales volume of high-purity gas systems, and
a curtailment of product offerings, management has determined, in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived to Be Disposed of" ("SFAS
121") that an asset impairment exists. Management has determined that future
undiscounted cash flows from the high-purity gas system business are not
sufficient enough to recover the carrying value of the related goodwill over its
remaining life of approximately 10 years. Therefore, the Company determined
that the high-purity gas system related goodwill, with a remaining unamortized
carrying value of $4,125,000, is fully impaired and has written-off the entire
carrying amount of such goodwill. No tax deduction is allowed for this goodwill
write-off.
The fixed assets of the CSI Rio Rancho facility that are useable were
relocated to Yorba Linda or Chandler. The fixed assets that were not useable or
removable were written-off in the amount of $382,000.
During fiscal 1997, a restructuring charge of $558,000 was incurred for
severance related costs associated with the consolidation of the Tempe, Arizona
service center into the Chandler, Arizona facility.
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 AEG. 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. These amounts are reported as discontinued operations in the
accompanying Statement of Operations.
32
<PAGE>
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. With the disposition of AEG, the
continuing operations of the Company represent a single business segment.
3. INVENTORIES
Inventories at May 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------- -------------------
<S> <C> <C>
Raw materials $6,029,000 $6,701,000
Work in process 839,000 1,058,000
Finished goods 770,000 941,000
---------- ----------
Total $7,638,000 $8,700,000
========== ==========
</TABLE>
4. FIXED ASSETS
Fixed assets at May 31, 1998 and 1997 were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------
<S> <C> <C>
Buildings and improvements $ 5,422,000 $ 5,046,000
Machinery and equipment 13,601,000 14,644,000
Construction-in-progress 146,000 226,000
------------ -----------
19,169,000 19,916,000
Accumulated depreciation and amortization (10,692,000) (9,767,000)
------------ -----------
Total $ 8,477,000 $10,149,000
============ ===========
</TABLE>
5. 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, 1999. 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, 1998, there were no amounts borrowed under this agreement, but a $1.9
million standby letter of credit was issued to support a loan from a Japanese
bank, which had a balance of $1,428,000 as of May 31, 1998, to Unit Instruments,
Japan. The revolving credit agreement contains certain financial covenants with
which the Company was not in compliance at May 31, 1998.
33
<PAGE>
Subsequent to May 31, 1998, the Company repaid its borrowing from the
Japanese Bank on July 15, 1998 and canceled the outstanding letter of credit.
Additionally, the Company terminated its revolving credit agreement with the
bank on July 29, 1998.
Term debt as of May 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Bank term loan, payable quarterly and $ 1,428,000 $ 1,701,000
renewable annually at interest rates from
1.6% to 2.0%, secured by a standby letter
of credit.
Capital lease obligations -0- 88,000
Other 10,000 9,000
----------- -----------
Total 1,438,000 1,798,000
Less current maturities (1,438,000) (1,740,000)
----------- -----------
Long-term debt $ -0- $ 58,000
=========== ===========
</TABLE>
6. INCOME TAXES
The composition of the provision (benefit) for income taxes included in the
consolidated statement of operations was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
Continuing operations:
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal $(795,000) $(2,294,000) $2,728,000
State 20,000 (142,000) 126,000
Foreign 80,000 46,000 76,000
--------- ----------- ----------
(695,000) (2,390,000) 2,930,000
Stock option exercise tax benefit
applied to additional paid in capital 300,000 60,000 268,000
Deferred
Federal 166,000 496,000 (149,000)
State (405,000) (386,000) (31,000)
--------- ----------- ----------
(239,000) 110,000 (180,000)
Total provision - continuing operations $(634,000) $(2,220,000) $3,018,000
========= =========== ==========
Discontinued operations:
Current -- -- 1,835,000
Deferred -- -- (303,000)
Total provision - discontinued operations -- -- $1,532,000
========= =========== ==========
Total tax provision (benefit) $(634,000) $(2,220,000) $4,550,000
========= =========== ==========
</TABLE>
34
<PAGE>
A reconciliation of the federal statutory rate to the effective rate on
income from continuing operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate $(1,796,000) $(2,219,000) $2,651,000
State income tax net of federal benefit (215,000) (341,000) 140,000
Goodwill amortization 142,000 187,000 52,000
Goodwill write-off 1,403,000 -- --
Effect of utilized foreign tax credits -- -- (79,000)
Foreign tax rate higher than U.S. rate 95,000 253,000 175,000
Research tax credit (295,000) (230,000) --
Other 32,000 130,000 79,000
----------- ----------- ----------
Total adjustments 1,162,000 (1,000) 367,000
----------- ----------- ----------
Total provision (benefit) for income taxes $ (634,000) $(2,220,000) $3,018,000
=========== =========== ==========
</TABLE>
Temporary differences arising from continuing operations between the
financial basis and tax basis of assets and liabilities result in deferred
income taxes. Deferred tax assets and liabilities consist of the following at
May 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
Deferred tax assets:
<S> <C> <C>
Inventory valuation $ 284,000 $ 385,000
Deferred compensation 207,000 262,000
Accrued expenses 303,000 168,000
Reserves 547,000 565,000
State loss and credit carryovers 918,000 527,000
Foreign tax loss and credit carryforward 1,144,000 1,190,000
Other 95,000 --
----------- -----------
Total gross deferred tax assets 3,498,000 3,097,000
Valuation allowance (1,144,000) (1,190,000)
----------- -----------
Net deferred tax assets 2,354,000 1,907,000
Deferred tax liabilities:
Tax over book depreciation (621,000) (690,000)
Deferred state effect on federal deferred (323,000) (35,000)
Other (41,000) (52,000)
----------- -----------
Total deferred tax liabilities (985,000) (777,000)
Net deferred tax asset $ 1,369,000 $ 1,130,000
=========== ===========
</TABLE>
35
<PAGE>
A 100% valuation allowance of $1,144,000 has been provided against
deferred tax assets related to the utilization of foreign tax credits and
foreign loss carryforwards. At May 31, 1998, the Company had foreign tax credit
carryforwards available for federal income tax purposes and foreign net
operating loss carryforwards of $323,000 and $1,643,000, respectively. These
expire as follows:
<TABLE>
<CAPTION>
Fiscal Year in Which Foreign Foreign
Carryforwards Expires Tax Credits Operating Losses
------------------------ ----------------- -------------------
<S> <C> <C>
1999 -- $ 126,000
2000 -- --
2001 $321,000 249,000
2002 2,000 589,000
2003 -- 679,000
-------- ----------
$323,000 $1,643,000
======== ==========
</TABLE>
As of May 31, 1998, the Company has available state net operating loss
carryforwards and state tax credit carryforwards applicable to several states.
A deferred tax asset has been recorded in the amount of $918,000 for the tax
benefit provided by these carryforwards. These expire as follows:
<TABLE>
<CAPTION>
Fiscal Year in Which State
Carryforward Expires Tax Benefits
----------------------- -----------------
<S> <C> <C>
2002 $311,000
2003 76,000
2004 --
2005 and later 531,000
--------
$918,000
========
</TABLE>
The domestic and foreign components of income (loss) before provision
for income taxes for continuing operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
US $(5,238,000) $(5,913,000) $8,087,000
Foreign (45,000) (615,000) (291,000)
----------- ----------- ----------
Total $(5,283,000) $(6,528,000) $7,796,000
=========== =========== ==========
</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 $1,333,000 at May 31, 1998. It is the Company's intention to
reinvest undistributed earnings of certain of its foreign subsidiaries and
thereby indefinitely postpone their remittance.
36
<PAGE>
7. 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 the
Company to the plan. Additional contributions may be made by Unit, at the
discretion of Unit's Board of Directors. Contributions to the plan were
$234,000 in 1998, $305,000 in 1997, and $486,000 in 1996.
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, 1998 and 1997, the Company's
estimated liability for the plan, which has been included in other long-term
liabilities, was $524,000 and $533,000, respectively.
8. STOCK OPTION PLANS
The Company established a 1997 Stock Option Incentive Plan in fiscal 1998.
The plan allows the Company to grant up to a total of 480,000 shares of stock
options. The options can be granted as either incentive stock options or non-
qualified stock options. 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 480,000 shares
available, 170,000 were granted in fiscal 1998 and 15,000 were canceled.
The Company also 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, options for 1,023,560 shares have been
granted, net of cancellations, and 389,771 shares have been exercised. No more
options will be issued under the 1987 Plan.
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, 108,941 have been granted, 12,823 have been
exercised, and 9,693 have been canceled, leaving a balance of 86,425 options
outstanding under the 1990 Plan as of May 31, 1998.
37
<PAGE>
At May 31, 1998, there were 365,753 shares exercisable under the 1987 Plan at
option prices ranging from $6.25 to $13.63 and 86,425 shares exercisable under
the 1990 Plan at option prices ranging from $7.00 to $15.38. No options were
exercisable under the 1997 Plan as of May 31, 1998.
The following is a summary of all stock option activity for fiscal 1998, 1997
and 1996:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Number of Shares Price Per Share Per Share
---------------- --------------- ---------
<S> <C> <C> <C>
May 31, 1995 471,175 $ 4.95 - $11.25 $ 7.23
Exercised (67,341) $4.95 - $8.00 $ 7.47
Granted 470,075 $12.63 - $15.38 $12.80
--------
May 31, 1996 873,909 $ 4.95 - $15.38 $10.34
Options canceled or expired (80,000) $13.63 - $13.75 $13.74
Exercised (57,024) $ 5.89 $ 5.89
Granted 235,834 $ 9.00 - $13.75 $11.61
--------
May 31, 1997 972,719 $ 5.89 - $15.38 $10.63
Options canceled or expired (149,243) $ 5.89 - $15.38 $11.43
Exercised (129,306) $ 5.89 - $11.02 $ 6.37
Granted 181,044 $ 7.88 - $13.63 $ 9.52
--------
May 31, 1998 875,214 $ 6.25 - $15.38 $10.89
========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its stock option plans. Had compensation cost been
determined based on estimated fair market value at the grant dates for awards
under those plans, in accordance with the method presented in SFAS 123, the
Company's net income (loss) and net income (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
Year Ended May 31
-----------------
Continuing Operations 1998 1997 1996
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Net income (loss)
As reported $(4,649) $(4,308) $4,778
Pro forma (5,042) (4,723) 4,481
Net income (loss) per share
As reported - Basic (1.08) (0.99) 1.16
As reported - Diluted (1.08) (0.99) 1.09
Pro forma - Basic (1.17) (1.08) 1.06
Pro forma - Diluted (1.17) (1.08) 1.00
</TABLE>
38
<PAGE>
The effects of applying SFAS 123 in the pro forma statements above are not
likely to be representative of the effects on pro forma net income for future
years because options vest over several years and additional awards generally
are made each year.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model computed using the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- --------------- ----------------
<S> <C> <C> <C>
Risk free interest rates 5.90% 6.54% 6.46%
Expected lives 7 years 7 years 7 years
Expected volatility 39% 32% 32%
Expected dividend yield none none none
</TABLE>
The weighted average fair value of options granted during fiscal 1998,
1997 and 1996 was $4.86 per share, $5.19 per share and $6.20 per share,
respectively. The weighted average exercise price per share of exercisable
options as of May 31, 1998, 1997 and 1996 was $10.91 per share, $9.15 per share,
and $8.19, respectively. The quantities of exercisable shares as of May 31,
1998, 1997, and 1996 were 452,178; 486,494 and 453,419, respectively.
The following table summarizes information about stock options outstanding
at May 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------ -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$6.25 - $8.50 178,757 5.4 $ 7.67 121,757 $ 7.57
$8.75 - $11.25 273,557 7.6 10.00 101,417 10.33
$12.63 - $15.38 422,900 7.3 12.83 229,004 12.93
- ------------------ ------- --- ------ ------- ------
$6.25 - $15.38 875,214 7.0 $10.89 452,178 $10.91
</TABLE>
9. EXPORT SALES AND CONCENTRATION OF CREDIT RISK
Export sales amounted to $3,067,000, $2,018,000 and $3,720,000, or 6%, 5%
and 6% of total sales in 1998, 1997 and 1996, 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 1998,
1997 and 1996, sales to one customer totaled $11,539,000, $10,826,000 and
$19,863,000, respectively, while sales to another customer totaled $3,468,000,
$4,755,000 and $12,909,000, respectively, for the same three fiscal years.
39
<PAGE>
10. INDUSTRY SEGMENT INFORMATION
The operations of the Company consist of one business segment which designs,
develops, manufactures, markets and services mass flow controllers and related
equipment, which are precision instruments sold principally to the semiconductor
industry to control and measure the mass flow rate of gases.
The geographic distribution of sales, operating income and identifiable assets
is as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(amounts in thousands)
Net sales:
United States $45,582 $36,947 $58,063
Europe 4,622 3,766 4,323
Asia 3,030 2,558 3,182
------- ------- -------
Total $52,234 $43,271 $65,568
======= ======= =======
Income (loss) from operations:
United States $(5,756) $(6,701) $ 7,460
Europe 342 (20) 133
Asia (48) (520) (243)
------- ------- -------
Total $(5,462) $(7,241) $ 7,350
======= ======= =======
Identifiable assets:
United States $34,016 $44,503 $45,165
Europe 3,059 3,556 4,134
Asia 3,028 2,905 3,481
------- ------- -------
Total $40,103 $50,964 $52,780
======= ======= =======
</TABLE>
11. 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, 1998 are as follows:
40
<PAGE>
<TABLE>
<CAPTION>
Year ending May 31:
------------------
<S> <C>
1999 $1,286,000
2000 1,164,000
2001 1,087,000
2002 1,031,000
2003 1,009,000
Thereafter 3,439,000
Total rent expense for operating leases was as follows:
1996 $1,410,000
1997 1,413,000
1998 1,434,000
</TABLE>
12. 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 $661,000 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., has been 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 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 possible to predict 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 future 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. 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.
41
<PAGE>
13. RELATED PARTY TRANSACTIONS
During fiscal 1998, the Company repurchased 412,215 shares of its common
stock for $5,049,634 ($12.25 per share), from James Levinson, a former director
and Chairman of the Board, and family members. The Company also purchased Mr.
and Mrs. Levinsons' stock option contracts of 18,868 shares for $54,479.
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.
14. ACQUISITION OF CONTROL SYSTEMS, INC.
The Company acquired Control Systems, Inc. ("CSI") on June 3, 1996 in
exchange for $1.2 million in cash and 289,000 shares of Company common stock
valued at $3,977,000. The excess of the purchase price over the net assets
acquired was approximately $4.8 million. CSI fabricates high-purity gas
isolation boxes and gas panels for semiconductor manufacturers. The acquisition
was accounted for by the purchase method. Accordingly, the results of
operations of CSI are included with those of the Company for periods subsequent
to the date of acquisition. CSI has converted to the Company's fiscal year.
See Note 2 for disclosure of CSI restructuring and the write-off of goodwill
during fiscal 1998.
The unaudited pro forma combined results of operations of the Company and
CSI for the year ended May 31, 1996, after giving effect for certain pro forma
adjustments, is as follows:
<TABLE>
<S> <C>
Net sales $76,370,000
Income from continuing operations 4,641,000
Diluted income per share from continuing operations $ 0.99
</TABLE>
The foregoing unaudited pro forma results reflect one year's amortization
of goodwill resulting from the acquisition of CSI. The Company determined that
the goodwill had an estimated 12-year life and, for purposes of the pro forma
adjustments, a 12-year amortization period was used.
42
<PAGE>
15. SUBSEQUENT EVENTS
On July 2, 1998, United States Filter Corporation ("U.S. Filter"), Kinetics
Acquisition Corp., a California corporation and wholly-owned subsidiary of U.S.
Filter ("Subcorp"), and Unit Instruments, Inc. ("Unit") executed an Agreement
and Plan of Merger whereby Subcorp will be merged with and into Unit (the
"Merger") and Unit will survive the merger (the "Surviving Corporation") and
become a wholly-owned subsidiary of U.S. Filter.
Pursuant to the terms of the Agreement and Plan of Merger, U.S. Filter
had a 30-day period, ending on July 31, 1998, to complete due diligence. On
July 31, 1998, U.S. Filter notified Unit that it was dissatisfied with certain
items relating to the Company that resulted from their due diligence review,
including the declining prospects for the Company and its business due to the
deteriorating fundamentals in the semiconductor equipment market, and indicated
that they intended to terminate the Agreement and Plan of Merger unless these
items were cured or resolved to U.S. Filter's satisfaction within 30 days. On
August 5, 1998, U.S. Filter and Unit agreed to amend the terms of the Agreement
and Plan of Merger and executed the First Amendment to the Agreement and Plan of
Merger, collectively ("the Merger Agreement"). With the execution of the First
Amendment, U.S. Filter has agreed that their due diligence condition has been
satisfied, except for the requirement that Needham & Company, Inc. ("Needham")
terminate certain registration rights associated with a warrant held by Needham
for 100,000 shares of the Company's common stock.
On July 7, 1998, Unit filed Form 8-K which summarized the Agreement
and Plan of Merger and included a complete copy of the Agreement and Plan of
Merger. Included with Unit's Form 10-K, for the period ending May 31, 1998, is
Exhibit 10.14, First Amendment to the Agreement and Plan of Merger, dated August
5, 1998. The below-referenced summary of the terms of the Merger Agreement is
qualified in its entirety by reference to the full text of the Agreement and
Plan of Merger and to First Amendment to the Agreement and Plan of Merger.
Upon the effectiveness of the Merger, each outstanding share of common
stock, par value $0.15 per share ("Common Stock"), of Unit, with the exception
of shares held by shareholders who properly exercise dissenters' rights under
the Corporations Code of the State of California, will be converted into a
number of shares of U.S. Filter's common stock equal to the Exchange Ratio (as
defined below), collectively, the "Merger Consideration."
The exchange ratio (the "Exchange Ratio") will be calculated as follows:
(a) if the average daily closing price (the "Average Closing Price") on the New
York Stock Exchange of U.S. Filter's common stock during the 20 consecutive
trading days ending five days prior to the Closing Date is above $26.00, the
Exchange Ratio will be equal to $11.03 divided by the Average Closing Price; and
(b) if the Average Closing Price is equal to or less than $26.00, the Exchange
Ratio will be equal to $11.03 divided by $26.00. If the Average Closing Price is
less than $24.00, Unit may terminate the Merger Agreement.
43
<PAGE>
The closing of the Merger is subject to certain conditions, but not limited
to, the termination of certain registration rights held by Needham, expiration
of the Hart-Scott-Rodino waiting period, and approval by Unit shareholders. The
transaction is expected to close in October, 1998. Following the merger, Unit
will become a wholly-owned subsidiary within U.S. Filter's Kinetics Group ("USF
Kinetics").
At the effective time (the "Effective Time"), each outstanding stock option
or warrant to purchase Unit stock shall automatically convert into an option to
purchase a number of shares of U.S. Filter common stock equal to (x) the number
of shares of Unit Common Stock issuable immediately as of the date of this
Agreement upon exercise of such Unit stock option or warrant multiplied by (y)
the Exchange Ratio with an exercise price equal to the exercise price which
existed under the corresponding Unit stock option or warrant divided by the
Exchange Ratio, and with such other terms and conditions, subject to U.S.
Filter's approval, as were in effect under such Unit stock option or warrant as
of the date of this Agreement.
Fractional shares will not be issued, but the pro rata portion of the net
proceeds of the sale of all such shares will be paid in cash to the persons
entitled thereto. As a result of the conversion of the Unit Common Stock, the
Unit Common Stock will be de-listed from the Nasdaq National Market tier of The
Nasdaq Stock Market and will not be listed on any national securities exchange
or quoted in any inter-dealer quotation system, and holders of Unit Common Stock
will become shareholders of U.S. Filter. Additionally, if the Merger becomes
effective, the directors and officers of Subcorp, immediately prior to the
Merger, will become the directors and officers of the Surviving corporation.
On July 17, 1998, the Company announced in a press release that it intends
to reduce its worldwide workforce by approximately 15% and is initiating partial
domestic plant shutdowns in response to the continuing downturn in the
semiconductor equipment market.
The partial plant shutdowns will be effected by closing domestic facilities
on Fridays, allowing for only limited services and production on such days. The
magnitude and financial impact of these actions has not yet been determined, but
will be included in the Company's quarterly report on Form 10-Q for the first
fiscal quarter ending August 29, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation
--------------- --- --------------------
<S> <C> <C>
Michael J. Doyle (3) 45 Chairman of the Board of Directors,
Chief Executive Officer and Director
George Boyadjieff (1)(2)(3) 60 Director
Gary N. Patten 51 Vice President, Chief Financial Officer
and Secretary
Edward Rogas, Jr. (1)(2)(3) 58 Director
Donald M. Spero (1)(2)(3) 58 Director
(1) Member of the Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
(3) Member of the Nominating Committee of the Board of Directors
</TABLE>
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. 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. 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. 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.
45
<PAGE>
Mr. Spero has been a director since January, 1998. He previously
served as a director of the predecessor company, Autoclave Engineers, Inc., from
1987 until 1995. In 1971, he co-founded Fusion Systems Corporation, a supplier
of ultraviolet curing systems, and served as President and CEO until 1992.
Since 1992, Mr. Spero has served as President of Spero Quality Strategies, a
management consulting company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for the fiscal years ended May 31, 1998, 1997 and 1996 paid by the Company (i)
to each individual serving as the chief executive officer of the Company during
fiscal 1998 and (ii) all other executive officers of the Company who earned
total compensation during fiscal 1998 exceeding $100,000 (the "Executive
Group"). Except as disclosed below, no executive officer of the Company had a
total annual salary and bonus during fiscal 1998 exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ----------- --------
OTHER SECURITIES ALL
ANNUAL UNDERLYING LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) (1) ($) (2) (#) ($) ($) (3)
-------- ---- --- ------- ------- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Doyle 1998 197,992 -- 9,000 15,000 -- 62,273(4)
PRESIDENT AND CHIEF 1997 199,992 -- 9,000 7,000 -- 21,138(4)
EXECUTIVE OFFICER 1996 180,417 96,000 -- 150,000 133,785 5,280
Gary N. Patten 1998 149,989 -- 8,400 10,000 -- 5,899
VICE PRESIDENT, CHIEF 1997 149,989 -- 8,400 55,600 -- 5,125
FINANCIAL OFFICER AND 1996 138,451 54,000 -- 42,220 -- 1,904
SECRETARY
</TABLE>
(1) Represents bonuses earned by the Named Executive in the year indicated;
which were paid in the subsequent year.
(2) Represents auto allowance.
(3) Except as otherwise indicated, represents Company contributions under the
401(k) Plan and imputed value of company paid life insurance premiums.
(4) Includes value realized on the exercise of stock options of $57,373 and
$18,400 in 1998 and 1997, respectively.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information for the Executive Group
with respect to grants by the Company during fiscal 1998 of stock options
pursuant to the Company's 1997 Stock Plan to purchase Common Stock of the
Company. The Company's 1987 Stock Plan was terminated on June 18, 1997. The
1997 Stock Plan was approved by shareholders on October 24, 1997.
46
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed Annual
Number of Options Rates of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise or Option Term (3)
Options Granted in Fiscal Base Price Expiration ---------------
Name (#)(1) Year (2) ($/Sh) Date 5%($) 10%($)
- ---- ------ -------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Doyle 15,000 8.8% $10.00 11/24/07 $94,350 $239,100
Gary N. Patten 10,000 5.9% $10.00 11/24/07 $62,900 $159,400
</TABLE>
(1) These stock options were granted pursuant to the 1997 Stock Plan. These
stock options have ten year terms and vest 50% upon grant and 50% pro rata
during the first year of grant.
(2) An aggregate of 170,000 stock options to purchase shares of Common Stock,
pursuant to the 1997 Stock Plan, were granted to employees during fiscal
1998.
(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 $10.00 in 1998 would yield profits of $6.29 per
share at 5% appreciation over ten years, or $15.94 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.
DEFERRED COMPENSATION AGREEMENTS
The Company has deferred compensation agreements with one current and five
former employees, including Mr. Doyle and Mr. Levinson, a former director and
officer of the Company. 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 Plan") 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
47
<PAGE>
Instruments as an independent, publicly-held, high technology company.
Accordingly, the Company proposed to the four (4) LTI Plan 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."
DIRECTOR'S COMPENSATION
Except as stated below, the Company's directors received no compensation in
connection with their services as directors on the Board of Directors in fiscal
1998. For services rendered in fiscal 1998, all non-executive directors
received fees or remuneration in the amount of $2,000 per meeting attended, plus
reimbursement for expenses to attend Board Meetings. Additionally, all non-
executive directors are entitled to receive automatic grants of stock options of
the Company's common stock in compensation for their services. See "Certain
Relationships and Related Transactions."
INVOLUNTARY SEVERANCE AGREEMENTS
The Company has entered into agreements with two executive officers
(Messrs. Doyle and Patten) and five additional employees, inclusively, Messrs.
Evans, Lamirande, Sheriff, Urdaneta and Ms. Tricoli, providing severance
benefits in the event they are terminated within three (3) years following a
change in control of the Company. Such agreements with former executives,
Messrs. Saloka and Leggat have been canceled. 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 prior to or following a
change in control of the 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.
48
<PAGE>
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 1997 and 1987 Stock Option
Plans to the Executive Group, including (i) the number of shares purchased upon
exercise of options in fiscal 1998, (ii) the net value realized upon such
exercise, (iii) the number of unexercised options outstanding at May 31, 1998
and (iv) the value of such unexercised options at May 31, 1998:
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 10,227 57,373 81,961 99,350 -- --
Gary N. Patten -- -- 35,508 72,318 -- --
</TABLE>
(1) Market value of underlying securities at year-end ($6.50) 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 1997 and 1987 Stock Plans.
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.
49
<PAGE>
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. No bonuses were earned
for fiscal 1998 because of the downturn in the semiconductor equipment
market and the corresponding effect on the Company's financial performance.
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 Company's employ.
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 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 did
not receive an increase in base pay for fiscal 1998 or 1997 because of the
downturn in the semiconductor equipment market and the resulting impact on
the Company's performance for these years.
Mr. Doyle is entitled to an annual cash bonus, which for fiscal 1998 was
not applicable based on the Company's operating loss. 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 1998,
the Company did not achieve an operating profit. Accordingly, Mr. Doyle
did not receive a bonus.
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
50
<PAGE>
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.
George Boyadjieff Donald M. Spero
of the Compensation Committee of the Compensation Committee
Edward Rogas, Jr.
of the Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of George Boyadjieff, Edward Rogas,
Jr. and Donald M. Spero who are non-employee directors with no interlocking
relationships as defined by the Securities and Exchange Commission.
51
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table presents certain information as of June 30, 1998,
except as otherwise noted, regarding the equity securities of Unit beneficially
owned by (i) the directors, (ii) the executive officers named in the "Summary
Compensation Table", (iii) the directors and executive officers of Unit as a
group, and (iv) the only beneficial owners known to Unit to hold more than 5% of
the Company's Common Stock.
<TABLE>
<CAPTION>
Percent of
Number of Shares Company's
Name Beneficially Owned (1) Common Stock
- ----- ---------------------- -------------
<S> <C> <C>
Directors and Executive Officers:
George Boyadjieff 5,761 (2) *
Michael J. Doyle 222,140 (3) 5.4%
Gary N. Patten 64,202 (4) 1.6%
Edward Rogas, Jr. 5,761 (5) *
Donald M. Spero 13,383 (6) *
All Directors and Officers as a group 311,247 (7) 7.4%
(5 persons)
Others:
The Killen Group, Inc. 534,300 (8) 13.4%
1199 Lancaster Avenue
Berwyn, PA 19312-1298
Dimensional Fund Advisors, Inc. 338,626 (9) 8.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
U. S. Bancorp 263,548 (10) 6.6%
601 2nd Avenue South
Minneapolis, MN 55402-4302
</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
52
<PAGE>
respect to securities. Shares of common stock subject to options or warrants
currently exercisable or exercisable within 60 days of June 30, 1998 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 3,995,118 shares of common
stock outstanding on June 30, 1998.
(2) Includes 5,761 shares which Mr. Boyadjieff has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within sixty (60) days of June 30, 1998.
(3) Includes 113,836 shares which Mr. Doyle has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within sixty (60) days of June 30, 1998.
(4) Includes 45,202 shares which Mr. Patten has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within sixty (60) days of June 30, 1998.
(5) Includes 5,761 shares which Mr. Rogas has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within sixty (60) days of June 30, 1998.
(6) Includes 13,383 shares which Mr. Spero has the right to acquire by the
exercise of stock options that are currently exercisable or will become
exercisable within sixty (60) days of June 30, 1998.
(7) Includes 183,943 shares which executive officers and directors have the
right to acquire by exercise of stock options that are currently
exercisable or will become exercisable within sixty (60) days of June 30,
1998.
(8) Based on Schedule 13G filed February 17, 1998, The Killen Group reports
sole voting power for 267,993 shares and sole dispositive power for 534,300
shares.
(9) Based on Schedule 13G filed February 9, 1998, Dimensional Fund Advisors,
Inc. reports sole voting power for 232,746 shares and sole dispositive
power for 338,626 shares.
(10) Based on Schedule 13G filed February 9, 1998, U.S. Bancorp reports sole
voting power for 263,548 shares and sole dispositive power for 262,548
shares.
53
<PAGE>
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 (10%) 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. To the Company's knowledge, based solely on its review of
copies of such forms received by the Company during the fiscal year ended May
31, 1998, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were complied with.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's non-employee Directors receive, automatically, stock option
grants under the terms of the Company's 1990 Non-Employee Director Stock Option
Plan.
During fiscal 1998, the Company repurchased 412,215 shares of its common
stock for $5,049,634 ($12.25 per share), from James Levinson, a former director
and Chairman of the Board, and family members. The Company also purchased Mr.
and Mrs. Levinsons' stock option contracts of 18,868 shares for $54,479.
No other significant transactions, business relationships, or indebtedness
are known to exist between the Company and related parties (defined as
directors, executive officers, nominees for director, security holders of more
than 5% of the voting stock or any members of the immediate family of any of the
foregoing persons).
54
<PAGE>
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.
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants 21
Consolidated Balance Sheets - May 31, 1998 and 1997 22
Consolidated Statement of Operations - Years Ended 23
May 31, 1998, 1997 and 1996
Consolidated Statement of Shareholders' Equity - 24
Years Ended May 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows - Years Ended 25
May 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 26
</TABLE>
2. Schedule II. Valuation and Qualifying Accounts
Financial Statement Schedules. All other 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.
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER: Description:
- --------------- ------------
<S> <C>
3.1 Registrant's Articles of Incorporation. (Incorporated by
reference to Exhibit 3.1 of Annual Report on Form 10K
for the fiscal year ended May 31, 1996.)
3.2 Registrant's By-laws. (Incorporated by reference to
Exhibit 3.2 of Annual Report on Form 10K for the fiscal
year ended May 31, 1996.)
4.3 Specimen Stock Certificate. (Incorporated by reference to
Exhibit 4.3 of Annual Report on Form 10K for the fiscal
year ended May 31, 1996.)
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.)
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.)
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
10.8 Business Loan Agreement dated January 23, 1996 by the
Company and Bank of America, NTSA. (Incorporated by
reference to Exhibit 10.8 of Annual Report on Form 10K
for the year ended May 31, 1996.)
10.9* Form of Involuntary Severance Agreement with certain
officers of the Company. (Incorporated by reference
to Exhibit 10.9 of Annual Report on Form 10K for the year
ended May 31, 1996.)
10.10 Agreement and Plan of Reorganization and Merger dated
April 23, 1996 among the Company, CSI Acquisition
Corporation and Control Systems, Inc. (Incorporated by
reference to Exhibit 10.10 of Annual Report on Form 10K
for the year ended May 31, 1996.)
10.11 Stock Repurchase Agreement dated January 2, 1998 by and
among the Company and James C. Levinson and Marilyn G.
Levinson.
10.12* 1997 Stock Incentive Plan
10.13 Agreement and Plan of Merger dated July 2, 1998 by and
between the Company, Kinetics Acquisition Corp., and
United States Filter Corporation. (Incorporated by
reference to Exhibit 3.1 of Current Report on Form 8-K
dated July 2, 1998.)
10.14 First Amendment to the Agreement and Plan of Merger dated
August 5, 1998 by and between the Company, Kinetics
Acquisition Corp., and United States Filter Corporation.
22.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule (for electronic filing only.)
27.2 Restated Financial Data Schedule (for electronic filing only.)
27.3 Restated Financial Data Schedule (for electronic filing only.)
</TABLE>
Items marked with an asterisk (*) are management contracts or compensatory
contracts or arrangements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during quarter ended May 31, 1998.
(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)].
57
<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: July 21, 1998
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 July 21, 1998
- ------------------------- Officer
(Michael J. Doyle)
/s/ Gary N. Patten Chief Financial Officer, July 21, 1998
- ------------------------- Chief Accounting Officer and
(Gary N. Patten) Secretary
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
/s/ George Boyadjieff Director July 21, 1998
- -------------------------
(George Boyadjieff)
/s/ Edward Rogas Director July 21, 1998
- -------------------------
(Edward Rogas)
/s/ Donald M. Spero Director July 21, 1998
- -------------------------
(Donald M. Spero)
</TABLE>
59
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION MAY 31, 1995 EXPENSES ACCOUNTS DEDUCTIONS MAY 31, 1996
- ----------- -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Bad debt reserve 110,000 32,000 -- 7,000 135,000
Inventory reserve 207,000 850,000 -- 641,000 416,000
ADDITIONS
------------------------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION MAY 31, 1996 EXPENSES ACCOUNTS DEDUCTIONS MAY 31, 1997
- ----------- -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Bad debt reserve 135,000 24,000 -- 10,000 149,000
Inventory reserve 416,000 590,000 -- 475,000 531,000
ADDITIONS
------------------------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION MAY 31, 1997 EXPENSES ACCOUNTS DEDUCTIONS MAY 31, 1998
- ----------- -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Bad debt reserve 149,000 114,000 -- 128,000 135,000
Inventory reserve 531,000 1,710,000 -- 1,478,000 763,000
</TABLE>
60
<PAGE>
Exhibit 10.11
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement"), entered into on January
2, 1998, is entered into by and between UNIT INSTRUMENTS, INC., a California
corporation (the "Company"), and JAMES C. LEVINSON AND MARILYN G. LEVINSON (the
"Levinsons"), individually and as general partners of the J & L LEVINSON
PARTNERSHIP (the "Shareholder").
RECITALS:
WHEREAS, the Shareholder is the owner of 368,475 shares of common stock,
$.15 par value ("Common Stock"), of the Company and the Levinsons desire to
cause the Shareholder to sell all of such shares (the "Repurchased Shares") to
the Company; and
WHEREAS, the Levinsons hold options to purchase shares of the Company's
Common Stock, and the Levinsons desire that such options be terminated in
exchange for a cash payment from the Company; and
WHEREAS, the Company desires to purchase the Repurchased Shares from the
Shareholder and terminate the Levinsons' options on the terms and conditions set
forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. REPURCHASE. The Shareholder agrees to and does hereby sell, transfer
and convey to the Company the Repurchased Shares, free and clear of all liens,
claims and encumbrances, and the Company agrees to and does hereby purchase such
Repurchased Shares. In consideration of the sale and transfer of such
Repurchased Shares and in full payment therefor, the Company shall pay to
Shareholder the purchase price of $12.25 per share, or Four Million Five Hundred
Thirteen Thousand Eight Hundred Eighteen and 75/100 Dollars ($4,513,818.75) in
the aggregate (the "Repurchase Price") payable at closing by wire transfer of
immediately available funds. Concurrently with the sale and transfer of the
Repurchased Shares, the Company shall pay Fifty-Four Thousand Four Hundred
Seventy-Nine Dollars ($54,479) to the Levinsons by wire transfer of immediately
available funds in exchange for the termination of all outstanding options they
hold to acquire Common Stock of the Company (the "Options"), which termination
shall be deemed to occur automatically upon the making of such payment without
any further action by the Levinsons.
2. DELIVERIES. Concurrently with the execution and delivery of this
Agreement, the Shareholder shall deliver to the Company all certificates
representing the Repurchased Shares, duly endorsed for transfer or accompanied
by duly executed stock powers transferring such Repurchased Shares to the
Company, and all of such Repurchased Shares shall be cancelled and returned to
the status of authorized but unissued shares. Against delivery by Shareholder
of the stock certificates representing the Repurchased Shares, the Company shall
cause to be transferred to the Shareholder the Repurchase Price.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Shareholder and each of
the Levinsons hereby represent and warrant to the Company as follows:
3.1 LEGAL POWER. Shareholder has the requisite legal power and
authority to enter into this Agreement, to sell and deliver the Repurchased
Shares and to perform its obligations hereunder. Each of the Levinsons has the
legal right and capacity to enter into this Agreement and to perform its
obligations hereunder. This Agreement is a valid and binding obligation of
Shareholder and each of the Levinsons, enforceable against such party in
accordance with its terms. No further action is required to be taken by
Shareholder or either of the Levinsons, nor is it necessary for Shareholder or
either of the Levinsons to obtain any action, approval or consent by or from any
third person, governmental or other, to enable such party to enter into or
perform its obligations under this Agreement.
3.2 TITLE TO SHARES. Except for the Repurchased Shares and the
Options, neither the Shareholder nor either of the Levinsons owns, beneficially
or of record, any other securities of the Company or any rights to acquire
securities of the Company. The Shareholder is the owner of the Repurchased
Shares and upon delivery of the Repurchased Shares and payment of the Repurchase
Price therefor as provided in this Agreement, the Company will have valid and
marketable title to the Repurchased Shares, free and clear of any liens,
encumbrances, security agreements, equities, charges, restrictions, claims and
any other adverse interests or defects in title of any kind or nature
whatsoever, except for restrictions on transfer imposed by federal or state
securities laws. The Levinsons are the owners of the Options and have not sold
or assigned any interest therein to any other party.
3.3 CONFLICTS. The execution and delivery of this Agreement by the
Shareholder and the Levinsons and the performance by Shareholder and the
Levinsons of their respective obligations hereunder will not violate any
provision of any judicial or governmental decree, order, or judgment or conflict
with or violate any other agreement or understanding, written or oral, to which
Shareholder or either of the Levinsons is a party or by which any of such
parties or any of the Repurchased Shares are bound.
3.4 ACCESS TO INFORMATION; INFORMED DECISION. Shareholder and the
Levinsons have been provided access to and the opportunity to review all
material financial and business information regarding the Company necessary to
make a deliberate and informed decision to sell the Repurchased Shares to the
Company on the terms provided in this Agreement. The partners of Shareholder
are sophisticated investors and have such knowledge and experience in financial
or business matters that they are capable of evaluating the economics, merits
and risks of the sale contemplated by this Agreement. Such partners have
reviewed the economics, merits and risks of the transaction contemplated by this
Agreement, have reviewed all material information deemed by them necessary for
them to reach an informed decision on the sale herein, and are not relying on
the Company to furnish them any additional information. Shareholder and the
Levinsons further acknowledge that the Company may enter into one or more
agreements for the merger or sale of the Company, which agreements may provide
for the payment of consideration to the Company's shareholders having a value in
excess of the Repurchase Price, and that the Repurchase Price may not bear any
relevance to the actual value of the Repurchased Shares or the Company.
2
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
4.1. ORGANIZATION AND EXISTENCE; AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has all requisite corporate power to carry on
its business as now conducted. The Company has the corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
The execution, delivery, and performance by the Company of this Agreement and
the transactions contemplated hereby have been duly authorized and approved by
the Board of Directors of the Company in accordance with the Articles of
Incorporation and Bylaws of the Company and California law, and no further
corporate action is necessary on the part of the Company with respect thereto.
This Agreement is a valid and binding obligation of the Company, enforceable
against it in accordance with its terms. No further action is required to be
taken by the Company, nor is it necessary for the Company to obtain any action,
approval or consent by or from any third person, governmental or other, to
enable it to enter into or perform its obligations under this Agreement.
4.2 NO CONFLICTS. The execution and delivery of this Agreement and
performance of the Company's obligations hereunder 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 the Company or any agreement or
instrument to which the Company is a party or by which it is bound.
4.3 COMPLIANCE WITH CALIFORNIA CORPORATIONS CODE. The repurchase of
the Repurchased Shares by the Company will be in full compliance with all of the
provisions of the California Corporations Code, including, without limitation,
Chapter 5 thereof.
5. RESIGNATION. Mr. James C. Levinson hereby resigns as a Director of the
Company and as a director of each subsidiary of the Company of which he is a
director, effective immediately, and the Company and each such subsidiary hereby
accept such resignations. Following the date hereof, neither the Company nor
Mr. Levinson shall represent to any person or entity that Mr. Levinson is a
director of the Company or any such subsidiary. Mr. Levinson shall maintain the
confidentiality of, and shall not use, the Company's non-public proprietary
information, and shall promptly return any and all such materials in his
possession to the Company. Mr. Levinson will not waive any evidentiary or
testimonial privileges relating to the Company, which Mr. Levinson may otherwise
waive, without the consent of the Company, unless he is required to do so by
judicial order or unless suit is brought against him by the Company.
6. STANDSTILL. Shareholder and each of the Levinsons agrees that, for a
period of two (2) years from the date of this Agreement, neither such party nor
any of its affiliates will, without the prior written consent of the other
party; (i) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights to acquire any voting securities of the Company; (ii) make, or
in any way participate in, directly or indirectly, any "solicitation" of
"proxies" (as such terms are used in the rules of the Securities Exchange
Commission) to vote, or seek to advise or influence any person or entity with
respect to the voting of, any voting securities of the Company; (iii) make any
public announcement with respect to, or submit a proposal for, or offer of (with
or without conditions) any merger, business combination, recapitalization,
restructuring, liquidation or other extraordinary transaction involving the
Company or its securities or assets; (iv) form, join or in any way participate
in a "group" (as defined in Section
3
<PAGE>
13(d)(3) of the Securities Exchange Act of 1934, as amended) in connection with
any of the foregoing; (v) enter into any discussions or arrangements with any
third party with respect to any of the foregoing; or (vi) request publicly the
other party or any of its Representatives, directly or indirectly, to amend or
waive any provision of this paragraph. Each of such parties will promptly advise
the Company of any inquiry or proposal made to such party with respect to any of
the foregoing.
7. NON-COMPETITION; NON-SOLICITATION.
7.1 NON-COMPETITION. Shareholder and each of the Levinsons
covenants, that for a period of three (3) consecutive years commencing on the
date hereof, such party shall not directly, or indirectly through one or more
other persons or entities, engage in, or have any financial or other interests
in or provide assistance to any person, firm, corporation or business that
engages in, any activity which is the same as or competitive with the business
engaged in by the Company as of the date hereof (the "Business"), in, from, at
or into (a) any of the states of the United States of America or the District of
Columbia or (b) any of the countries, territories or areas of the world.
Notwithstanding the foregoing, nothing contained in this Agreement shall prevent
or otherwise limit such party from holding, for investment purposes only, no
more than one percent (1%) of any class of equity securities of a company
engaged in activities that are competitive with the Business if such class of
equity securities is traded on a national securities exchange or on the NASDAQ
National Market System.
7.2 NON-SOLICITATION. Shareholder and each of the Levinsons agree
that, for a period of one (1) year from the date of this Agreement, it will not,
directly or through any of its representatives or affiliates, solicit for
employment or hire any employee of the Company or any of its subsidiaries.
8. NON-DISPARAGEMENT. Each party shall refrain from making, orally or in
writing, any statement of a disparaging or critical nature regarding the other
party to any person, including but not limited to any past, present or
prospective employees or customers of such party, except to the extent that
either party is required to provide testimony under oath pursuant to a subpoena
or other legal process, and neither party shall issue any press release or other
public statement or comment concerning this agreement or the transactions
contemplated by this agreement except as required by law or with the prior
written consent of the other party. Neither party shall take any action,
directly or indirectly, with the intent of causing, creating or instigating any
third party claim concerning the transactions contemplated by this Agreement.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold harmless Shareholder and the Levinsons from and against claims,
losses, liabilities, damages, costs and expenses, including, without limitation,
attorneys' fees (hereafter "Damages") arising out of or in connection with (a)
any breach by the Company of any of its representations, warranties or covenants
contained in this Agreement, (b) the purchase and sale of the Repurchased Shares
and the termination and purchase of the Options pursuant to this Agreement, or
(c) Mr. Levinson's activities in his capacity as a director or officer of the
Company or any of its subsidiaries through and including the date hereof. Such
indemnification right shall include, without
4
<PAGE>
limitation, the costs, expenses and attorneys' fees of enforcing such
indemnification against the Company. The Company shall pay directly or reimburse
the Shareholder or the Levinsons for any costs, expenses, and attorneys' fees,
as they are incurred, in advance of the final disposition of any matter as to
which the Shareholder or the Levinsons would be entitled to be indemnified
hereunder.
9.2 INDEMNIFICATION BY SHAREHOLDER. Shareholder and the Levinsons
shall indemnify, defend and hold harmless the Company from and against all
Damages incurred by the Company as a result of any breach by the Shareholder or
either of the Levinsons of any of such party's representations, warranties or
covenants contained in this Agreement. Such indemnification right shall
include, without limitation, the costs, expenses and attorneys' fees of
enforcing such indemnification against the Shareholder or either of the
Levinsons. The Shareholder or the Levinsons shall pay directly or reimburse the
Company for any costs, expenses, and attorneys' fees, as they are incurred, in
advance of the final disposition of any matter as to which the Company would be
entitled to be indemnified hereunder.
9.3 PROCEDURE. In the event a party believes that it is entitled to
indemnification hereunder (such party, the "Indemnitee"), the Indemnitee shall
give written notice to the other party (the "Indemnitor") indicating in
reasonable detail the basis on which the claim for indemnification is based and,
if known, the amount of such claim. Such notice shall be given promptly after
the Indemnitee becomes aware of the facts on which such claim is based. Upon
receipt of any notice of a claim for indemnification hereunder based on a claim
by a third party against Indemnitee, Indemnitor shall have the right to assume
the defense of such third party claim by notifying Indemnitee of its election to
do so within thirty (30) days of Indemnitee's notice to Indemnitor of such
claim; provided, however, that in making such election, Indemnitor must confirm
in writing that it will indemnify Indemnitee from all Damages related to such
claim; and provided further that Indemnitee shall have the right to reasonably
approve counsel selected by Indemnitor to defend such claim; and provided
further that the Indemnitee shall have the right to its own counsel selected by
Indemnitee (the costs of which shall be borne by Indemnitor) in the event the
interests of the Indemnitor (or any of its officers or directors in the case of
the Company) differs from or is in conflict with the interests of the
Indemnitee. Nothing herein shall prevent the Indemnitee from retaining its own
counsel to participate in such defense so long as the costs of such counsel are
borne by the Indemnitee. If Indemnitor declines to assume the defense of any
such third party claim, Indemnitee may undertake the defense of such claim
without waiving any of its rights to seek indemnification for all Damages
related thereto from Indemnitor; provided, however, that Indemnitee may not
settle any such claim without Indemnitor's prior consent, which consent may not
be unreasonably withheld. If the Indemnitor declines to assume the defense of
any such third party claim, the Indemnitor shall nevertheless pay directly or
reimburse the Indemnitee for any costs, expenses and attorneys' fees, as they
are incurred, in advance of the final disposition of such third party claim.
Regardless of which party elects to defend any such third party claim,
Indemnitee and Indemnitor shall render reasonable assistance and cooperation to
each other in connection with defending such claim and shall keep each other
reasonably apprised of the status of any proceedings relating to such claim.
The indemnification provisions of Section 9.1 and 9.2 are not mutually
exclusive, and both such provisions may apply with respect to a given claim.
5
<PAGE>
10. GENERAL RELEASE OF CLAIMS.
10.1 BY THE LEVINSONS. In exchange for this Agreement and the
consideration provided in Section 1 above, and except for claims arising under
or in connection with (i) this Agreement, (ii) the indemnification provisions of
California law or the Articles of Incorporation or Bylaws or indemnification
agreements of the Company that are intended to cover former officers or
directors of the Company or any of its subsidiaries, (iii) the directors and
officers insurance of the Company, or (iv) James C. Levinson's supplemental
pension in the amount of $1,833.33 per month for life, the Shareholder and each
of the Levinsons each hereby waives and releases all claims, known and unknown,
which such party has or might otherwise have against the Company, its related
entities and its officers, directors, employees, agents, insurers,
representatives, successors and assigns.
10.2 BY THE COMPANY. In exchange for this Agreement, and except for
claims arising under or in connection with (i) this Agreement or that certain
Stock Repurchase Agreement of even date herewith among the Company and the
parties listed on Schedule 1 thereto, or (ii) the failure of Mr. Levinson to
comply with his express obligations (if any) relating to the items referenced in
clauses (ii) and (iii) of Section 10.1 above, the Company hereby waives and
releases all claims, known and unknown, which it has or might otherwise have
against the Shareholder or either of the Levinsons or their children,
grandchildren, heirs and successors.
10.3 UNKNOWN CLAIMS. IT IS FURTHER UNDERSTOOD AND AGREED that as a
condition of this Agreement, all rights under Section 1542 of the Civil Code of
the State of California are expressly waived by Shareholder, the Levinsons and
the Company. Such Section reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding Section 1542, and for the purpose of implementing a full and
complete release and discharge, Shareholder, the Levinsons and the Company
expressly acknowledge that this Agreement is intended to include and does
include in its effect, without limitation, all claims which any such party does
not know or suspect to exist in its favor against another at the time of
execution hereof, and that, except as expressly provided herein, this Agreement
expressly contemplates the extinguishment of all such claims.
11. MISCELLANEOUS.
11.1 NO ASSIGNMENT. Neither party may assign this Agreement or any
rights or obligations hereunder to any other person or entity, without the prior
written consent of the other parties hereto.
11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any party and the
closing of the transactions contemplated hereby.
6
<PAGE>
11.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs, executors
and administrators of the parties hereto.
11.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subject matter hereof, and
no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
11.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing, signed by the party giving the notice
and delivered personally, by overnight delivery service or by registered or
certified mail to the address of the party set forth on the signature page
hereto. Either party may at any time change the address to which notice shall
be mailed by giving written notice of such change to the other party.
11.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
11.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to any conflict of law provisions.
11.8 COUNTERPARTS. This Agreement may be executed in counterparts,
and by facsimile transmission, all of which together shall constitute one and
the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Repurchase Agreement
as of the date first written above.
"Shareholder"
Address of Shareholder and Levinsons: J & L LEVINSON PARTNERSHIP
100 Anchor Drive, Suite 460
Key Largo, Florida 33037
By: ____________________________________
James C. Levinson, individually and
with a copy to: as a General Partner
Carl Cohen, Esq.
Buchanan Ingersoll By: _____________________________________
301 Grant Street, 20th Floor Marilyn G. Levinson, individually and
Pittsburgh, Pennsylvania 15219 as a General Partner
"Company"
Address of Company: UNIT INSTRUMENTS, INC.,
a California corporation
22600 Savi Ranch Parkway
Yorba Linda, California 92687
By: _____________________________________
Gary N. Patten, Chief Financial
Officer
8
<PAGE>
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement"), entered into on January
2, 1998, is entered into by and between UNIT INSTRUMENTS, INC., a California
corporation (the "Company"), and the parties listed on Schedule 1 hereto (the
"Shareholders").
RECITALS:
WHEREAS, the Shareholders own an aggregate of 43,740 shares of common
stock, $.15 par value ("Common Stock"), of the Company and the Shareholders
desire to sell all of such shares (the "Repurchased Shares") to the Company; and
WHEREAS, the Company desires to purchase the Repurchased Shares from such
persons on the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. REPURCHASE. Each of the Shareholders agrees severally to and does
hereby sell, transfer and convey to the Company the Repurchased Shares set forth
opposite such Shareholder's name on Schedule 1 hereto, free and clear of all
liens, claims and encumbrances, and the Company agrees to and does hereby
purchase such Repurchased Shares. In consideration of the sale and transfer of
such Repurchased Shares and in full payment therefor, the Company shall pay to
each such Shareholder the purchase price of Twelve and 25/100 Dollars ($12.25)
per Repurchased Share (the "Repurchase Price") payable at closing by wire
transfer of immediately available funds. Notwithstanding the foregoing, the
Company shall not have any obligation to purchase the Repurchased Shares unless
and until the J&L Levinson Partnership shall have delivered the Partnership's
Shares in accordance with Section 2 of that certain Stock Repurchase Agreement
of even date herewith among the Company and James and Marilyn Levinson, as
partners of the J&L Levinson Partnership.
2. DELIVERIES. Concurrently with the execution and delivery of this
Agreement, each Shareholder shall deliver to the Company all certificates
representing the Repurchased Shares held by it, duly endorsed for transfer or
accompanied by duly executed stock powers (or take such other steps as are
necessary for) transferring such Repurchased Shares to the Company, and all of
such Repurchased Shares shall be cancelled and returned to the status of
authorized but unissued shares. Against delivery by Shareholder of the stock
certificates representing the Repurchased Shares, the Company shall cause to be
transferred to the Shareholder the Repurchase Price for such Shareholder's
Repurchased Shares.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each Shareholder
hereby represents and warrants to the Company as follows:
3.1 LEGAL POWER. Each Shareholder that is an individual has the
legal right and capacity to enter into this Agreement, to sell and deliver such
Shareholder's Repurchased Shares and
9
<PAGE>
to carry out and perform its obligations hereunder. Each other Shareholder has
the requisite legal power and authority to enter into this Agreement, to sell
and deliver such Shareholder's Repurchased Shares and to carry out and perform
its obligations hereunder. This Agreement is a valid and binding obligation of
such Shareholder, enforceable against such Shareholder in accordance with its
terms. No further action is required to be taken by such Shareholder, nor is it
necessary for such Shareholder to obtain any action, approval or consent by or
from any third person, governmental or other, to enable such Shareholder to
enter into or perform its obligations under this Agreement.
3.2 TITLE TO SHARES. Such Shareholder is the owner of the
Repurchased Shares set forth opposite such Shareholder's name on Schedule 1
hereto, which represents all of the securities of the Company currently owned,
beneficially or of record, by such Shareholder, and upon delivery of such
Shareholder's Repurchased Shares and payment of the Repurchase Price therefor as
provided in this Agreement, such Shareholder will convey to the Company valid
and marketable title to such Repurchased Shares, free and clear of any liens,
encumbrances, security agreements, equities, charges, restrictions, claims and
any other adverse interests or defects in title of any kind or nature
whatsoever, except for restrictions on transfer imposed by federal or state
securities laws.
3.3 CONFLICTS. Such Shareholder's execution and delivery of this
Agreement and the performance by such Shareholder of its obligations hereunder
will not violate any provision of any judicial or government decree, order or
judgment or conflict with or violate any other agreement or understanding,
written or oral, to which such Shareholder is a party or by which any of the
Repurchased Shares are bound.
3.4 ACCESS TO INFORMATION; INFORMED DECISION. Such Shareholder has
been provided access to and the opportunity to review all material financial and
business records of the Company necessary to make a deliberate and informed
decision to sell such Shareholder's Repurchased Shares to the Company on the
terms provided in this Agreement. Such Shareholder, either alone or with its
representatives, is a sophisticated investor and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
economics, merits and risks of the sale contemplated by this Agreement. Such
Shareholder has reviewed the economics, merits and risks of the transaction
contemplated by this Agreement, has reviewed all material information deemed by
it necessary for it to reach an informed decision on the sale herein, and is not
relying on the Company to furnish it any additional information. Such
Shareholder further acknowledges that the Company may enter into one or more
agreements for the merger or sale of the Company, which agreements may provide
for the payment of consideration to the Company's shareholders having a value in
excess of the Repurchase Price, and that the Repurchase Price may not bear any
relevance to the actual value of the Repurchased Shares or the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
4.1 ORGANIZATION AND EXISTENCE; AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has all requisite corporate power to carry on
its business as now conducted. The Company has the corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
The execution, delivery, and performance by the Company of this Agreement and
the transactions contemplated hereby have been duly authorized and approved by
the Board of Directors of the Company in accordance with the Articles of
Incorporation and Bylaws of the Company and
10
<PAGE>
California law and no further corporate action is necessary on the part of the
Company with respect thereto. This Agreement is a valid and binding obligation
of the Company, enforceable against it in accordance with its terms. No further
action is required to be taken by the Company, nor is it necessary for the
Company to obtain any action, approval or consent by or from any third person,
governmental or other, to enable it to enter into or perform its obligations
under this Agreement.
4.2 NO CONFLICTS. The execution and delivery of this Agreement and
performance of the Company's obligations hereunder 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 the Company or any agreement or
instrument to which the Company is a party or by which it is bound.
4.3 COMPLIANCE WITH CALIFORNIA CORPORATIONS CODE. The repurchase of
the Repurchased Shares by the Company will be in full compliance with all of the
provisions of the California Corporations Code, including, without limitation,
Chapter 5 thereof.
5. STANDSTILL. Each Shareholder agrees that, for a period of two (2)
years from the date of this Agreement, neither it nor any of its affiliates
will, without the prior written consent of the other party; (i) acquire, offer
to acquire, or agree to acquire, directly or indirectly, by purchase or
otherwise, any voting securities or direct or indirect rights to acquire any
voting securities of the Company; (ii) make, or in any way participate in,
directly or indirectly, any "solicitation" of "proxies" (as such terms are used
in the rules of the Securities Exchange Commission) to vote, or seek to advise
or influence any person or entity with respect to the voting of, any voting
securities of the Company; (iii) make any public announcement with respect to,
or submit a proposal for, or offer of (with or without conditions) any merger,
business combination, recapitalization, restructuring, liquidation or other
extraordinary transaction involving the Company or its securities or assets;
(iv) form, join or in any way participate in a "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) in connection with
any of the foregoing; (v) enter into any discussions or arrangements with any
third party with respect to any of the foregoing; or (vi) request publicly the
other party or any of its Representatives, directly or indirectly, to amend or
waive any provision of this paragraph. Each Shareholder will promptly advise
the Company of any inquiry or proposal made to such party with respect to any of
the foregoing.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold harmless each Shareholder from and against all claims, losses,
liabilities, damages, costs and expenses, including, without limitation,
attorneys' fees (hereafter "Damages") arising out of or in connection with (a)
any breach by the Company of any of its representations, warranties or covenants
contained in this Agreement, or (b) the transactions contemplated by this
Agreement. Such indemnification right shall include, without limitation, the
costs, expenses, and attorneys' fees of enforcing such indemnification against
the Company. The Company shall pay directly or reimburse each Shareholder for
any costs, expenses, and attorneys' fees, as they are incurred, in advance of
the final disposition of any matter as to which such Shareholder would be
entitled to be indemnified hereunder.
11
<PAGE>
6.2 INDEMNIFICATION BY SHAREHOLDER. Each Shareholder shall
indemnify, defend and hold free and harmless the Company from and against all
Damages incurred by the Company as a result of any breach by such Shareholder of
any of his representations, warranties or covenants contained in this Agreement.
Such indemnification right shall include, without limitation, the costs,
expenses and attorneys' fees of enforcing such indemnification against each
Shareholder. Each Shareholder shall pay directly or reimburse the Company for
any costs, expenses, and attorneys' fees, as they are incurred, in advance of
the final disposition of any matter as to which the Company would be entitled to
be indemnified hereunder.
6.3 PROCEDURE. In the event a party believes that it is entitled to
indemnification hereunder (such party, the "Indemnitee"), the Indemnitee shall
give written notice to the other party (the "Indemnitor") indicating in
reasonable detail the basis on which the claim for indemnification is based and
the amount, if known, of such claim. Such notice shall be given promptly after
the Indemnitee becomes aware of the facts on which such claim is based. Upon
receipt of any notice of a claim for indemnification hereunder based on a claim
by a third party against Indemnitee, Indemnitor shall have the right to assume
the defense of such third party claim by notifying Indemnitee of its election to
do so within thirty (30) days of Indemnitee's notice to Indemnitor of such
claim; provided, however, that in making such election, Indemnitor must confirm
in writing that it will indemnify Indemnitee from all Damages related to such
claim; and provided further that Indemnitee shall have the right to reasonably
approve counsel selected by Indemnitor to defend such claim; and provided
further that the Indemnitee shall have the right to its own counsel selected by
Indemnitee (the cost of which shall be borne by Indemnitor) in the event the
interests of the Indemnitor (or any of its officers or directors in the case of
the Company) differs from or is in conflict with the interests of the
Indemnitee. Nothing herein shall prevent the Indemnitee from retaining its own
counsel to participate in such defense so long as the costs of such counsel are
borne by the Indemnitee. If Indemnitor declines to assume the defense of any
such third party claim, Indemnitee may undertake the defense of such claim
without waiving any of its rights to seek indemnification for all Damages
related thereto from Indemnitor; provided, however, that Indemnitee may not
settle any such claim without Indemnitor's prior consent, which consent may not
be unreasonably withheld. If the Indemnitor declines to assume the defense of
any such third party claim, the Indemnitor shall nevertheless pay directly or
reimburse the Indemnitee for any costs, expenses and attorneys' fees, as they
are incurred, in advance of the final disposition of such third party claim.
Regardless of which party elects to defend any such third party claim,
Indemnitee and Indemnitor shall render reasonable assistance and cooperation to
each other in connection with defending such claim and shall keep each other
reasonably apprised of the status of any proceedings relating to such claim.
7. GENERAL RELEASE OF CLAIMS.
7.1 BY SHAREHOLDER. In exchange for this Agreement and the
consideration provided in Section 1 above, and except for claims arising under
or in connection with this Agreement, each Shareholder hereby waives and
releases all claims, known and unknown, which such Shareholder has or might
otherwise have against the Company, its related entities and its officers,
directors, employees, agents, insurers, representatives, successors and assigns.
7.2 BY THE COMPANY. In exchange for this Agreement, and except for
claims arising under or in connection with this Agreement, the Company hereby
waives and releases all
12
<PAGE>
claims, known and unknown, which it has or might otherwise have against any of
the Shareholders or their heirs and successors.
7.3 UNKNOWN CLAIMS. IT IS FURTHER UNDERSTOOD AND AGREED that as a
condition of this Agreement, all rights under Section 1542 of the Civil Code of
the State of California are expressly waived by each Shareholder and the
Company. Such Section reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding Section 1542, and for the purpose of implementing a full and
complete release and discharge, each Shareholder and the Company expressly
acknowledge that this Agreement is intended to include and does include in its
effect, without limitation, all claims which any such party does not know or
suspect to exist in its favor against another at the time of execution hereof,
and that, except as expressly provided herein, this Agreement expressly
contemplates the extinguishment of all such claims.
8. MISCELLANEOUS.
8.1 NO ASSIGNMENT. Neither party may assign this Agreement or any
rights or obligations hereunder to any other person or entity, without the prior
written consent of the other parties hereto.
8.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any party and the
closing of the transactions contemplated hereby.
8.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subject matter hereof, and
no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing, signed by the party giving the notice
and delivered personally, by overnight delivery service or by registered or
certified mail to the address of the party set forth on the signature page(s)
hereto. Either party may at any time change the address to which notice shall
be mailed by giving written notice of such change to the other party.
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<PAGE>
8.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to any
conflict of law provisions.
8.8 COUNTERPARTS. This Agreement may be executed in counterparts,
and by facsimile transmission, all of which together shall constitute one and
the same instrument. In the event that a Shareholder fails to execute and
deliver a counterpart of this Agreement by February 28, 1998, such Shareholder
shall be deemed deleted from this Agreement, and the Company shall have no
obligation to purchase any of the Repurchased Shares held by such Shareholder
whether or not such counterpart is subsequently delivered by such Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this Stock Repurchase
Agreement as of the date first written above.
"Company"
Address of Company: UNIT INSTRUMENTS, INC.,
a California corporation
22600 Savi Ranch Parkway
Yorba Linda, California 92687
By: ________________________________________
Gary N. Patten, Chief Financial Officer
[SIGNATURES CONTINUED ON NEXT PAGE]
14
<PAGE>
The undersigned Seller agrees to be bound by all of the provisions of the
foregoing Stock Repurchase Agreement dated January 2, 1998 among Unit
Instruments, Inc. and the shareholders listed on Schedule 1 hereto.
Dated: ___________, 1998 ______________________________________
Name of Shareholder
______________________________________
Signature
_________________________
No. of Shares Owned
______________________________________
______________________________________
Address of Shareholder
15
<PAGE>
SCHEDULE 1 TO
Stock Repurchase Agreement
<TABLE>
<CAPTION>
Total
No. of Purchase
Shareholder Shares Price
- ------------------------------------- ------ -----------
<S> <C> <C>
Jane L. Kerschner 7,457 $ 91,348.25
Jane L. Kerschner as Custodian for 1,010 $ 12,372.50
Jill B. Romansky
Jane L. Kerschner as Custodian for 1,010 $ 12,372.50
Kathryn M. Romansky
Jane L. Kerschner as Custodian for 1,010 $ 12,372.50
Kira S. Romansky
Andrea L. Stern 1,976 $ 24,206.00
Andrea L. Stern as Custodian for 11,641 $142,602.25
Alexander F. Henley
Andrea L. Stern as Custodian for 6,257 $ 76,648.25
Marion H. Henley
Peter G. Levinson 2,710 $ 33,197.50
PNC Bank as Trustee for the 3,739 $ 45,802.75
Sarah E. Levinson Irrevocable
Educational Trust
PNC Bank as Trustee for the 3,313 $ 40,584.25
Jacob J. Levinson Irrevocable
Educational Trust
PNC Bank as Trustee for the 2,607 $ 31,935.75
Benjamin A. Levinson Irrevocable
Educational Trust
Peter G. Levinson as Custodian for 1,010 $ 12,372.50
Taylor G. Levinson
TOTAL 43,740 $535,815.00
</TABLE>
16
<PAGE>
Exhibit 10.12
UNIT INSTRUMENTS, INC.
1997 STOCK INCENTIVE PLAN
This 1997 STOCK INCENTIVE PLAN (the "Plan") is hereby established by UNIT
INSTRUMENTS, INC., a California corporation (the "Company") and adopted by its
Board of Directors as of the __th day of _____________, 1997 (the "Effective
Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated; (iii) the sale, transfer
or other disposition of all or substantially all of the assets of the Company;
(iv) a complete liquidation or dissolution of the Company; or (v) any merger
<PAGE>
in which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to or acquired by a person or
persons different from the persons holding those securities immediately prior to
such merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, $.15 par value,
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the average of the closing bid and asked prices of
the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2
<PAGE>
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means
an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds an
Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
3
<PAGE>
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or
of an Affiliated Company (including members of the Board if they are employees
of the Company or of an Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Rights to Purchase or Options in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 100,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 480,000 shares of Common Stock
plus such number of shares as are or may become available for grant under the
Company's 1987 Stock Plan may be issued under the Plan (provided, however, that
in no event shall more than 480,000 shares be issued pursuant to the exercise of
Incentive Options pursuant to the Plan) subject to adjustment as to the number
and kind of shares pursuant to Section 4.2 hereof. For purposes of this
limitation, in the event that (a) all or any portion of any Option or Right to
Purchase granted or offered under the Plan can no longer under any circumstances
be exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan, and,
in the case of Incentive Options, shall be credited against the limitation on
Incentive Options set forth above.
4
<PAGE>
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably
5
<PAGE>
elects to exercise the Option and to sell a portion of the shares so purchased
to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the Exercise Price directly to the
Company; (h) provided that a public market for the Common Stock exists, a
"margin" commitment from the Optionee and an NASD Dealer whereby the Optionee
irrevocably elects to exercise the Option and to pledge the shares so purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the Exercise Price
directly to the Company; or (i) any combination of the foregoing methods of
payment or any other consideration or method of payment as shall be permitted by
applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6
<PAGE>
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made, in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant's employment, service as a director of the Company
or Service Provider status for any reason whatsoever (including death or
disability), the Stock Purchase Agreement may provide, in the discretion of the
Administrator, that the Company shall have the right, exercisable at the
discretion of the Administrator, to repurchase (i) at the original Purchase
Price, any shares of Restricted Stock which have not vested as of the date of
termination, and (ii) at Fair Market Value, any shares of Restricted Stock which
have vested as of such date, on such terms as may be provided in the Stock
Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
7
<PAGE>
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person
8
<PAGE>
acts fraudulently or in bad faith. To the extent permitted by law, the Company
shall indemnify each member of the Board or Committee, and any employee of the
Company with duties under the Plan, who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed proceeding, whether
civil, criminal, administrative or investigative, by reason of such person's
conduct in the performance of duties under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In the event of a Change in Control of the
Company, the Administrator in its discretion may, at any time an Option or Right
to Purchase is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase of each Option or Right to
Purchase for an amount of cash or other property that could have been received
upon the exercise of the Option or Right to Purchase had the Option been
currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be continued or
assumed, or new rights substituted therefor, by the surviving or another entity,
through the continuance of the Plan and the continuation or assumption of
outstanding Options and Rights to Purchase, or the substitution for such Options
and Rights to Purchase of new options and new rights to purchase of comparable
value covering shares of a successor corporation, with appropriate adjustments
as to the number and kind of shares and Exercise Prices, in which event the Plan
and such Options and Rights to Purchase, or the new options and rights to
purchase substituted therefor, shall continue in the manner and under the terms
so provided or (D) make such other provision as the Administrator may consider
equitable. If the Administrator does not take any of the foregoing actions, all
Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction,
provided, however, that if no provision is made for continuance of the Plan and
the continuance, assumption or substitution of outstanding Options or Rights to
Purchase, then concurrent with the effective date of the Change of Control all
Options, Rights of Purchase and Restricted Stock shall be accelerated and
concurrent with such date the holders of such Options and Rights to Purchase
shall have the right to exercise such Options and Rights of Purchase in respect
to any or all shares subject thereto. The Administrator shall have the right,
with respect to any specific Option, Right of Purchase or Restricted Stock
granted under the Plan, to provide that such Options, Rights of Purchase or
Restricted Stock shall be accelerated in any event upon the effective date of
the Change of Control.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment,
9
<PAGE>
suspension or termination shall be made which shall substantially affect or
impair the rights of any Participant under an outstanding Option Agreement or
Stock Purchase Agreement without such Participant's consent. The Board may alter
or amend the Plan to comply with requirements under the Code relating to
Incentive Options or other types of options which give Optionee more favorable
tax treatment than that applicable to Options granted under this Plan as of the
date of its adoption. Upon any such alteration or amendment, any outstanding
Option granted hereunder may, if the Administrator so determines and if
permitted by applicable law, be subject to the more favorable tax treatment
afforded to an Optionee pursuant to such terms and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or require
a Participant to remit to the Company, an amount sufficient to satisfy any
applicable Federal, state, and local tax withholding requirements with respect
to any Options exercised or Restricted Stock issued under the Plan. To the
extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment
10
<PAGE>
of any Participant. Nothing contained in the Plan shall be deemed to give the
right to any Participant to be retained as an employee of the Company or any
Affiliated Company or to interfere with the right of the Company or any
Affiliated Company to discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
11
<PAGE>
Exhibit 10.14
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This First Amendment to Agreement and Plan of Merger (this
"AMENDMENT") is made and entered into as of August 5, 1998, by and among United
States Filter Corporation, a Delaware corporation ("PARENT"), Kinetics
Acquisition Corp., a California corporation and a wholly owned subsidiary of
Parent ("SUBCORP"), and Unit Instruments, Inc., a California corporation
("UNIT").
PRELIMINARY STATEMENTS
A. The parties entered into an Agreement and Plan of Merger dated as
of July 2, 1998 (the "MERGER AGREEMENT").
B. The parties have decided to amend the Merger Agreement by
amending, restating and supplementing certain provisions of the Merger Agreement
as set forth in this Amendment.
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. Section 2.2(a) of the Merger Agreement is amended and
---------
restated in its entirety as follows:
"(a) The "EXCHANGE RATIO" shall equal $11.03 divided by
the Parent Share Value. The "PARENT SHARE VALUE" shall be either (i) the
average of the closing price per share for shares of Parent Common Stock as
reported on the New York Stock Exchange ("NYSE") Composite Tape ("NYSE
COMPOSITE TAPE") on each of the twenty (20) consecutive trading days ending
on the fifth (5th) trading day preceding the Closing Date (the "AVERAGE
SHARE PRICE") if the Average Share Price is above $26.00, or (ii) $26.00 if
the Average Share Price is equal to or less than $26.00. No certificates
for fractional Shares of Parent Common Stock shall be issued as a result of
the conversion provided for in Section 2.1(b)."
SECTION 2. In order to induce Subcorp and Parent to enter into this
---------
Amendment, Unit hereby represents and warrants to Parent and Subcorp as follows:
(a) Unit has received the oral advice of Needham & Company, its
financial advisors, to the effect that, as of the date of this Amendment,
the Exchange Ratio is fair to the Unit Shareholders from a financial point
of view. Such oral advice has not been withdrawn or revoked or modified in
any material respect and is to be confirmed in a written fairness opinion
of Needham & Company, which opinion will be dated as of the date of this
Amendment. Unit will promptly provide copies of such opinion to Parent.
<PAGE>
(b) The Board of Directors of Unit has authorized this Amendment
and, by unanimous written consent, (i) determined that the Merger
Agreement, as amended by this Amendment, and the transactions contemplated
thereby and hereby, including the Merger, taken together, are fair to and
in the best interests of the Unit Shareholders, and (ii) resolved to
recommend that the Unit Shareholders approve the Merger Agreement, as
amended by the Amendment, and the transactions contemplated therein and
herein, including the Merger (which recommendation shall be deemed part of
the Unit Board Recommendation).
SECTION 3. In addition to the conditions set forth in Section 6.3 of
---------
the Merger Agreement, the obligations of Parent and Subcorp to consummate the
Merger and the other transactions contemplated by the Merger Agreement, as
amended by this Amendment, shall be subject to the fulfillment of the following
conditions unless waived by Parent:
(a) The representations and warranties of Unit set forth in this
Amendment shall be true and correct in all material respects on and as of
the Closing Date.
(b) Needham & Company shall have waived, in form and substance
reasonably acceptable to Parent and Subcorp, all of its registration rights
under that certain Warrant to Purchase 100,000 Shares of Common Stock of
Autoclave Engineers, Inc. dated as of October 17, 1994.
SECTION 4. In order to induce Unit to enter into this Amendment,
---------
Parent and Subcorp agree with Unit that, except as set forth in or contemplated
by Section 3 above, and notwithstanding the delivery to Unit of the letter from
Parent's counsel dated July 31, 1998 pursuant to Section 6.3(f) of the Merger
Agreement (the "INVESTIGATION NOTICE"):
(a) The condition to Parent's and Subcorp's obligations set forth
in Section 6.3(f) of the Merger Agreement shall be deemed to be satisfied;
(b) The matters set forth in the Investigation Notice, to the
extent of information pertaining thereto that has been specifically
disclosed by Unit to Parent in the draft of Unit's annual report on Form
10-K delivered by Unit to Parent on July 22, 1998, in Unit's press release
dated July 17, 1998 announcing certain workforce reductions (the "PRESS
RELEASE"), or in other written material delivered by Unit to Parent and
Subcorp prior to Parent's execution of this Amendment (collectively, the
"PREVIOUSLY DISCLOSED INFORMATION"), shall be deemed to amend and
supplement the Unit Disclosure Schedules for all purposes under Article IV
of the Merger Agreement;
(c) Parent and Subcorp hereby waive any breach of Unit's
covenants under Section 5.1(c) or 5.3(c) of the Merger Agreement with
respect to the issuance by Unit of the Press Release and the taking by Unit
of actions specified in and consistent with the Press Release;
2
<PAGE>
(d) Unit shall be deemed to have complied with its notice
obligations under Section 5.3(h) of the Merger Agreement with respect to
the Previously Disclosed Information; and
(e) The parties further agree that (i) for purposes of the
condition set forth in Section 6.3(d) of the Merger Agreement, the
Previously Disclosed Information shall be deemed to have been disclosed by
Unit to Parent not less than five (5) business days prior to the
Investigation Date and (ii) any deterioration in Unit's prospects or
operating results after July 22, 1998, to the extent such deterioration is
attributable to a decline after such date in the market demand for
semiconductor manufacturing equipment, shall not be deemed a Material
Adverse Change for the purposes of Section 4.7 or Section 8.3(b) of the
Merger Agreement.
SECTION 5--MISCELLANEOUS.
------------------------
(a) EFFECT OF AMENDMENT. The provisions of this Amendment are
-------------------
hereby incorporated into and made part of the Merger Agreement. Except as
amended by this Amendment, all of the provisions of the Merger Agreement
shall continue in full force and effect.
(b) DEFINITIONS. Unless otherwise defined in this Amendment,
-----------
capitalized terms have the meanings given in the Merger Agreement.
(c) ENTIRE AGREEMENT. The Merger Agreement (including the
----------------
documents and the instruments referred to therein), the Confidentiality
Agreement, and this Amendment constitute the entire agreement among the
parties and supersede all prior agreements, understandings and
representations by or among the parties, written and oral, with respect to
the subject matter hereof and thereof.
(d) COUNTERPARTS. This Amendment may be executed in
------------
counterparts, which shall constitute one and the same instrument. The
parties may execute more than one copy of this Amendment, each of which
shall constitute an original.
3
<PAGE>
IN WITNESS WHEREOF, Parent, Subcorp and Unit have signed this
Amendment as of the date first written above.
"PARENT"
UNITED STATES FILTER CORPORATION, a
Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
"SUBCORP"
KINETICS ACQUISITION CORP.,
a California corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
"UNIT"
UNIT INSTRUMENTS, INC., a California
corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
4
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
The following is a list of the subsidiaries of Unit Instruments, 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>
Control Systems, Inc. New Mexico
Unit Foreign Sales Corporation Virgin Islands
Unit Instruments 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 17, 1998 appearing on Page 21 of this Form 10-K.
PricewaterhouseCoopers LLP
Costa Mesa, California
August 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1998
<PERIOD-START> JUN-01-1997 JUN-01-1997
<PERIOD-END> MAY-31-1998 FEB-28-1998
<CASH> 9,942 8,839
<SECURITIES> 0 0
<RECEIVABLES> 6,664 8,145
<ALLOWANCES> 135 0
<INVENTORY> 7,638 8,809
<CURRENT-ASSETS> 26,235 27,620
<PP&E> 19,169 19,024
<DEPRECIATION> 10,692 10,266
<TOTAL-ASSETS> 40,103 41,600
<CURRENT-LIABILITIES> 6,513 7,804
<BONDS> 0 0
0 0
0 0
<COMMON> 599 599
<OTHER-SE> 32,411 33,178
<TOTAL-LIABILITY-AND-EQUITY> 40,103 41,600
<SALES> 52,234 42,815
<TOTAL-REVENUES> 52,234 42,815
<CGS> 36,141 29,616
<TOTAL-COSTS> 57,696 47,556
<OTHER-EXPENSES> 441 58
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 115 42
<INCOME-PRETAX> (5,283) (4,238)
<INCOME-TAX> (634) (85)
<INCOME-CONTINUING> (4,649) (4,153)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,649) (4,153)
<EPS-PRIMARY> (1.08) (0.95)
<EPS-DILUTED> (1.08) (0.95)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1998
<PERIOD-START> JUN-01-1997 JUN-01-1997
<PERIOD-END> NOV-29-1997 AUG-30-1997
<CASH> 16,097 12,501
<SECURITIES> 0 0
<RECEIVABLES> 8,281 8,717
<ALLOWANCES> 0 0
<INVENTORY> 9,123 8,811
<CURRENT-ASSETS> 35,385 33,077
<PP&E> 19,548 20,135
<DEPRECIATION> 9,816 10,375
<TOTAL-ASSETS> 54,507 52,382
<CURRENT-LIABILITIES> 9,414 7,830
<BONDS> 0 0
0 0
0 0
<COMMON> 677 674
<OTHER-SE> 43,619 43,031
<TOTAL-LIABILITY-AND-EQUITY> 54,507 52,382
<SALES> 29,521 14,596
<TOTAL-REVENUES> 29,521 14,596
<CGS> 19,829 9,961
<TOTAL-COSTS> 28,294 18,387
<OTHER-EXPENSES> 80 8
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 28 15
<INCOME-PRETAX> 1,539 598
<INCOME-TAX> 615 239
<INCOME-CONTINUING> 923 359
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 923 359
<EPS-PRIMARY> 0.21 0.08
<EPS-DILUTED> 0.20 0.08
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1997 MAY-31-1997 MAY-31-1997
<PERIOD-START> JUN-01-1996 JUN-01-1996 JUN-01-1996 JUN-01-1996
<PERIOD-END> MAY-31-1997 MAR-01-1997 NOV-30-1996 AUG-31-1996
<CASH> 12,203 12,868 14,090 14,427
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,181 6,866 5,870 8,001
<ALLOWANCES> 149 0 0 116
<INVENTORY> 8,700 9,672 10,305 11,446
<CURRENT-ASSETS> 31,113 31,610 32,427 34,996
<PP&E> 19,916 19,422 19,214 19,114
<DEPRECIATION> 9,767 9,120 8,506 7,872
<TOTAL-ASSETS> 50,964 52,053 53,465 56,669
<CURRENT-LIABILITIES> 7,417 7,506 7,923 9,369
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 658 656 655 658
<OTHER-SE> 42,003 42,839 43,879 46,642
<TOTAL-LIABILITY-AND-EQUITY> 50,964 52,053 53,465 56,669
<SALES> 43,271 30,914 21,290 13,288
<TOTAL-REVENUES> 43,271 30,914 21,290 13,288
<CGS> 33,582 23,796 16,297 8,670
<TOTAL-COSTS> 50,512 36,524 25,421 13,321
<OTHER-EXPENSES> 0 60 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 148 41 26 11
<INCOME-PRETAX> (6,528) (5,082) (3,759) 185
<INCOME-TAX> (2,220) (1,626) (1,203) 83
<INCOME-CONTINUING> (4,308) (3,456) (2,556) 102
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4,308) (3,456) (2,556) 102
<EPS-PRIMARY> (0.99) (0.79) (0.57) 0.02
<EPS-DILUTED> (0.99) (0.79) (0.57) 0.02
</TABLE>
