-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qxiq+0LhtybVtIGm3Wp6sv6psqFTz+d5nnZHjPDcagJW5CRzPo2y1Jr0KUcW2Kvm aX70HxZHYv3lb03EsFaW9g== 0000950109-95-004100.txt : 19951011 0000950109-95-004100.hdr.sgml : 19951011 ACCESSION NUMBER: 0000950109-95-004100 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951110 FILED AS OF DATE: 19951010 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOCLAVE ENGINEERS INC CENTRAL INDEX KEY: 0000350067 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 250941759 STATE OF INCORPORATION: PA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10095 FILM NUMBER: 95579276 BUSINESS ADDRESS: STREET 1: 2930 WEST 22ND STREET CITY: ERIE STATE: PA ZIP: 16506 BUSINESS PHONE: 8148385700 MAIL ADDRESS: STREET 1: PO BOX 5051 CITY: ERIE STATE: PA ZIP: 16512-5051 DEF 14A 1 DEFINITIVE PROXY MATERIAL PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the registrant [X] Filed by a party other than the registrant [_] Check the appropriate box: [_] Preliminary proxy statement [X] Definitive proxy materials [_] Definitive additional materials [_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 Autoclave Engineers, Inc.. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) The Board of Directors of Registrant - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): [X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(3). [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. _______________________________________________________________________ (1) Title of each class of securities to which transactions applies: _______________________________________________________________________ (2) Aggregate number of securities to which transactions applies: _______________________________________________________________________ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:/1/ _______________________________________________________________________ (4) Proposed maximum aggregate value of transaction: _______________________________________________________________________ _______________________________________________________________________ [X] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. _______________________________________________________________________ (1) Amount previously paid: $125 _______________________________________________________________________ (2) Form, schedule or registration statement no.: Preliminary Schedule 14A _______________________________________________________________________ (3) Filing party: Autoclave Engineers, Inc. _______________________________________________________________________ (4) Date filed: September 19, 1995 _______________________________________________________________________ [LOGO] 22600 SAVI RANCH PARKWAY . YORBA LINDA, CA 92687 . (714) 921-2640 ------------------------------------------------- NOTICE OF ANNUAL MEETING AND PROXY STATEMENT ------------------------------------------------- October 6, 1995 Dear Fellow Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders of Autoclave Engineers, Inc. (the "Corporation") on November 10, 1995, at 10:00 a.m., at the offices of the Corporation's wholly-owned subsidiary, Unit Instruments, Inc., 22600 Savi Ranch Parkway, Yorba Linda, California. I hope you will be able to join us. However, whether or not you are planning to attend the meeting, please complete, sign and return the enclosed proxy card to make certain that your shares are represented at the meeting. Sincerely, James C. Levinson Chairman of the Board Enclosure NOTICE OF 1995 ANNUAL MEETING OF SHAREHOLDERS To the Shareholders: The Annual Meeting of Shareholders of Autoclave Engineers, Inc., a Pennsylvania corporation, will be held on November 10, 1995, at 10:00 a.m., at the offices of the Corporation's wholly-owned subsidiary, Unit Instruments, Inc. ("Unit"), 22600 Savi Ranch Parkway, Yorba Linda, California, for the following purposes: 1. To elect two members of the Corporation's five-member Board of Directors. 2. To consider and act upon a proposal to change the Corporation's state of incorporation from Pennsylvania to California pursuant to a Plan of Merger which provides that the Corporation will be merged into its wholly-owned subsidiary, Unit Instruments, Inc. 3. To consider and act upon a proposal to ratify the selection of the firm of Price Waterhouse LLP as auditors for the fiscal year ending May 31, 1996. 4. To transact such other business as may properly come before the meeting and any adjournments thereof. Shareholders have the right to dissent from the merger and obtain payment for their shares by following the procedure described in Subchapter 15D of the Pennsylvania Business Corporation Law and summarized in "Reincorporation Merger--Appraisal Rights of Dissenting Shareholders" in the accompanying Proxy Statement. Shareholders entitled to notice of and to vote at the meeting shall be determined as of September 22, 1995, the record date fixed by the Board of Directors for such purpose. By Order of the Board of Directors, Gary N. Patten Secretary October 6, 1995 i CONTENTS
PAGE ---- Notice of Annual Meeting of Shareholders................................... i Proxy Statement............................................................ 1 Securities Ownership of Certain Beneficial Owners and Management........... 2 Election of Directors...................................................... 3 Board Meetings and Committees.............................................. 4 Executive Compensation..................................................... 5 Compensation Committee Report on Executive Compensation.................... 11 Performance Graph.......................................................... 13 Reincorporation Merger..................................................... 14 Approval of Selection of Auditors.......................................... 25 Shareholder Proposals...................................................... 25 Expenses and Solicitation.................................................. 25
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REQUESTED TO SIGN THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT BY MAIL IN THE ENCLOSED STAMPED ENVELOPE. PROXY STATEMENT OCTOBER 6, 1995 Proxies in the form enclosed with this Proxy Statement are solicited by the Board of Directors of Autoclave Engineers, Inc. for use at the Annual Meeting of Shareholders to be held on November 10, 1995, at 10:00 a.m., at the offices of the Corporation's wholly-owned subsidiary, Unit Instruments, Inc. ("Unit"), 22600 Savi Ranch Parkway, Yorba Linda, California. Only shareholders of record as of September 22, 1995 will be entitled to vote at the meeting and any adjournments thereof. As of that date, 4,281,172 shares of Common Stock of the Corporation were issued and outstanding. The shareholders are entitled to one vote per share on any proposal presented at the meeting, except that they have cumulative voting rights with respect to the election of directors. Hence, each shareholder is entitled to as many votes in the election of directors as shall equal the number of his or her shares of Common Stock multiplied by the number of directors, two, to be elected, and the shareholder may cast all such votes for a single nominee or may distribute such votes between two or more nominees, as the shareholder may see fit. Shareholders are requested, by means of execution of the accompanying proxy, to grant the proxy holders discretionary authority to cumulate votes. Shareholders may vote in person or by proxy. In addition to the election of directors, the shareholders will consider and vote upon a Plan of Merger pursuant to which the Corporation will be merged into Unit (the "Reincorporation Merger"), and a proposal to ratify the selection of Price Waterhouse LLP as auditors, each as further described in this Proxy Statement. Execution of a proxy will not in any way affect a shareholder's right to attend the meeting and vote in person. Any shareholder giving a proxy has the right to revoke it by notice to the Secretary of the Corporation at any time before it is exercised. The persons named as attorneys in the proxies are directors and/or officers of the Corporation. All properly executed proxies returned in time to be counted at the meeting will be voted as specified in the proxy. If no specification is made, the shares will be voted for the election of each of the Board's nominees to the Board of Directors, for approval of the Reincorporation Merger and for approval of the selection by the Board of Directors of Price Waterhouse LLP as auditors of the Corporation for its current fiscal year. The representation in person or by proxy of at least a majority of the outstanding shares of Common Stock entitled to vote at the meeting is necessary to establish a quorum for the transaction of business. Votes withheld from any nominee, abstentions and broker "non-votes" are counted as present or represented for purposes of determining the presence or absence of a quorum. Directors are elected by a plurality of the votes cast by shareholders entitled to vote at the meeting. Shares represented by proxies which are marked "withhold authority" will have no effect on the outcome of the vote for election of directors. Approval of other matters requires the affirmative vote of the majority of shares present in person or represented by proxy at the meeting. Only shares that are voted in favor of a particular proposal will be counted toward achievement of a majority. Abstentions and broker non-votes have the same effect as votes against the proposal. A non- vote occurs when a broker holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the broker does not have discretionary voting power and has not received instructions from the beneficial owner. The Board of Directors knows of no other matter to be presented at the meeting. If any other matter should be presented at the meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board of Directors will be voted with respect thereto in accordance with the judgment of the persons named as attorneys in the proxies. An Annual Report to Shareholders, containing financial statements for the fiscal year ended May 31, 1995, is being mailed contemporaneously with this Proxy Statement to all shareholders entitled to vote. This Proxy Statement and the form of proxy were first mailed to shareholders on or about the date hereof. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of October 1, 1995, certain information with respect to the beneficial ownership of the Corporation's Common Stock by each person known to the Corporation to be the beneficial owner of more than 5% of the outstanding shares of its Common Stock, by each director, by each executive officer named below, and by all directors and executive officers as a group:
NUMBER OF SHARES PERCENT OF NAME BENEFICIALLY OWNED (1) CORPORATION'S COMMON STOCK ---- ---------------------- -------------------------- J&L Levinson Partnership....... 505,907(2) 12.5% 700 Louisiana Street Houston, TX 77002 Marilyn G. Levinson............ 409,683(3) 10.1% The TCW Group, Inc............. 358,500 8.8% 865 Figueroa Street Los Angeles, CA 90017 The Pioneer Group.............. 334,500 8.2% 60 State Street Boston, MA 02109 U.S. Bancorp................... 288,540 7.1% 1118 West Fifth Avenue Portland, OR 97202 Dimensional Fund Advisors, 224,526 5.5% Inc........................... 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 James C. Levinson.............. 133,496(4) 3.3% A. Wade Blackman, Jr........... 63,383(5) 1.6% Michael J. Doyle............... 121,789(6) 3.0% George Boyadjieff.............. 0 -- Edward Rogas, Jr............... 0 -- John E. Lamirande.............. 0(7) -- John W. Leggat................. 0(8) -- Gary N. Patten................. 0(9) -- Michael Saloka................. 2,854(10) * Kathryn S. Tricoli............. 0(11) -- Nelson Urdaneta................ 31,665(12) * All directors and officers 353,187(13) 8.4% as a group.................... (11 persons at October 1, 1995)
- -------- *Less than 1% (1) Unless otherwise indicated, each named person has sole voting and investment power over the shares beneficially owned by such person. (2) J & Levinson Partnership is a general partnership of which James C. Levinson and Marilyn G. Levinson are the sole general partners. (3) Includes 3,265 shares which Mrs. Levinson has the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995 and 406,418 shares which Mrs. Levinson may be deemed to beneficially own through her partnership interest in the J & L Levinson Partnership. (4) Includes 34,007 shares which Mr. Levinson has the right to acquire by exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995, and 99,489 shares which Mr. Levinson may be deemed to beneficially own through his partnership interest in the J & L Levinson Partnership. Does not include 406,418 shares owned by Mr. Levinson's wife, Marilyn G. Levinson, through her partnership interest in the J & L Levinson Partnership, as to which Mr. Levinson disclaims beneficial ownership. (footnotes continued on following page) 2 (5) Includes 63,383 shares which Mr. Blackman has the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995. (6) Includes 33,712 shares which Mr. Doyle has the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995. Does not include 150,000 shares which Mr. Doyle has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (7) Does not include 35,110 shares which Mr. Lamirande has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (8) Does not include 35,110 shares which Mr. Leggat has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (9) Does not include 42,220 shares which Mr. Patten has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (10) Consists of 2,854 shares which Mr. Saloka has the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995. Does not include 42,220 shares which Mr. Saloka has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (11) Does not include 21,665 shares which Ms. Tricoli has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (12) Consists of 31,665 shares which Mr. Urdaneta has the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995. Does not include 31,665 shares which Mr. Urdaneta has the right to acquire by the exercise of stock options that become exercisable more than 60 days after October 1, 1995. (13) Includes 165,621 shares which the executive officers and directors of the Corporation have the right to acquire by the exercise of stock options that are currently exercisable or will become exercisable within 60 days of October 1, 1995. Does not include shares beneficially owned by four former executive officers of the Corporation, each of whom own less than 1% of the Corporation's outstanding Common Stock, as set forth below:
NAME SHARES ---- ------ William F. Schilling................................................ 38,050 John G. Sontag...................................................... 27,691 Thomas C. Guelcher.................................................. 15,650 Jean-Claude Pineau.................................................. 5,565
ELECTION OF DIRECTORS The Board of Directors is currently divided into three classes. Directors are generally elected for terms of three years and until their successors are elected and have qualified. The terms of each class expire in successive years at the Annual Meeting of Shareholders. Two directors are to be elected at the 1995 Annual Meeting of Shareholders for a term of three years. The nominees for election are James C. Levinson and A. Wade Blackman, Jr., each of whom is currently a director of the Corporation. If the Reincorporation Merger is approved by the shareholders, the Board of Directors of Unit as the surviving corporation will consist of Messrs. Levinson and Blackman, assuming they are elected at the meeting, as well as the other current members of the Board of Directors, namely Michael J. Doyle, George Boyadjieff and Edward Rogas, Jr. In such event, the Board of Directors will no longer be classified, and each member of the Board of Directors will stand for election annually beginning with the 1996 Annual Meeting of Shareholders. Directors are elected by a plurality of all votes cast. Shares represented by all proxies received by the Board of Directors and not so marked as to withhold authority to vote for any individual nominee or for both nominees will be voted (unless one or more nominees are unable or unwilling to serve) for the election of the nominees named above. The Board of Directors knows of no reason why either nominee should be unable or unwilling to serve, but if such should be the case, proxies will be voted for the election of some other person or for a lesser number of nominees. 3 The following table sets forth the names of all directors of the Corporation, their ages, their positions with the Corporation and the respective years in which their terms of office expire.
POSITIONS WITH TERM NAME AGE THE CORPORATION EXPIRES ---- --- --------------- ------- James C. Levinson(1)....................... 67 Chairman of the Board 1995 of Directors A. Wade Blackman, Jr.(2)................... 67 Director 1995 Michael J. Doyle........................... 42 Director, President and 1996 Chief Executive Officer George Boyadjieff(2)....................... 55 Director 1997 Edward Rogas, Jr.(1)(2).................... 55 Director 1996
- -------- (1) Member of the Compensation Committee of the Board of Directors. (2) Member of the Audit Committee of the Board of Directors. Mr. Levinson, currently Chairman and formerly President and Chief Executive Officer of the Corporation, has served as a director of the Corporation since 1961. Mr. Blackman has served as a director of the Corporation since 1984. He is President of Farmington Capital Management Corporation, a private investment company, and a former Managing General Partner of American Research & Development Inc., a venture capital firm. Mr. Doyle became the President and Chief Executive Officer of the Corporation in September 1995. He is also President and Chief Executive Officer of Unit, the Corporation's wholly owned subsidiary which manufactures mass-flow controllers for use in the semiconductor industry, since 1980. He has also served as a director of the Corporation since 1984. Mr Boyadjieff was appointed a director of the Corporation at the Board meeting held on September 27, 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. Rogas was appointed a director of the Corporation at the Board meeting held on September 27, 1995. He is Vice President, Semiconductor Test Group, 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. BOARD MEETINGS AND COMMITTEES The Board of Directors held seven meetings in fiscal 1995. Each incumbent director attended at least 75% of the meetings of the Board and Committees of the Board on which he served during that period. The Board of Directors has three Committees: the Executive Committee, the Compensation Committee and the Audit Committee. The Corporation does not have a nominating committee. The Executive Committee, which did not meet in fiscal 1995, has the power to exercise all of the powers of the Board of Directors in the management and business affairs of the Corporation in the intervals between meetings of the full Board of Directors. The Board of Directors, at its September 27, 1995 meeting, determined not to continue the Executive Committee. Unit, following the Reincorporation Merger, will not have an Executive Committee. The Compensation Committee, which held four meetings in fiscal 1995, determines the compensation of the executive officers of the Corporation and administers the Corporation's stock plans. 4 The Audit Committee, which held two meetings in fiscal 1995, reviews the scope and results of the audit by the independent auditors and makes recommendations to the Board of Directors as to the selection of independent auditors for each fiscal year. It also reviews systems of internal control and accounting policies and procedures and, should the need arise, would direct and supervise investigations into matters within the scope of its duties. EXECUTIVE COMPENSATION The following table sets forth the annual and long-term compensation for services in all capacities with the Corporation and its subsidiaries for the fiscal years ended May 31, 1995, 1994 and 1993, of those persons who were at May 31, 1995 (i) the chief executive officer; (ii) the other four most highly compensated executive officers; and (iii) any executive officers, up to a maximum of two, who departed during the year but who would have been among the four most highly compensated officers of the Corporation (collectively, the "Named Officers"). Mr. Jean-Claude Pineau, who is listed in the table, served as President of Burton-Corblin S. A. prior to divestiture of that corporation by the Corporation in January 1995; compensation data for Mr. Pineau in the table relates to the period of time during the fiscal year that Burton-Corblin S. A. was owned by the Corporation. Messrs. Schilling, Guelcher and Sontag, each of whom are included in the following tables, resigned as of September 27, 1995 upon consummation of the sale by the Corporation of the Autoclave Engineers Group in September 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) ------------------ NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (3) --------------------------- ---- -------- --------- William F. Schilling................................... 1995 $191,796 $145,725 Chief Executive Officer, 1994 $181,908 $ 55,500 President and Director 1993 $171,600 0 James C. Levinson...................................... 1995 $127,795 0 Chairman and Director 1994 $135,384 0 1993 $220,000 0 Michael J. Doyle....................................... 1995 $160,937 $ 97,125 President of Unit and Director 1994 $135,608 $ 62,613 1993 $131,886 0 Thomas C. Guelcher .................................... 1995 $131,000 $ 68,775 Vice President of Corporate 1994 $127,930 $ 27,510 Development and Chief Financial Officer 1993 $114,615 0 John G. Sontag......................................... 1995 $110,532 $ 44,620 Corporate Treasurer, 1994 $107,692 $ 13,248 Secretary and Controller 1993 $102,307 0 Jean-Claude Pineau..................................... 1995 $134,295 $217,152 President of 1994 $149,365 $ 31,270 Burton Corblin, S.A. 1993 $139,136 0
(footnotes on following page) 5
LONG-TERM COMPENSATION (2) ---------------- AWARDS PAYOUTS ---------------- ------- SECURITIES UNDERLYING OPTIONS/ LTIP ALL OTHER NAME AND PRINCIPAL POSITION YEAR SARS PAYOUT COMPENSATION --------------------------- ---- ---------------- ------- ------------ William F. Schilling............ 1995 0 0 $742,422(5)(6) Chief Executive Officer, 1994 0 0 0 President and Director 1993 0 0 0 James C. Levinson............... 1995 0 0 0 Chairman and Director 1994 0 0 0 1993 0 0 0 Michael J. Doyle................ 1995 0 0 $ 11,250(4) President of Unit and Director 1994 0 0 $ 8,820(4) 1993 0 0 $ 8,400(4) Thomas C. Guelcher.............. 1995 0 0 $403,776(5) V. P. of Corporate Development 1994 0 0 0 and Chief Financial Officer........ 1993 0 0 0 John G. Sontag 1995 0 0 $324,775(5) Corporate Treasurer, Secretary 1994 0 0 0 and Controller..................... 1993 0 0 0 Jean-Claude Pineau 1995 0 0 0 President of 1994 0 0 0 Burton Corblin, S.A............ 1993 0 0 0
- -------- (1) Excludes perquisites and other personal benefits, the aggregate annual amount of which for each officer was less than the lesser of $50,000 or 10% of the total salary and bonus reported. (2) The Corporation did not grant any restricted stock awards or stock appreciation rights (SARs) during the fiscal years ended May 31, 1995, 1994 and 1993. (3) Includes bonus payments earned by the Named Officers in the year indicated, for services rendered in such year, which were paid in the next subsequent year. (4) Consists of contribution of $11,250 in 1995, $8,820 in 1994 and $8,400 in 1993 by Unit for account of Mr. Doyle pursuant to Unit's 401(k) plan. (5) Represents severance costs accrued in 1995 which will be payable in the next fiscal year as part of the Corporation's restructuring and transferring of all corporate activities from Erie, Pennsylvania to Yorba Linda, California. (6) Includes a $225,000 special incentive payment. COMPENSATION OF DIRECTORS Directors of the Corporation, other than those who are employees of the Corporation, currently receive $1,000 for each attended meeting of the Board. Directors also receive $1,000 for each committee meeting attended unless such meeting is held within one day of a meeting of the Board of Directors, in which case compensation is at the rate of $500 for each committee meeting. Directors are also reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings and other services as a director. Beginning September 1, 1993, each director who is neither an employee nor an officer of the Corporation or its subsidiaries is automatically granted as additional compensation an option to purchase a number of shares of the Corporation's Common Stock as further described herein under "1990 Non- Employee Director Stock Option Plan." 6 STOCK OPTIONS The 1987 Stock Plan (the "1987 Plan") was adopted by the Board of Directors of the Corporation on June 18, 1987 and approved by the shareholders on September 30, 1987. Prior to the 1990 Annual Meeting of Shareholders, a total of 605,000 shares of the Corporation's Common Stock (subject to adjustment in certain events) was authorized for issuance under the 1987 Plan (after giving effect to two 10% stock dividends which occurred subsequent to adoption of the 1987 Plan). At the 1990 Annual Meeting of Shareholders, an amendment to the 1987 Plan was approved which increased the number of shares of Common Stock authorized for issuance thereunder to 1,600,000 shares. Under the 1987 Plan, employees may be awarded incentive stock options ("ISO" or "ISOs"), as defined in Section 422(b) (formerly Section 422A(b)) of the Internal Revenue Code of 1986, as amended (the "Code"), and directors, officers, employees and consultants of the Corporation may be granted (i) options which do not qualify as ISOs ("Non-qualified Option" or "Nonqualified Options" and, together with ISO or ISOs, are sometimes collectively referred to herein as "Options"), (ii) awards of stock in the Corporation, and (iii) opportunities to make direct purchases of stock in the Corporation. As of October 1, 1995, stock options had been granted under the 1987 Plan to the following officers and in the following aggregate amounts: Mr. Levinson, 34,007 shares; Dr. Schilling, 37,050 shares; Mr. Doyle, 33,712 shares; Mr. Saloka, 2,854 shares; Mr. Guelcher, 12,550 shares; Mr. Sontag, 22,691 shares; Mr. Pineau, 0 shares; and all executive officers as a group, 142,854 shares. The exercise prices of such options range from $5.89 to $9.09 per share. The foregoing amounts do not include the following stock options granted in August 1995 at an exercise price of $12.625 to the following officers of Unit: Mr. Doyle, 150,000 shares; Mr. Lamarande, 35,110 shares; Mr. Leggat, 35,110 shares; Mr. Patten, 42,220 shares; Mr. Saloka, 42,220 shares; Ms. Tricoli, 21,665 shares; Mr. Urdaneta, 63,330 shares; and an aggregate of 30,000 shares to other non-officer employees of Unit. OPTION GRANTS IN THE LAST FISCAL YEAR During the fiscal year ended May 31, 1995, there were no grants of stock options pursuant to the 1987 Plan to the Named Officers as reflected in the Summary Compensation Table above. OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table sets forth information with respect to options to purchase the Corporation's Common Stock granted under the 1987 Stock Option Plan, including (i) the number of shares purchased upon exercise of options in fiscal 1995, (ii) the net value realized upon such exercise, (iii) the number of unexercised options outstanding at May 31, 1995 and (iv) the value of such unexercised options at May 31, 1995: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND MAY 31, 1995 OPTION VALUES
VALUE OF IN-THE- SHARES NUMBER OF MONEY ACQUIRED ON UNEXERCISED OPTIONS OPTIONS AT 5/31/95 NAME EXERCISE VALUE REALIZED AT 5/31/95(2) EXERCISABLE(1)(2) ---- ----------- -------------- ------------------- ------------------ W. F. Schilling......... 0 0 37,050 $198,485 J. C. Levinson.......... 0 0 34,007 $206,359 M. J. Doyle............. 0 0 33,712 $205,350 T. C. Guelcher.......... 0 0 12,550 $ 56,475 J. G. Sontag............ 0 0 22,691 $142,656 J-C Pineau.............. 4,355 $19,754 0 0
- -------- (1) Value is based on the difference between option exercise price and the fair market value at 1995 fiscal year-end ($12.50 per share as quoted on the NASDAQ National Market System) multiplied by the number of shares underlying the option. (2) All options are exercisable at May 31, 1995. 7 Options under the 1987 Plan to purchase an aggregate of 37,000 shares of Common Stock were granted by the Board of Directors to all employees as a group during the three fiscal years ended May 31, 1995, at an average per share exercise price of $6.66. Options to purchase 50,000 shares of Common Stock at a per share exercise price of $11.25 were granted by the Board of Directors under the 1987 Plan to one director, Mr. Blackman, for being Chairman of a Special Study Committee of the Board of Directors which performed oversight of a strategic planning advisory project during the fiscal year ended May 31, 1995. At October 1, 1995, options to purchase 643,735 shares remained available for grant under the 1987 Plan. 1990 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN In August 1990, the Board of Directors adopted a stock option plan (the "1990 Director Plan") for directors authorizing the grant of options for up to 100,000 shares of Common Stock. The 1990 Director Plan was approved by the shareholders of the Corporation in September 1990. Options are granted pursuant to the 1990 Director Plan only to members of the Board of Directors of the Corporation who are not employees or officers of the Corporation or its subsidiaries ("outside directors"). Each outside director is automatically granted on September 1 of each year, without further action by the Board of Directors, an option to purchase one thousand (1,000) shares of the Corporation's Common Stock, provided that such director shall have served as a director since at least December 31 of the preceding year. The exercise price per share of options granted under the 1990 Director Plan is 100% of the fair market value of the Corporation's Common Stock on the date the option is granted. The 1990 Director Plan requires that options granted thereunder will expire on the date which is ten (10) years from the date of grant. In September 1992, the shareholders approved two amendments to the 1990 Director Plan. The authorized number of options was increased to 250,000. The second amendment provided for each outside director to be automatically granted, on September 1 of each year beginning in 1993, an additional option to purchase a number of shares of the Corporation's Common Stock equal to a fraction, the numerator of which is $1,500 times the number of full fiscal quarters during which such person served as a director during the preceding 12 months, and the denominator of which is 25% of the fair market value of the Common Stock on the date the option is granted. As of October 1, 1995, 86,563 options had been granted to ten present or former directors of the Corporation under the 1990 Director Plan at per-share exercise prices that range from $7.00 to $15.375. Of the total, 23,643 options were granted at the exercise price of $8.50 per share to seven directors during the year ended May 31, 1995, and 17,920 options were granted at the exercise price of $15.375 to seven directors on September 1, 1995. One former director exercised 2,000 options in June 1995 at an exercise price of $7.25 per share. The aggregate number of shares of Common Stock subject to options under the 1990 Director Plan, as of October 1, 1995, was 84,563 shares. DEFERRED COMPENSATION AGREEMENTS The Corporation has deferred compensation agreements with certain key employees, including Messrs. Levinson, Schilling, Doyle and Guelcher. Under the agreements, the Corporation will make fixed monthly post-retirement payments to such employees 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 Corporation, to maintain the confidentiality of the Corporation'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 Corporation. INVOLUNTARY SEVERANCE AGREEMENTS In May 1994, the Corporation entered into agreements with thirteen officers of the Corporation and its subsidiaries, including the Chief Executive Officer and each of the Named Officers (except for Messrs. Levinson and Pineau), providing severance benefits in the event they are terminated within two years following a change in control of the Corporation. Pursuant to such agreements, a change in control occurs (i) when any person 8 becomes the beneficial owner of securities of the Corporation representing more than 20% of the combined voting power of the Corporation'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 Corporation's assets, or the assets of the operating group in which the officer is employed, or more than 50% of the Corporation's operating assets are sold or transferred to a third party; (iv) if the Corporation consolidates or merges with another corporation and the Corporation is not the survivor; or (v) if the Corporation no longer has a class of securities registered pursuant to Section 12 of the Exchange Act. The agreements provide that if the officer is terminated following a change in control of the Corporation, the Corporation shall pay such officer a sum equal to two 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 two 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 28OG of the Internal Revenue Code of 1986, the severance payments payable thereunder shall be reduced. The divestiture by the Corporation of Burton-Corblin S. A., together with the divestiture of the Autoclave Engineers Group, together constituted a change in control of the Corporation within the meaning of the agreements. The Corporation, therefore, has become obligated to pay the severance benefits required by the agreements to Messrs. Schilling, Guelcher and Sontag. These amounts are reflected in the compensation tables above. In connection with the divestiture of the Autoclave Engineers Group, the Corporation entered into involuntary severance agreements with Mr. Doyle and six other employees of Unit. Mr. Doyle's agreement supersedes his existing agreement described above. The new agreements have similar terms and conditions to those described above, except that the change in control provisions do not give effect to the divestitures described above. PENSION PLAN The Corporation maintains a defined benefit pension plan (the "Pension Plan") covering all employees (other than employees of Unit) who meet general eligibility requirements and who agree to contribute 3% of their salary to the plan. To be eligible, an employee must be 21 years old and complete 1,000 hours of service. The benefits are computed by a formula which takes into account an employee's years of service and a percentage of his or her average monthly compensation. The average monthly compensation is determined by averaging the compensation for the employee's highest five calendar years of earnings. Compensation covered by the Pension Plan includes salaries and annual bonuses. An employee may retire after reaching the age of 55 and completing ten years service; however, benefits are reduced if such retirement precedes age 65. The following table sets forth the estimated annual benefits payable on normal retirement at age 65 under the Pension Plan:
ANNUAL AVERAGE OF HIGHEST FIVE CALENDAR ANNUAL PENSION YEARS OF COMPENSATION COVERED YEARS OF SERVICE AT AGE 65 - --------------------- --------------------------------------- 15 20 25 30 (MAXIMUM) ------- --------- --------- ---------------- $75,000........................ $15,187 $ 20,250 $ 25,312 $ 30,375 100,000........................ 20,250 27,000 33,750 40,500 125,000........................ 25,312 33,750 42,187 50,625 150,000........................ 30,375 40,500 50,625 60,750 175,000........................ 35,437 47,250 59,062 70,875 200,000........................ 40,500 54,000 67,500 81,000 225,000........................ 45,562 60,750 75,937 91,125
9 Pensions shown in the table are straight-life annuity amounts notwithstanding the availability of joint-and-survivorship pensions at a reduced rate. As of May 31, 1995, Mr. Levinson had 27 credited years of service under the Pension Plan, Dr. Schilling had five credited years of service, Mr. Guelcher had six credited years of service and Mr. Sontag had 12 credited years of service. The compensation covered by the Pension Plan for each of these persons in fiscal 1995 was approximately equal to the applicable amount set forth in the preceding Summary Compensation Table. In connection with the divestiture of the Autoclave Engineers Group, the purchaser of the group assumed the obligations of the Corporation under the Pension Plan. BONUS PLAN Management employees of the Corporation participate in the Corporation's Annual Incentive Compensation Plan (the "Incentive Compensation Plan"). Under the Incentive Compensation Plan, management employees are eligible to receive cash payments according to a weighted average formula based upon corporate, group and individual performance. Such amounts are generally to be paid within two and one-half months after the end of the fiscal year in which they are earned. Annual administration of the Incentive Compensation Plan, including establishment of corporate objectives, participants, awards and payments, is based upon recommendations made by the Corporation's President for approval by the Compensation Committee and the Board of Directors. The Summary Compensation Table set forth above includes amounts earned under the Incentive Compensation Plan for performance during fiscal 1995. The Corporation has also from time to time paid discretionary bonuses as deemed appropriate by the Board of Directors. UNIT PROFIT SHARING PLAN Unit has a qualified profit sharing 401(k) plan (the "Unit Profit Sharing Plan") for substantially all of its employees who meet certain age and length of service requirements. Contributions equal to 50% of the participants' contributions are made by Unit to the plan. Such contributions by Unit are limited to 3% of a participant's compensation. Additional contributions may be made by Unit at the discretion of Unit's Board of Directors. Contributions to the plan in fiscal 1995 were $564,000. The Summary Compensation Table set forth above includes amounts accrued under the Unit Profit Sharing Plan during fiscal 1995. INCENTIVE PLAN Key management employees of the Corporation are eligible to participate in the Corporation's Long-Term Incentive Plan (the "Plan") which is administered by the Compensation Committee of the Board of Directors. Under the Plan, management employees are eligible to receive awards in the form of cash and restricted stock awarded pursuant to the 1987 Plan. Award levels are determined by comparing actual economic value created (defined as cash flow return in excess of cost of capital multiplied by investment) to goals approved by the Compensation Committee. Participation of key management employees in the Plan and the proportions of cash and restricted stock to be included in awards are subject to the discretion of the Compensation Committee. The cash component of any award under the Plan cannot exceed one- half of the award amount. Awards under the Plan are generally to be paid within two and one-half months after the end of the last fiscal year of the three-year performance period to which the award related. In January 1995, the Corporation entered into an incentive agreement with Mr. Pineau providing for aggregate payments of $217,152 upon consummation of the sale of Burton Corblin, S.A., provided he was an employee on the closing date. A partial payment of that amount was made to Mr. Pineau in connection with the closing of the sale transaction, with the balance due in February 1996. 10 OTHER TRANSACTIONS During fiscal 1995, the law firm of Eckert Seamans Cherin & Mellott, of which W. Gregg Kerr, a former director, was a partner until December 31, 1994 and is currently special counsel, rendered professional services to the Corporation. The Corporation has loan agreements with PNC Bank, N.A. Edward P. Junker III, a former director of the Corporation, is Vice Chairman of PNC Bank. As of May 31, 1995, the total amount outstanding on these loans was $903,144 with maturities through 1998. At May 31, 1995, these loans bore interest from 7.25% to 9.50% per annum. Payments are due in monthly installments of approximately $40,000, including interest. During fiscal 1995, Mr. Blackman, a director of the Corporation, received 50,000 stock options under the 1987 Stock Plan for acting as Chairman of a Special Study Committee of the Board of Directors which performed oversight of a strategic planning advisory project. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee (the "Committee") of the Board of Directors, composed entirely of directors who have never served as employees or officers of the Corporation, is responsible for establishing the compensation of the Chief Executive Officer and setting policy for compensation for senior management of the Corporation. The members of the Compensation Committee bring expertise in matters relating to executive compensation to their service on the Compensation Committee gained through their experience on other Boards of Directors of public and private companies. The Committee, pursuant to its charter and at the direction of the Board of Directors, endeavors to ensure that the senior management compensation program fairly compensates executives for their performance, provides incentives which attract and retain key executives and instills a sense of teamwork and ownership consistent with shareholder interests. The program is designed to provide competitive compensation with strong emphasis on pay for performance. The senior management compensation program consists of two elements: (1) an annual component (i.e., base salary and bonus); and (2) a long-term component consisting of stock options and awards of cash and restricted stock. The structure emphasizes variable rather than fixed compensation opportunities, in which performance achievements that contribute to growth in shareholder value will provide extraordinary awards. The program endeavors to provide a total compensation structure which compares favorably in form and substance to the average compensation provided by the Corporation's principal competition. BASE SALARY The Committee uses an executive salary range structure to determine a base salary range for each senior management position. This salary range structure which was developed by an independent personnel consultant is updated periodically by the same consultant. A variety of data sources are used to estimate the competitive market practices relevant to the Corporation, including published compensation surveys as well as proprietary surveys conducted by the consultant on behalf of his clients. In comparing the market data, special consideration is made to reflect the Corporation's internal organizational structure and positional responsibilities with like positions in comparably sized companies. An executive's base salary level within this salary range is determined based on the individual's contribution to company performance, as well as qualitative factors bearing on an individual's experience, responsibilities, and management and leadership abilities. The officers' base salary for fiscal 1995 is shown under the heading "Salary" in the Summary Compensation Table. 11 ANNUAL BONUS The annual bonus plan is designed to reward key executives and motivate them to meet or exceed annual income targets established by the Committee and approved by the Board of Directors. These annual targets are aggressive and challenging and may be different from the annual budget. Specifically, a net income target is established for the Corporation and operating profit targets are established for each of the operating companies. Bonuses for corporate executives are based on the corporate target. The bonus for operating company presidents is weighted 20% on corporate performance and 80% on the performance for each president's operation. These officers are active participants in the establishment of corporate goals and objectives; hence, the Committee believes it is appropriate that a portion of their bonus be based on corporate performance. Other operating company executives participating in the plan earn bonuses based solely on the performance of the operating company by which they are employed. Award opportunities for participants are based on the individual participant's job responsibility and range from 15% to 50% of base salary when annual targets are achieved. Actual performance must attain a threshold percentage of target in order to qualify for any bonus award. This threshold is generally established at 85%, although the Committee has the discretion to use a different target. In like manner, the Committee has the discretion to exclude the financial impact of certain extraordinary transactions in determining attainment of performance objectives. When the threshold level is achieved, the bonus paid is normally 20% of the target bonus. If actual performance exceeds targeted levels, award opportunities can be increased as much as 50% with the actual increase dictated by the extent to which the target is exceeded. Bonuses shown in the bonus column of the Summary Compensation Table reflect amounts earned subject to the foregoing provisions. LONG-TERM INCENTIVE The long-term compensation program consists of stock options and a combination of cash and restricted stock. The cash and restricted stock may be awarded under the Corporation's Long-Term Incentive Plan if economic value creation goals are met. These goals are a by-product of the three-year plans of the Corporation and the operating companies. Determination of economic value is a two-step process. First, cash flow return on total capital is calculated and compared to the cost of capital. If this return exceeds the cost of capital, economic value has been created. Actual economic value then is computed by multiplying total capital by the incremental return in excess of the cost of capital. The plan is designed in this manner to assure alignment of the long-term economic interests of management with those of shareholders. Awards ranging from 20% to 75% of base salary, depending on a participant's job responsibility, are made at the end of three-year performance periods if actual economic value created meets targeted levels. As with the annual bonus plan, awards less than or greater than the targeted level are possible, depending on actual economic value added as a percentage of target. Threshold and maximum award opportunities are the same as those provided under the annual bonus plan. A maximum of one-half the award amount earned is payable in cash, with the remainder being paid in restricted stock. Such stock awards must be held for a period of one year, and the recipient must remain an employee of the Corporation throughout the one-year period. There were no awards earned for the 1993-1995 plan cycle. DEDUCTIBILITY OF EXECUTIVE COMPENSATION EXPENSES The Revenue Reconciliation Act of 1993 limits the Corporation's ability to deduct for federal income tax purposes compensation in excess of $1,000,000 per executive for the Chief Executive Officer and four additional executive officers who are highest paid and employed at year end, except to the extent such excess constitutes performance-based compensation. The policy of the Board of Directors and the Compensation Committee is to qualify future compensation arrangements to ensure deductibility, except in those limited cases where stockholder value is maximized by an alternative approach. SUBMITTED BY THE COMPENSATION COMMITTEE: Edward P. Junker, III Carl J. Schlemmer George H. Schofield As of September 27, 1995 12 PERFORMANCE GRAPH The following graph compares the yearly percentage change in the cumulative total shareholder return on the Corporation's Common Stock during the five fiscal years ended May 31, 1995 with the cumulative total return on (i) the NASDAQ U.S. Stock Index, a composite index of the NASDAQ Stock Market prepared by Media General Financial Services; and (ii) a broad peer group index prepared by Media General Financial Services consisting of companies classified under SIC Codes 349, 356 and 382 with market capitalization of less than $300 million. The peer group consists of Central Sprinkler Corporation, Duriron Inc., Flow International Corporation, Moore Products Company and New Brunswick Scientific. The comparison assumes an investment of $100 on May 31, 1989 in the Corporation's Common Stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. [GRAPH APPEARS HERE]
FISCAL YEAR Company 1990 1991 1992 1993 1994 1995 Autoclave Engineers Inc 100 80.57 82.54 79.76 94.62 142.66 Peer Group 100 101.01 111.91 108.82 100.50 151.50 Broad Market 100 99.83 106.28 127.19 139.48 152.66
13 REINCORPORATION MERGER GENERAL The Board of Directors believes that the best interests of the Corporation and its shareholders would be served by changing the state of incorporation of the Corporation from Pennsylvania to California. This change would be accomplished through a merger transaction (the "Reincorporation Merger") pursuant to which the Corporation would be merged with and into Unit, as provided in a Plan of Merger (the "Plan of Merger"), a copy of which is included as Exhibit A hereto. The following discussion is a summary of the material features of the Reincorporation Merger and Plan of Merger and the general effect of the proposed reincorporation in California. The summary is not intended to be complete, and is qualified in its entirety by reference to the Restated Articles of Incorporation and Bylaws of Unit as the surviving corporation of the Reincorporation Merger, copies of which are included as Exhibits B and C hereto, respectively, and the Plan of Merger. Copies of the Articles of Incorporation and Bylaws of the Corporation as presently in effect are available for inspection at the headquarters of the Corporation, and will be sent to shareholders without cost upon request. The proposed reincorporation transaction involves the merger of the Corporation with and into Unit, which was incorporated in California in 1980. Unit has been a wholly-owned subsidiary of the Corporation since 1984 and is currently the Corporation's only operating entity. Unit will be the continuing and surviving corporation following the Reincorporation Merger. Upon consummation of the Reincorporation Merger, the Corporation will cease to exist and the shareholders of the Corporation will become shareholders of Unit on a share-for-share basis. As a result of the Reincorporation Merger, Unit will succeed to all of the properties and other assets of the Corporation and will assume and become responsible for all of the Corporation's liabilities and obligations. The Reincorporation Merger, and the reincorporation of the Corporation into California effected thereby, will not result in any change in the business operations, assets, liabilities, contractual relations or management of the Corporation. The directors who are elected at this annual meeting, the other current directors of the Corporation and the officers serving the Corporation on the effective date of the Reincorporation Merger will hold the same positions with Unit. CAPITALIZATION OF UNIT; STOCK CERTIFICATES On the effective date of the Reincorporation Merger, each share of Common Stock of the Corporation will be converted automatically into one fully paid and nonassessable share of Common Stock of Unit (the "Unit Common Stock"). Following the Reincorporation Merger, holders of Unit Common Stock will be entitled to the rights, powers, privileges and limitations pertaining to the Unit Common Stock. See "Certain Significant Differences Between the California and Pennsylvania Charter Documents" and "Certain Significant Differences Between the Corporation Laws of California and Pennsylvania." The number of authorized shares of Common Stock of Unit will be the same as is authorized for the Corporation. Unlike the Corporation's charter, the Unit charter authorizes 2,000,000 shares of Preferred Stock, $.01 par value per share. No shares of Preferred Stock will be issued in connection with the Merger. See "Certain Significant Differences Between the California and Pennsylvania Charter Documents.". It is anticipated that the Unit Common Stock will continue to be listed on the Nasdaq National Market. The Company has applied to change the symbol under which its shares are traded and, effective as of the date of the Reincorporation Merger, its shares of Common Stock will be traded under the symbol "UNII." In addition, the delivery of existing stock certificates of the Corporation will constitute "good delivery" of shares of Unit in transactions subsequent to the Reincorporation Merger. Accordingly, SHAREHOLDERS OF THE CORPORATION NEED NOT EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF UNIT. However, any shareholder desiring replacement stock certificates representing shares of Unit may submit such holder's present stock certificates to the Corporation's transfer agent, Continental Stock Transfer & Trust Company, in order to obtain new certificates. The Reincorporation Merger will not affect the individual beneficial interests of the Corporation's shareholders in the Common Stock. 14 VOTE REQUIRED FOR REINCORPORATION AND BOARD OF DIRECTORS' RECOMMENDATION Approval of the Plan of Merger will require the affirmative vote of a majority of the votes cast by all shareholders entitled to vote in person or by proxy. The Board of Directors has unanimously adopted and approved the Plan of Merger and recommends a vote FOR approval of the Plan of Merger. EFFECTIVE DATE In addition to receipt of the requisite shareholder approval of the Plan of Merger, the effectiveness of the Reincorporation Merger is conditioned upon the receipt of an opinion of tax counsel. See "Certain Federal Income Tax Consequences" below. It is presently anticipated that the Reincorporation Merger will be effected as soon after both of these conditions is satisfied as is practicable. However, the Boards of Directors of the Corporation and Unit may terminate the Plan of Merger for any reason prior to its effective date, either before or after shareholder approval. PRINCIPAL REASONS FOR REINCORPORATION UNDER CALIFORNIA LAW The principal reason for reincorporating in California is that substantially all of the Corporation's operations, as well as its principal executive offices, are in California. The Corporation was organized under the laws of the State of Pennsylvania in 1958. Since the sale of the Autoclave Engineers Group in September 1995, the Corporation moved its principal executive offices to Unit's offices in Yorba Linda, California. Unit is currently the Corporation's only operating entity. While the decision to incorporate in a particular state does not depend solely on the location of a Corporation's headquarters, the Corporation believes that being incorporated in the state where its management is headquartered puts it in position to monitor and participate in legislative and executive branch actions and other governmental decisions affecting corporations in that state. This can be important as corporations are substantially affected by changes in the legal and financial environment in which they operate, and by the variety of legislative and other governmental actions which may be taken in response to such changes. APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS Pursuant to the Plan of Merger and the Pennsylvania Business Corporation Law ("BCL"), holders of Common Stock will have dissenters rights in connection with the Merger under BCL Subchapter 15D ("Subchapter 15D"), and may object to the Plan of Merger and demand in writing that the Corporation pay them the fair value of their Common Stock. Failure by any dissenting shareholder to comply with any procedure required by Subchapter 15D may cause a termination of such shareholder's dissenters rights. The Corporation will not give any notice of the following requirements other than as described in this Proxy Statement and as required by the BCL. The right to exercise dissenters' rights under Subchapter 15D is the sole remedy of a holder of Common Stock with respect to the Reincorporation Merger, absent a showing of fraud or fundamental unfairness in connection with the Reincorporation Merger. Upon a showing of fraud or fundamental unfairness in connection with the Reincorporation Merger, a shareholder could seek an injunction against the consummation of the Reincorporation Merger. A holder of record of Common Stock may assert dissenters' rights as to fewer than all of the shares of Common Stock registered in such holder's name only if the holder dissents with respect to all of the Common Stock beneficially owned by any one person and discloses the name and address of the person or persons on whose behalf the holder dissents. In that event, the holder's rights shall be determined as if the shares as to which the holder has dissented and the other shares were registered in the names of different holders. A beneficial owner of shares of Common Stock who is not also the record holder of such shares may assert dissenters rights with respect to shares held on such owner's behalf and shall be treated as a dissenting shareholder under the terms of Subchapter 15D if the beneficial owner submits to the Corporation, not later than the time of filing the Notice of 15 Intention to Dissent (as defined below), a written consent of the record holder. Such beneficial owner may not dissent with respect to less than all shares of Common Stock beneficially owned by such beneficial owner. Holders of Common Stock (or beneficial owners thereof as provided above) who follow the procedures of Subchapter 15D as outlined below will be entitled to receive from the Corporation the fair value of their shares of Common Stock immediately before the Effective Date, taking into account all relevant factors but excluding any appreciation or depreciation in anticipation of the effectuation of the Plan of Merger. Holders of Common Stock (or beneficial owners thereof) who elect to exercise their dissenters rights must comply with all of the following procedures to preserve those rights. Holders of Common Stock (or beneficial owners thereof) who wish to exercise dissenters rights must file a written notice of intention to demand the fair value of their shares of Common Stock if the Reincorporation Merger is effectuated (the "Notice of Intention to Dissent"). Such dissenters must file the Notice of Intention to Dissent with the Secretary of the Corporation prior to the vote by shareholders on the Plan of Merger; they must make no change in their beneficial ownership of Common Stock from the date of filing until the Effective Date; and they must refrain from voting their Common Stock for the approval and adoption of the Plan of Merger. The Notice of Intention to Dissent must be in addition to and separate from any proxy or vote against the Plan of Merger. If the Plan of Merger is approved and adopted by the required vote at the Annual Meeting, the Corporation will mail a notice (the "Notice of Approval") to all dissenters who filed a Notice of Intention to Dissent prior to the vote on the Plan of Merger and who refrained from voting for the approval and adoption of the Plan of Merger. The Corporation expects to mail the Notice of Approval promptly after effectuation of the Reincorporation Merger. The Notice of Approval will state where and when (the "Demand Deadline") a demand for payment must be sent and certificates for shares of Common Stock must be deposited in order to obtain payment; it will supply a form for demanding payment (the "Demand Form") which includes a request for certification of the date on which the holder, or the person on whose behalf the holder dissents, acquired beneficial ownership of the shares of Common Stock; and it will be accompanied by a copy of Subchapter 15D. Dissenters must ensure that the Demand Form and their certificates for shares of Common Stock are received by the Corporation on or before the Demand Deadline. All mailings to the Corporation are at the risk of the dissenter. However, the Corporation recommends that the Notice of Intention to Dissent, the Demand Form and the holder's share certificates be sent by certified mail. Any holder (or beneficial owner) of Common Stock who fails to file a Notice of Intention to Dissent, fails to complete and return the Demand Form, or fails to deposit share certificates with the Company, each within the time periods provided above, will lose the holder's (or beneficial owner's) dissenters rights under Subchapter 15D. A dissenter will retain all rights of a shareholder, or beneficial owner, as the case may be, until those rights are modified by effectuation of the Plan of Merger. Upon timely receipt of the completed Demand Form, the Corporation is required by the BCL either to remit to dissenters who have returned the Notice of Intention to Dissent and the completed Demand Form and have deposited their certificates, the amount the Corporation estimates to be the fair value for their shares or to give written notice that no such remittance will be made. The Corporation does not intend to make payment of any part of the amounts payable to dissenters until the fair value of the Common Stock affected by the Reincorporation Merger has been finally determined. The remittance or notice will be accompanied by: (1) the closing balance sheet and statement of income of the Corporation for the fiscal year ended May 31, 1995, together with the latest available interim financial statement; (2) a statement of the Corporation's estimate of the fair value of the Common Stock (the "Corporation's Estimate"); and (3) a notice of the right of the dissenter to demand payment or supplemental payment, as the case may be, accompanied by a copy of Subchapter 15D. 16 If the Corporation does not remit the amount of its estimate of fair value of the Common Stock, it will return any certificates that have been deposited, and may make a notation on any such certificates that a demand for payment in accordance with Subchapter 15D has been made. If shares carrying such notation are thereafter transferred, each new certificate issued therefor may bear a similar notation, together with the name of the original dissenting holder or owner of such shares. A transferee of such shares will not acquire by such transfer any rights in the Corporation other than those which the original dissenter had after making demand for payment of their fair value. After the Corporation gives notice of the Corporation's Estimate, without remitting that amount, and if the dissenter believes that the Corporation's Estimate is less than the fair value of the shares, the dissenter may send to the Corporation the dissenter's own estimate (the "Holder's Estimate") of the fair value of the shares as contemplated by BCL ((S)) 1578, which will be deemed a demand for payment of the amount of the Holder's Estimate. If a dissenter does not file a Holder's Estimate within 30 days after the mailing by the Corporation of its remittance or notice, the dissenter will be entitled to no more than the Corporation's Estimate. If, within 60 days after the Effective Date or after the timely receipt by the Corporation of any Holder's Estimate, whichever is later, any demands for payment remain unsettled, the Corporation may file in court an application for relief requesting that the fair value of the Common Stock be determined by the court. There is no assurance that the Corporation will file such an application. All dissenters, wherever residing, whose demands have not been settled will be made parties to any such appraisal proceeding. The court may appoint an appraiser to receive evidence and recommend a decision on the issue of fair value. Each dissenter who is made a party will be entitled to recover the amount by which the fair value of the dissenter's Common Stock is found to exceed the amount, if any, previously remitted, plus interest. Interest shall be payable from the Effective Date until the date of payment at such rate as is fair and equitable under all the circumstances, taking into account all relevant factors, including the average rate currently paid by the Corporation on its principal line of credit. If the Corporation fails to file an application for relief, any dissenter who has made a demand and who has not already settled the dissenter's claim against the Corporation may do so in the name of the Corporation at any time within 30 days after the expiration of the 60-day period. If a dissenter does not file an application within the 30-day period, each dissenter entitled to file an application shall be paid the Corporation's Estimate and no more, and may bring an action to recover any amount thereof not previously remitted. The costs and expenses of such court proceedings, including the reasonable compensation and expenses of the appraiser appointed by the court, will be determined by the court and assessed against the Corporation, except that any part of the costs and expenses may be apportioned and assessed as the court deems appropriate against all or some of the dissenters who are parties and whose action is demanding supplemental payment the court finds to be dilatory or in bad faith. Fees and expenses of counsel and of experts for the respective parties may be assessed as the court deems appropriate against the Corporation, and in favor of any or all dissenters, if the Corporation fails to comply substantially with the requirements of Subchapter 15D. Such fees and expenses may be assessed against either the Corporation or a dissenter, if the court finds that the party against whom the fees and expenses are assessed acted in bad faith or in a dilatory manner. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and should not be assessed against the Corporation, it may award such counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefitted. Under the BCL, a shareholder of the Corporation has no right to obtain, in the absence of fraud or fundamental unfairness, an injunction against the Reincorporation Merger, nor any right to valuation and payment of the fair value of the holder's shares because of the Reincorporation Merger, except to the extent provided by the dissenters rights provisions of Subchapter 15D. The BCL also provides the absent fraud or fundamental unfairness, the rights and remedies provided by Subchapter 15D are exclusive. The foregoing description of the rights of dissenters under Subchapter 15D is qualified in its entirety by the provisions of Subchapter 15D. 17 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The Board of Directors of the Corporation and of Unit each have conditioned the effectiveness of the Reincorporation Merger on the receipt of an opinion of tax counsel satisfactory to the Corporation, to the effect that, on the basis of facts and assumptions set forth in such opinion, for federal income tax purposes: 1. No gain or loss will be recognized by the Corporation, Unit or shareholders of the Corporation by reason of the effectiveness of the Reincorporation Merger; 2. Each shareholder's tax basis in the Unit Common Stock into which such holder's Common Stock is converted will be the same as the tax basis of the Common Stock held by the shareholder immediately prior to the consummation of the Reincorporation Merger; and 3. A shareholder who holds Common Stock as a capital asset will include in such holder's holding period for the Unit Common Stock the period during which the shareholder held the Common Stock converted into such Common Stock of Unit. No information is provided herein as to the state, local or foreign tax consequences of the Reincorporation Merger. The federal income tax discussion set forth above is for general information only. Each shareholder is urged to consult such holder's own tax advisor as to these and any other tax consequences of the Reincorporation Merger. CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CALIFORNIA AND PENNSYLVANIA CHARTER DOCUMENTS The rights of the Corporation's shareholders after the Reincorporation Merger will be governed by the terms and provisions of the Articles of Incorporation and Bylaws of Unit (jointly sometimes referred to as the "California Charter Documents") and by the California General Corporation Law, and related statutes and regulations (collectively, "California Law"). The California Charter Documents, considered together, are generally the equivalent of the current Articles of Incorporation and Bylaws of the Corporation (jointly sometimes referred to as the "Pennsylvania Charter Documents"), except as described herein. In addition, the Pennsylvania Charter Documents and the California Documents differ to the extent necessary to conform to their respective state corporate statutes. A general summary of the more significant differences in the Charter Documents is given in the next two subsections. Further discussion of various provisions of the Articles of Incorporation and Bylaws is included as part of the comparison of California Law and the Pennsylvania General Corporation Law, and related statutes and regulations (collectively, "Pennsylvania Law"), under "Certain Significant Differences in the Corporation Laws of California and Pennsylvania" below, as is a discussion of the significant changes in the rights of the shareholders occurring by virtue of the application of California Law. Articles of Incorporation of Unit. The Articles of Incorporation filed by Unit with the Secretary of State of California are largely the same as the Corporation's Articles of Incorporation, except as described below. Preferred Stock--The Corporation's Articles of Incorporation do not presently include a class of Preferred Stock. Article Five of Unit's Articles of Incorporation provides for the issuance of up to 2,000,000 shares of Preferred Stock which may be issued upon authority of the Board of Directors. Under Unit's Articles of Incorporation, the Board can authorize the issuance, at any time or from time to time, of one or more series of Preferred Stock without further stockholder approval. In addition, the Board will determine all designations, preferences and limitations of such stock, including but not limited to, the designation of series and numbers of shares; the dividend rights if any; the redemption provisions, if any; the rights upon liquidation, dissolution or winding up of the Corporation, if any; the conversion or exchange rights, if any; the sinking fund provisions, if any; the voting rights, if any, provided that the holders of shares of Preferred Stock will not be entitled to more than one vote per share when voting as a class with the holders of shares of Common Stock; and the other preferences, powers, qualifications, special or relative rights and privileges and limitations 18 or restrictions of such preferences or rights, if any. No holders of shares of the capital stock of Unit have any preemptive rights to acquire any securities of Unit. The Board and management of the Corporation believe that the authorization to issue Preferred Stock provides flexibility for potential future financing needs. While the Board has not determined to proceed with any financing, the Board and management believe the Corporation should have the flexibility to issue preferred stock, along with its existing ability to issue debt and additional shares of Common Stock. The Corporation also could issue Preferred Stock for other corporate purposes, such as to implement equity alliances or to make acquisitions, although no issuances for such purposes are presently contemplated. If the Reincorporation Merger is approved, the Board will be able to specify the precise characteristics of the Preferred Stock to be issued, depending on then current market conditions and the nature of specific transactions. Even though voting rights of Preferred Stock are limited as described above, the issuance of Preferred Stock could be used to discourage attempts to acquire control of the Corporation. Neither the Board nor management is considering the use of Preferred Stock for such purposes and they are not aware of any present effort to accumulate the Corporation's securities for the purpose of gaining control of the Corporation. The Board and management represent that they will not issue, without prior stockholder approval, Preferred Stock for an anti- takeover purpose, including without limitation, to implement any stockholders' rights plan or with features intended to make an attempted acquisition of the Corporation more difficult or costly. No Preferred Stock will be issued to any individual or group for the purpose of creating a block of voting power to support management on a controversial issue. The Board and management believe that the authorization of Preferred Stock is in the best interest of the stockholders and the Corporation. Cumulative Voting--The Articles of Incorporation of Unit expressly disallow cumulative voting in the election of directors. California law provides shareholders the right of cumulative voting in the election of directors upon timely notice of the intention to do so. A corporation may elect not to have cumulative voting by amending its bylaws or articles of incorporation if it is a Listed Corporation (as defined herein). Currently, pursuant to the Corporation's Bylaws, shareholders may cumulate their votes for directors. See "Certain Significant Differences Between the Corporation Laws of California and Pennsylvania--Cumulative Voting" below. Indemnification--The Articles of Incorporation of Unit expressly eliminates the monetary liability of directors and authorizes Unit to indemnify directors and officers of Unit to the fullest extent permissible under California law. Directors and officers of the Corporation are entitled to indemnification to the fullest extent permissible under Pennsylvania law pursuant to the Corporation's Bylaws. See "Certain Significant Differences Between the Corporation Laws of California and Pennsylvania--Provisions Concerning Director Liability Matters" below. While the Corporation has provided for indemnification of its directors, the Corporation has not eliminated the liability to shareholders of its directors as provided in Unit's Articles of Incorporation. Board of Directors--The size of the board of directors of Unit is set forth as a range in Unit's Articles of Incorporation. In order to change this range a shareholder vote is required. The Corporation's Articles are silent on this matter, consequently the Corporation's board has full discretion as to the size of the board of directors. Action by Written Consent--Unit's Articles of Incorporation state that action by written consent of shareholders must be unanimous. The California Corporation Law allows shareholders to take action by less than unanimous written consent, subject to certain limitations and requirements, unless stated otherwise in the Articles of Incorporation except in respect to the election of directors. Unit has opted to continue requiring a unanimous written vote in lieu of a meeting consistent with the Pennsylvania Corporation Law. Bylaws of Unit. The Bylaws of Unit are the substantial equivalent of the present Bylaws of the Corporation although certain changes have been made to conform to the provisions of California Law, certain of which are described below. Record Date--Unit's Bylaws authorize the setting of a record date not more than 60 or less than 10 days prior to the date of a shareholders' meeting or prior to any other action. The notice of a shareholders' meeting 19 must be given not more than 60 or less than 10 days before the date of the meeting. The Bylaws of the Corporation only require that a record date be not more than 50 days nor less than 10 days prior to the date of the meeting or the taking of any other action. Notice of a meeting of the shareholders of the Corporation must be given not less than 10 days prior to the meeting date. Special Meetings--The Bylaws of Unit also contain a provision authorizing a special meeting of shareholders of Unit to be called by the holders of shares of not less than 10% of the votes at such meeting. A similar provision contained in the Bylaws of the Corporation requires a minimum of 20% of the shareholders to call a special meeting. Adjournment--The Bylaws of the Corporation provide that shareholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of shareholders sufficient to have a quorum. Where a quorum has been withdrawn, under Unit's Bylaws an action can be taken provided the action is approved by a majority of shares required to constitute a quorum. CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND PENNSYLVANIA The California Law and the Pennsylvania Law differ in many respects, and consequently it is not practical to summarize all such differences. The following is a summary of certain significant differences which may affect the rights and interests of shareholders. The summary is qualified in its entirety by reference to the provisions of California Law and Pennsylvania Law. One of the most significant differences is that the Pennsylvania Law authorizes a corporation in its original articles, or in an amendment to the articles approved by its shareholders, to override most provisions of the Pennsylvania Law. Unit expects that at the time of the Reincorporation Merger it will be a "Listed Corporation" under the California Law and the following discussion reflects that assumption. A corporation may qualify as a "Listed Corporation" generally if it is listed on the New York or American Stock Exchange or has outstanding securities designated for trading on the National Association of Securities Dealers Automated Quotation System and has at least 800 holders of its equity securities as of the record date of the Corporation's most recent annual meeting of shareholders. Classified Board. A classified board is one for which a certain number, but not all, of the directors are elected on a rotating basis each year. The Corporation's Bylaws currently mandate a classified board. The California Law allows a corporation to have a classified board only if it is a Listed Corporation. If Unit wished to retain a classified board consisting of three classes, California Law requires a minimum of nine directors. Unit does not intend to retain a classified board following the Reincorporation Merger. Change in Number of Directors. Under the California Law, a change in the number of directors must be approved by a majority of the outstanding shares, although the board of directors may fix the exact number of directors within a range set forth in either the corporation's articles of incorporation or bylaws, if the range has been approved by the shareholders. The Corporation, under the Pennsylvania Law, sets the number of directors in the manner provided in the bylaws, which requires only an action by the Board of Directors. Calling of Special Shareholder Meetings. The Bylaws of Unit provide, in accordance with California Law, that a special meeting of the shareholders may be called by (i) the Board of Directors, (ii) the Chairman of the Board, (iii) the President, or (iv) the holders of such number of shares entitled to cast not less than 10% of the votes of such meeting. Under Pennsylvania Law, a special meeting of the shareholders may be called by (a) the Board, or (b) such officers or other persons provided in the bylaws. The Bylaws of the Corporation provide, however, that a special meeting of the shareholders may also be called by the holders entitled to cast not less than 20% of the votes at any such meeting. Accordingly, fewer of Unit's shareholders will need to take action to call meetings following the Reincorporation Merger. Cumulative Voting. Generally under California Law cumulative voting in the election of directors is mandatory. If any shareholder has given timely notice of his intention to cumulate votes for the election of 20 directors, any other shareholder of a corporation is also entitled to cumulate votes at such election. However, a corporation which is a Listed Corporation may by provision in its articles or bylaws eliminate cumulative voting. Unit does not intend to retain cumulative voting. The Corporation has a provision in its Bylaws providing for cumulative voting without further action by any shareholder. Loans to Officers and Employees. Under California Law, any loan to or guaranty for the benefit of a director or officer of a corporation requires approval of holders of a majority of the outstanding shares of the corporation. However, the board of any corporation with 100 or more shareholders of record and a bylaw provision approved by the outstanding shares authorizing the board of directors alone to approve loans to or guarantees to an officer, may approve such a loan or guaranty by a vote sufficient without the vote of any interested director, if it determines that any such loan or guaranty may reasonably be expected to benefit the corporation. Unit's Bylaws do not authorize the Board to permit such loans or guarantees. Pennsylvania Law expressly permits loans, guarantees of obligations or similar undertakings by a corporation to its directors, officers or employees without shareholder approval. Fundamental Transactions. Both California Law and Pennsylvania Law generally require a shareholder vote (except as indicated below) of both the acquiring and acquired corporation to approve mergers and of the selling corporation for the sale by a corporation of all or substantially all of its assets. With certain exceptions, the California Law also requires that a merger or reorganization and certain sales of assets or similar transactions be approved by a majority vote of each class of shares outstanding and entitled to vote. By contrast, Pennsylvania Law generally does not require such class voting, except as described in "Amendments to Articles of Incorporation" below and in the next succeeding paragraph. Unless the articles of incorporation require a greater vote, Pennsylvania Law requires approval by the holders of a majority of the votes cast by the holders entitled to vote with respect to fundamental transactions. Shareholder approval is not required under the Pennsylvania Law in the case of (i) "short- form" mergers, which are mergers of an 80%-owned subsidiary and a parent corporation, or (ii) a merger which does not alter the status of the corporation as a domestic business corporation and the articles and outstanding shares of the corporation are unaffected except for certain amendments to the articles that the board is permitted to make. The Articles of Incorporation of the Corporation contain no provisions altering Pennsylvania statutes with respect to shareholder voting or merger transactions. Under the Pennsylvania Law, an amendment to the articles or plan of reclassification, merger, consolidation, exchange, asset transfer, division or conversion that provides mandatory special treatment for the shares of a class held by particular shareholders or groups of shareholders within a class of securities must be approved by each group of the holders of any outstanding shares of a class who are to receive the same special treatment under the amendment or plan, voting as a special class in respect to the plan, regardless of any limitations states in the articles or bylaws on the voting rights of any class. At the option of the corporation's board of directors, the approval of such special treatment by any such affected group may be omitted, but in such event the holders of any outstanding shares of the special class so denied voting rights are entitled to dissenters' rights. California law requires that holders of nonredeemable common stock receive nonredeemable common stock in a merger of a corporation with the holder of more than 50% but less than 90% of such common stock or its affiliate unless all of the holders of such common stock consent to the transaction. This provision of California law may have the effect of making a "cashout" merger by a majority shareholder more difficult to accomplish. California law also provides that, except in certain circumstances, when a tender offer or a proposal for a reorganization or for a sale of assets is made by an interested party (generally a controlling or managing party of the target corporation), an affirmative opinion in writing as to the fairness of the consideration to be paid to the shareholders must be delivered to the shareholders. This fairness opinion requirement does not apply to a corporation which does not have shares held of record by at least 100 persons or to a transaction which has been qualified under California state securities laws. Furthermore, if a tender of shares or vote is sought pursuant to 21 an interested party's proposal and a later proposal is made by another party at least ten days prior to the date of acceptance of the interested party proposal, the shareholders must be informed of the later offer and be afforded a reasonable opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered shares. Amendments to Articles of Incorporation. Generally under California Law and Pennsylvania Law, amendments to the articles of a corporation must be approved by the board of directors and by the holders of a majority of the outstanding shares. Under California Law, a proposed amendment generally must be approved by the outstanding shares of a class if the amendment would (i) increase or decrease the aggregate number of authorized shares of such class, (ii) effect an exchange, reclassification or cancellation of all or part of the shares of such class, other than a stock split, (iii) effect an exchange of all or part of the shares of another class into the shares of such class, (iv) change the rights, preferences, privileges or restrictions of the shares of such class, (v) create a new class of shares having rights, preferences or privileges prior to the shares of such class, or increase the rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or privileges prior to the shares of such class, or (vi) cancel or otherwise affect dividends on the shares of such class which have accrued but have not been paid. Pennsylvania Law requires approval of a class only if the amendment would (i) authorize the board to fix the relative rights and preferences of any special class, (ii) make any change in the preferences, limitations or special rights of the shares of a class adverse to the class, (iii) authorize a new class having a preference as to dividends or assets senior to the class, or (iv) increase the number of authorized shares of any class or series having a preference as to dividends or assets which is senior to the class. Amendments to Bylaws. Under California Law, bylaws may be amended either by approval of a majority of the outstanding shares or by the approval of the board, except with respect to amending a bylaw fixing the number of directors or the maximum and minimum number of directors, which must be approved by a majority of the outstanding shares. Pennsylvania Law provides that the bylaws of a corporation may expressly vest in the directors the power to amend the bylaws, subject to the power of the shareholders to change such action, except that certain matters are committed expressly to the shareholders unless otherwise provided for in the articles. The notice of any meeting of shareholders to consider amending the bylaws must provide in the notice of such meeting that purpose of such meeting is to consider such action. The Bylaws of Unit provide that its Bylaws may be amended by vote of the shareholders or by approval of the board, except with respect to the authorized number of directors which is committed expressly to the shareholders. See "Certain Significant Differences between the California Charter Documents and Pennsylvania Charter Documents--Articles of Incorporation" above. Inspection of Shareholder Lists. California Law provides for an absolute right of inspection of the shareholders' list for any shareholder holding 5% or more of a corporation's outstanding voting shares or any shareholder holding 1% or more of a corporation's outstanding voting shares who has filed a Schedule 14B with the Securities and Exchange Commission relating to the solicitation of proxies for the election of directors. California Law also provides any shareholder a right of inspection of shareholder lists for any purpose reasonably related to such holder's interest as a shareholder. Pennsylvania Law only provides a right of inspection of the shareholder list when the holder has a purpose reasonably related to such holder's interest as a shareholder. Dissenters' Rights. Under California Law, a dissenting shareholder of a corporation participating in certain transactions may, under varying circumstances, receive cash in the amount of the fair value of such holder's shares (as determined by a court), in lieu of the consideration the holder would otherwise have received in any such transaction. Shareholders of a California corporation whose shares are listed on a national securities exchange or on a list of over-the-counter margin stocks issued by the Board of Governors of the Federal Reserve System generally do not have such dissenters' rights unless the holders of at least five percent of the class of outstanding shares claim the right or the corporation or any law restricts the transfer of such shares. Dissenters' rights are unavailable, however, if the shareholders of a corporation or the corporation itself, or both, immediately prior to the reorganization will own immediately after the reorganization equity securities constituting more than five-sixths of the voting power of the surviving or acquiring corporation or its parent 22 entity and if the shares of the surviving corporation have the same rights, preferences, privileges and restrictions as the shares of the disappearing corporation that are surrendered in the exchange. California Law also affords dissenters' rights for certain sale of asset transactions. Pennsylvania Law generally provides that dissenters' rights entitling the holder to obtain payment of the fair value of such holder's shares are available to a holder of shares of a Pennsylvania corporation in certain transactions except (i) if such shares are listed on a national securities exchange, (ii) if such shares are held of record by more than 2,000 shareholders, and (iii) with respect to the adoption of a plan of asset transfer. Dividends. California Law provides that a corporation may not make any distribution (including dividends, whether in cash or property, and repurchases or redemption of its shares for cash or property) unless (i) the corporation's retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution, or (ii) immediately after giving effect to such distribution, the corporation's assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to 1 1/4 times its liabilities (not including deferred taxes, deferred income and other deferred credits) and the corporation's current assets would be at least equal to its current liabilities (or 1 1/4 times its current liabilities if the average pre-tax and pre-interest earnings for the preceding two fiscal years were less than the average interest expenses for such years). Such tests are applied to California corporations on a consolidated basis. In addition, California Law provides that a corporation may not make any such distribution if as a result the excess of the corporation's assets over its liabilities would be less than the liquidation preference of all shares having a preference on liquidation over the class or series to which the distribution is made. Pennsylvania Law generally provides that a Pennsylvania corporation may not make distributions if, unless the articles provide otherwise, after giving effect thereto, (i) the corporation would be unable to pay its debts as they become due in the usual course of business or (ii) the total assets of the corporation would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time as of which the distribution is measured, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Voting by Ballot. California law provides that the election of directors need not be by ballot unless a shareholder so demands or unless required by the bylaws of the corporation. Under Pennsylvania Law, unless otherwise restricted in the bylaws, elections of directors need not be by ballot unless required by vote of the shareholders before the voting begins. Provisions Concerning Director Liability Matters. Both California Law and Pennsylvania Law contain provisions relating to director liability matters, which are reviewed below as they relate to standard of care, monetary liability and indemnification. The standard of care required of a director of a California corporation is that such director must perform his or her duties in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. This is substantially similar to the counterpart provision in the Pennsylvania Law which requires that the director perform his or her duties in good faith, in a manner reasonably believed to be in the best interests of the corporation, and with such care, including inquiry, skills and diligence, as a person of ordinary prudence would use in similar circumstances. Both California Law and Pennsylvania Law explicitly permit a director to rely, subject to applicable standards, on information, opinions, reports or statements, including financial statements and other financial data, prepared or presented by certain other persons. These persons include certain corporation officers and employees, legal counsel, accountants and committees of the board as to matters within its designated authority. Directors of Pennsylvania corporations also are explicitly permitted by Pennsylvania Law to consider the effects of corporate actions on certain specified constituencies in determining what is in the best interests of the 23 corporation. These constituencies include employees, the communities in which the corporation has offices, and suppliers and customers. There is no counterpart provision in California Law. Limitation of director monetary liability for breach of fiduciary duty is permitted by California Law and Pennsylvania Law. Under California Law, to be operative such provision must be in a corporation's articles. California law does not permit the elimination of monetary liability where such liability is based on: (a) intentional misconduct or knowing and culpable violation of law; (b) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders, or that involve the absence of good faith on the part of the director; (c) receipt of an improper personal benefit; (d) acts or omissions that show reckless disregard for the director's duty to the corporation or its shareholders, where the director in the ordinary course of performing a director's duties should be aware of a risk of serious injury to the corporation or its shareholders; (e) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation and its shareholders; (f) interested transactions between the corporation and a director in which a director has a material financial interest; and (g) liability for improper distributions, loans or guarantees. The provision contained in Unit's Articles eliminates liability of directors for monetary damages to the fullest extent permitted under the California Law. Under the Pennsylvania Law, such a provision may be in the bylaws if approved by a vote of the shareholders. The Corporation's Bylaws contain no such provision. California Law contains more exceptions to the limitation on personal liability for monetary damages than does Pennsylvania Law. Concerning indemnification, California Law and Pennsylvania Law are generally similar regarding the range of circumstances under which corporations are permitted to indemnify directors, officers and others. A key provision in both California Law and Pennsylvania Law allows a corporation to include in its bylaws, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that otherwise provided by law. California law permits indemnification of expenses incurred in derivative or third-party actions, except that with respect to derivative actions (a) no indemnification may be made without court approval when a person is adjudged liable to the corporation in the performance of that person's duty to the corporation and its shareholders, unless a court determines such person is entitled to indemnity for expenses, and then such indemnification may be made only to the extent that such court shall determine, and (b) no indemnification may be made without court approval in respect of amounts paid or expenses incurred in settling or otherwise disposing of a threatened or pending action or amounts incurred in defending a pending action which is settled or otherwise disposed of without court approval. Under Pennsylvania Law indemnification may not be made where the acts or omissions are determined by a court to have constituted willful misconduct or recklessness. California Law generally precludes indemnification in more circumstances than does Pennsylvania Law. Dissolution. Under California law, shareholders holding 50% or more of the total voting power may authorize a corporation's dissolution with or without the approval of the corporation's board of directors, and this right may not be modified by the articles of incorporation. Under Pennsylvania law, dissolution is commenced by a resolution of the corporation's board of directors which must be approved by a majority of the votes cast by all shareholders entitled to vote thereon. If the resolution so provides, the board of directors may abandon dissolution prior to filing the articles of dissolution, notwithstanding the shareholders' adoption of the resolution. For the reasons set forth above, the Board of Directors has unanimously adopted and approved the Plan of Merger and recommends a vote FOR approval of the Plan of Merger. 24 APPROVAL OF SELECTION OF AUDITORS The Board of Directors has selected the firm of Price Waterhouse LLP, independent certified public accountants, to serve as auditors of the Corporation for the fiscal year ending May 31, 1996. It is expected that a member of the firm will be present at the Annual Meeting with the opportunity to make a statement if so desired and will be available to respond to appropriate questions. The Board of Directors recommends a vote FOR approval of this selection. SHAREHOLDER PROPOSALS Proposals of shareholders intended for inclusion in the Proxy Statement to be mailed to all shareholders entitled to vote at the next annual meeting of shareholders of the Corporation must be received at the Corporation's principal executive offices not later than April 30, 1996. In order to eliminate any potential controversy as to the date on which a proposal was received by the Corporation, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested. EXPENSES AND SOLICITATION The cost of solicitation of proxies will be borne by the Corporation, and in addition to soliciting shareholders by mail through its regular employees, the Corporation may request banks and brokers to solicit their customers who have stock of the Corporation registered in the name of a nominee and, if so, will reimburse such banks and brokers for their reasonable out-of-pocket costs. Solicitation by officers and employees of the Corporation may also be made of some shareholders in person or by mail, telephone or facsimile, following the original solicitation. 25 PROXY AUTOCLAVE ENGINEERS, INC. 22600 SAVI RANCH PARKWAY YORBA LINDA, CA 92687 THIS PROXY IS SOLICITED ON BEHALF OF THE AUTOCLAVE ENGINEERS, INC. BOARD OF DIRECTORS The undersigned appoints Michael J. Doyle, James C. Levinson and A. Wade Blackman, Jr., and each of them, as proxies of the undersigned, each with the power to appoint his substitute, and hereby authorizes each of them, separately, to represent and to vote, as designated below, all the shares of Common Stock of Autoclave Engineers, Inc. held of record by the undersigned on September 22, 1995 or with respect to which the undersigned is otherwise entitled to vote or act, at the Annual Meeting of Shareholders to be held on November 10, 1995 or any adjournment thereof, upon matters set forth in the Notice of Annual Meeting dated October 6, 1995, a copy of which has been received by the undersigned. 1. ELECTION OF DIRECTORS: For the election of James C. Levinson and A. Wade Blackman, Jr. [_] FOR ALL [_] WITHHOLD AUTHORITY FOR ALL [_] WITHHOLD AUTHORITY AS MARKED BELOW -------------------------------------------------------------------------- (INSTRUCTION: To withhold authority to vote for any individual, write that person's name on the space provided above) 2. To consider and act upon a proposal to change the Corporation's state of incorporation from Pennsylvania to California pursuant to a Plan of Merger which provides that the Corporation will be merged into its wholly-owned subsidiary, Unit Instruments, Inc. FOR [_] AGAINST [_] ABSTAIN [_] 3. To consider and act upon a proposal to ratify the selection of the firm of Price Waterhouse LLP as auditors of the Corporation for the fiscal year ending May 31, 1996. FOR [_] AGAINST [_] ABSTAIN [_] (to be signed and dated on other side) (Continued from other side) 4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof, upon matters incident to the conduct of the meeting and upon the election of substituted nominees for Director designated by the Board of Directors if one or more of the persons named in Proposal 1 above is unable to serve as a Director. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE PROPOSALS IN ITEMS 2 AND 3, AND AUTHORITY WILL BE DEEMED GRANTED UNDER PROPOSAL 4. Dated: _________________ , 1995 ------------------------------- Signature ------------------------------- Signature if held jointly Please sign exactly as the name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. EX-2 2 PLAN OF MERGER EXHIBIT A PLAN OF MERGER MERGING AUTOCLAVE ENGINEERS, INC. (A PENNSYLVANIA CORPORATION) WITH AND INTO UNIT INSTRUMENTS, INC. (A CALIFORNIA CORPORATION) Recitals A. AUTOCLAVE ENGINEERS, INC. ("Autoclave") is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, which is authorized to issue 12,000,000 shares of Common Stock, par value $.15 per share ("Autoclave Common Stock"), of which are issued and outstanding. B. UNIT INSTRUMENTS, INC. ("Unit") is a corporation duly organized, validly existing and in good standing under the laws of the State of California, which is authorized to issue 12,000,000 shares of Common Stock, par value $.15 per share ("Unit Common Stock"), of which 1,000 are issued and outstanding; and 2,000,000 shares of Preferred Stock, par value $.01 per share, none of which are issued and outstanding. Pursuant to this Plan of Merger Unit shall be the surviving corporation subsequent to such merger. C. The Board of Directors of Autoclave has adopted and approved this Plan of Merger in accordance with the Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL") and directed that it be submitted to the shareholders of Autoclave for approval. D. The Board of Directors of Unit, as well as Autoclave, the sole shareholder of Unit, has adopted this Plan of Merger in accordance with the California General Corporation Law (the "CGCL"). ARTICLE I General 1.1 The Merger. Autoclave and Unit shall effect a merger (the "Merger") in accordance with and subject to the terms and conditions of this Plan of Merger (the "Plan"). At the Effective Time (as defined in Section 1.2 hereof), Autoclave shall be merged with and into Unit, and the existence of Autoclave, except insofar as it may be continued by law, shall cease. After the Effective Time Unit shall assume all the liabilities of Autoclave. 1.2 Effectiveness. Articles of Merger, the Plan of Merger, and such other documents and instruments as are required by, and complying in all respects with, the CGCL and the PBCL shall be delivered to the appropriate state officials for filing upon satisfaction of the conditions contained in Section 3.3 hereof. The Merger shall become effective at the time of the filing of the required documents under the CGCL and the PBCL (the "Effective Time"). 1.3 Further Assurances. If at any time Unit, or its successors or assigns, shall consider or be advised that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in Unit its right, title or interest in, to or under any of the rights, properties or assets of Autoclave acquired or to be acquired by Unit as a result of, or in connection with, the Merger, or (b) otherwise carry out the purposes of this Plan, Autoclave and its proper officers and directors shall be deemed to A-1 have granted to Unit an irrevocable power of attorney to execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in Unit and otherwise to carry out the purposes of this Plan; and the proper officers and directors of Unit are fully authorized in the name of Autoclave or otherwise to take any and all such action. 1.4 Amendment. Notwithstanding shareholder approval of this Plan, this Plan may be terminated at any time on or before the Effective Time by agreement of the Boards of Directors of Autoclave and Unit. ARTICLE II Capital Stock 2.1 Autoclave Common Stock. At the Effective Time, each share of Autoclave Common Stock issued and outstanding immediately prior to the Effective Time, including shares held in the treasury of Autoclave, shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into one validly issued, fully paid and non-assessable share of Unit Common Stock. 2.2 Unit Common Stock and Preferred Stock. Each share of Unit Common Stock issued and outstanding immediately prior to the Effective Time shall be canceled and retired and resume the status of authorized and unissued shares of Common Stock, and no shares of Unit Common Stock or other securities of Unit shall be issued in respect thereof. There are currently no shares of Preferred Stock outstanding. 2.3 Exchange of Certificates. No exchange of certificates representing shares of Autoclave Common Stock converted pursuant to Section 2.1 shall be required, and from and after the Effective Time and until certificates representing such Autoclave Common Stock are presented for exchange or registration of transfer, all such certificates shall be deemed for all purposes to represent the same number of shares of the class of Unit Common Stock into which they were so converted. After the Effective Time, whenever certificates which formerly represented shares of Autoclave Common Stock are presented for exchange or registration of transfer, Unit shall cause to be issued in respect thereof, certificates representing an equal number of shares of Unit Common Stock. ARTICLE III Miscellaneous Provisions 3.1 Articles of Incorporation and By-laws. The Articles of Incorporation of Unit shall be unaffected by the Merger. The By-laws of Unit shall be unaffected by the Merger. 3.2 Directors and Officers. The officers of Unit shall be unaffected by the Merger and each such officer shall hold office until the expiration of his or her term of office or earlier death, resignation or removal in accordance with the Articles of Incorporation and By-laws of Unit and applicable law. Upon effectiveness of the Merger the Board of Directors of Autoclave shall, without further action, become the Board of Directors of Unit and each such director shall hold office until the expiration of his or her term of office or earlier death, resignation or removal in accordance with the Articles of Incorporation and By-laws of Unit and applicable law. 3.3 Conditions to Merger. The obligation of Autoclave and Unit to effect the Merger is subject to satisfaction of the following conditions (any or all of which may be waived by Autoclave and Unit in their sole discretion to the extent permitted by law): (a) the shareholders of Autoclave shall have approved this Plan of Merger; and A-2 (b) Autoclave shall have received an opinion of its tax counsel, satisfactory to Autoclave and substantially to the effect that, for federal income tax purposes (i) no gain or loss will be recognized by Autoclave, Unit or the shareholders of Autoclave by reason of the effectiveness of the Merger, (ii) each Autoclave shareholder's basis in Unit Common Stock into which such holder's Autoclave Common Stock is converted will be the same as the tax basis of the Autoclave Common Stock held by such holder immediately prior to the effectiveness of the Merger, and (iii) a Autoclave shareholder who holds Autoclave Common Stock as a capital asset will include in such holder's holding period for Unit Common Stock the period during which such holder held the Autoclave Common Stock converted into such Unit Common Stock. A-3 EX-3.I 3 ARTICLES OF INCORPORATION EXHIBIT B AMENDED AND RESTATED ARTICLES OF INCORPORATION OF UNIT INSTRUMENTS, INC. ARTICLE ONE: NAME The name of the Corporation is: Unit Instruments, Inc. ARTICLE TWO: PURPOSE The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE THREE: LIMITATION OF DIRECTORS' LIABILITY The liability of the directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE FOUR: INDEMNIFICATION This Corporation is authorized to indemnify the directors and officers of this Corporation to the fullest extent permissible under California law and in excess of that otherwise permitted under Section 317 of the California Corporations Code. ARTICLE FIVE: AUTHORIZED SHARES This Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is 12,000,000, par value $.15 per share, and the number of shares of Preferred Stock authorized to be issued is 2,000,000, par value $.01 per share. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby authorized to determine the number of series into which the shares of Preferred Stock may be divided, and (except to the extent such matters are fixed by the Articles of Incorporation) to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, to fix the designation and number of shares constituting any series prior to the issue of shares of that series and to increase or decrease, within the limits stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series (but not below the number of shares of such series then outstanding), the number of shares of any such series subsequent to the issue of shares of that series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. B-1 ARTICLE SIX: DIRECTORS The number of directors of the corporation may be fixed from time to time by resolution of the board of directors but shall not be less than four nor more than seven. Upon becoming a listed corporation within the meaning of Section 301.5 of the California Corporations Code cumulative voting shall be eliminated. ARTICLE SEVEN: ACTION BY CONSENT OF SHAREHOLDERS Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action to be so taken, shall be signed by the holders of all of the outstanding shares entitled to vote thereon. ARTICLE EIGHT: AGENT FOR SERVICE The name and address in the State of California of the Corporation's agent for service of process is CT Corporation System, 818 W. Seventh Street, Los Angeles, CA 90017. B-2 EX-3.II 4 BY-LAWS EXHIBIT C BYLAWS FOR THE REGULATION, EXCEPT AS OTHERWISE PROVIDED BY STATUTE OR ITS ARTICLES OF INCORPORATION, OF UNIT INSTRUMENTS, INC. (A CALIFORNIA CORPORATION) ARTICLE I Offices Section 1. Principal Executive Office. The principal executive office of the corporation is hereby fixed and located at 22600 Savi Ranch Parkway, Yorba Linda, California. The Board of Directors is hereby granted full power and authority to change said principal executive office from one location to another. Any such change shall be noted on the bylaws by the secretary, opposite this section, or this section may be amended to state the new location. Section 2. Other Offices. Other business offices may at any time be established by the Board of Directors at any place or places where the corporation is qualified to do business. ARTICLE II Meetings of Shareholders Section 1. Place of Meetings. All annual or other meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place within or without the State of California which may be designated either by the Board of Directors or by the written consent of all persons entitled to vote thereat and not present at the meeting, given either before or after the meeting and filed with the secretary of the Corporation. Section 2. Annual Meetings. The annual meeting of shareholders shall be held each year on such date and at such time as shall be set by the Board of Directors. At such meetings, directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders. Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. If a shareholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said principal executive office is located. All such notices shall be given to each shareholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each annual meeting. Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the secretary, assistant secretary or any transfer agent of the Corporation, shall be prima facie evidence of the giving of the notice. C-1 Such notices shall specify: (a) the place, the date, and the hour of such meeting; (b) those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders; (c) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election; (d) the general nature of a proposal, if any, to take action with respect to approval of (i) a contract or other transaction with an interested director, (ii) amendment of the Articles of Incorporation, (iii) a reorganization of the Corporation as defined in Section 181 of the General Corporation Law, (iv) voluntary dissolution of the Corporation, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and (e) such other matters, if any, as may be expressly required by statute. Section 3. Special Meetings. Special meetings of the shareholders, for the purpose of taking any action permitted by the shareholders under the General Corporation Law and the Articles of Incorporation of this Corporation, may be called at any time by the Chairman of the Board or the president, or by the Board of Directors, or by one or more shareholders holding not less than ten percent (10%) of the votes at the meeting. Upon request in writing that a special meeting of shareholders be called for any proper purpose, directed to the Chairman of the Board, president, vice president or secretary by any person (other than the Board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after receipt of the request. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for the annual meetings of shareholders. In addition to the matters required by items (a) and, if applicable, (c) of the preceding Section, notice of any special meeting shall specify the general nature of the business to be transacted, and no other business may be transacted at such meeting. Section 4. Quorum. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 5. Adjourned Meeting and Notice Thereof. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting, except as provided in Section 4 above. When any shareholders' meeting, either annual or special, is adjourned for forty-five days or more, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place thereof at the meeting at which such adjournment is taken. Section 6. Voting. Unless a record date for voting purposes be fixed as provided in Section 1 of Article V of these bylaws, then, subject to the provisions of Sections 702 and 704, inclusive, of the Corporations Code of California (relating to voting of shares held by a fiduciary, in the name of a corporation, or in joint ownership), only persons in whose names shares entitled to vote stand on the stock records of the Corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or if such notice is waived, at the close of business on the business day next preceding the day on which the meeting C-2 of shareholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting. Such vote may be viva voce or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins. If a quorum is present, except with respect to election of directors, the affirmative vote of the majority of the shares represented at the meeting and voting on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the General Corporation Law or the Articles of Incorporation. Subject to the requirements of the next sentence and the Articles of Incorporation, every shareholder entitled to vote at any election for directors shall have the right to cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are entitled, or to distribute his votes on the same principle among as many candidates as he shall think fit. No shareholder shall be entitled to cumulative votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting, and any shareholder has given notice at the meeting prior to the voting of such shareholder's intention to cumulate his votes. The candidates receiving the highest number of votes of shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Section 7. Validation of Defectively Called or Noticed Meetings. The transactions of any meeting of shareholders, either annual or special, however called and noticed, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, or who, though present, has, at the beginning of the meeting, properly objected to the transaction of any business because the meeting was not lawfully called or convened, or to particular matters of business legally required to be included in the notice, but not so included, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 8. Action Without Meeting. Directors may be elected without a meeting by a consent in writing, setting forth the action so taken, signed by all of the persons who would be entitled to vote for the election of directors, provided that, without notice except as hereinafter set forth, a director may be elected at any time to fill a vacancy not filled by the directors by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of directors. Any other action which, under any provision of the California General Corporation Law, may be taken at a meeting of the shareholders, may be taken without a meeting, and without notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote on the action. Unless, as provided in Section 1 of Article V of these bylaws, the Board of Directors has fixed a record date for the determination of shareholders entitled to notice of and to give such written consent, the record date for such determination shall be the day on which the first written consent is given. All such written consents shall be filed with the secretary of the Corporation. Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the secretary of the Corporation. Section 9. Proxies. Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of the Corporation. Any proxy duly executed is not revoked and continues in full force and effect until (i) an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the Corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is C-3 received by the Corporation before the vote pursuant thereto is counted; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force. Section 10. Inspectors of Election. In advance of any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may, and on the request of any shareholder or a shareholder's proxy shall, be filled by appointment by the Board of Directors in advance of the meeting, or at the meeting by the chairman of the meeting. The duties of such inspectors shall be as prescribed by Section 707 of the General Corporation Law and shall include determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they are mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence by the facts stated therein. ARTICLE III Directors Section 1. Powers. Subject to limitations of the Articles of Incorporation and of the California General Corporation Law as to action to be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board of Directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers, to wit: First--To select and remove all the officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the Articles of Incorporation or the bylaws, fix their compensation and require from them security for faithful service. Second--To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or with the Articles of Incorporation or the bylaws, as they may deem best. Third--To change the principal executive office and principal office for the transaction of the business of the Corporation from one location to another as provided in Article I, Section 1, hereof; to fix and locate from time to time one or more subsidiary offices of the Corporation within or without the State of California, as provided in Article I, Section 2, hereof; to designate any place within or without the State of California for the holding of any shareholders' meeting or meetings; and to adopt, make and use a corporate seal, and to prescribe C-4 the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as in their judgment they may deem best, provided such seal and such certificates shall at all times comply with the provisions of law. Fourth--To authorize the issue of shares of stock of the Corporation from time to time, upon such terms as may be lawful. Fifth--To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor. Sixth--By resolution adopted by a majority of the authorized number of directors, to designate an executive and other committees, each consisting of two or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee shall be conducted. Unless the Board of Directors shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by any two members thereof; otherwise, the provisions of the bylaws with respect to notice and conduct of meetings of the Board shall govern. Any such committee, to the extent provided in a resolution of the Board, shall have all of the authority of the Board, except with respect to: (i) the approval of any action for which the General Corporation Law or the Articles of Incorporation also require shareholder approval; (ii) the filling of vacancies on the Board or in any committee; (iii) the fixing of compensation of the directors for serving on the Board or on any committee; (iv) the adoption, amendment or repeal of the bylaws; (v) the amendment or repeal of any resolution of the Board; (vi) any distribution to the shareholders, except at a rate or in a periodic amount or within a price range determined by the Board; and (vii) the appointment of other committees of the Board or the members thereof. Section 2. Number and Qualification of Directors. The authorized number of directors shall be not less than four nor more than seven with the exact number to be set from time to time by the Board of Directors until changed by amendment of the Articles of Incorporation or by a bylaw amending this Section 2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares represented at a meeting in which a quorum is present and voting; provided that a proposal to reduce the authorized number of directors below five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16 2/3 percent of the outstanding shares entitled to vote. Section 3. Election and Term of Office. The directors shall be elected at each annual meeting of shareholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected, subject to the General Corporation Law and the provisions of these bylaws with respect to vacancies on the Board. Section 4. Vacancies. A vacancy in the Board of Directors shall be deemed to exist in case of the (i) death, (ii) resignation or removal of any director with or without cause, (iv) pursuant to Section 303 of the California Corporations Code if a director has been declared of unsound mind by order of court or convicted of a felony, (v) if the authorized number of directors be increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. C-5 Vacancies in the Board of Directors, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the shareholders. A vacancy in the Board of Directors created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the chairman of the Board, the president, the secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 5. Place of Meeting. Regular meetings of the Board of Directors shall be held at any place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, regular meetings shall be held at the principal executive office of the Corporation. Special meetings of the Board may be held either at a place so designated or at the principal executive office. Section 6. Organization Meeting. Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting at the place of said annual meeting or at such other place as shall be fixed by the Board of Directors, for the purpose of organization, election of officers, and the transaction of other business. Call and notice of such meetings are hereby dispensed with. Section 7. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held without call as provided in a resolution adopted by the Board of Directors from time to time; provided, however, should said day fall upon a legal holiday, then said meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. Notice of all such regular meetings of the Board of Directors is hereby dispensed with. Section 8. Special Meetings. Special meetings of the Board of Directors for any purpose or purposes shall be called at any time by the chairman of the Board, the president, any vice president, the secretary or by any two directors. Written notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone or by telegraph or mail, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation or, if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of the directors are regularly held. In case such notice is mailed, it shall be deposited m the United States mail in the place in which the principal executive office of the Corporation is located at least four days prior to the time of holding the meeting. In case such notice is delivered, personally or by telephone or telegraph, as above provided, it shall be so delivered at least forty-eight hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery, personally or by telephone, as above provided, shall be due, legal and personal notice to such director. When all of the directors are present at any directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the directors are present C-6 and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the secretary of the corporation or (iii) if a director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice to him, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 9. Action Without Meeting. Any action by the Board of Directors may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board and shall have the same force and effect as a unanimous vote of such directors. Section 10. Action at a Meeting: Quorum and Required Vote. Presence of a majority of the authorized number of directors at a meeting of the Board of Directors constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number, or the same number after disqualifying one or more directors from voting, is required by law, by the Articles of Incorporation, or by these bylaws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. Section 11. Validation of Defectively Called or Noticed Meetings. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has, prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 12. Adjournment. A quorum of the directors may adjourn any directors' meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum a majority of the directors present at any directors' meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular meeting of the Board. Section 13. Notice of Adjournment. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment. Otherwise notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 14. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. Section 15. Indemnification of Agents of the Corporation; Purchase of Liability Insurance. (a) For the purposes of this Section, "agent" means any person who is or was a director, officer, employee or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation; "executive officer" means any person who is or was a director or an officer serving a chief policy making function, or is or was serving at the request of the Corporation as a director or officer of another foreign or domestic corporation, C-7 partnership, joint venture, trust or other enterprise, or was a director or officer serving a chief policy making function of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of the Corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under subsection (d) or paragraph (3) of subsection (e) of this section. (b) This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this Corporation to procure a judgment in its favor) by reason of the fact that such person is or was an executive officer of the Corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. This Corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this Corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the Corporation against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and, in the case of a criminal proceeding, had no reason to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this Corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. (c) This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this Corporation to procure a judgment in its favor by reason of the fact that such person is or was an executive officer of this Corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of this Corporation and its shareholders. No indemnification shall be made under subsection (b) and/or (c): (1) in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to this Corporation in the performance of such person's duty to this Corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; (2) Of amounts paid in settling or otherwise disposing of a pending action without court approval; or (3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. (d) To the extent that an agent of this Corporation has been successful on the merits in defense of any proceeding referred to in subsection (b) or (c) or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. (e) Except as provided in subsection (d), any indemnification under this section shall be made by this Corporation upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subsection (b) or (c), by any of the following: (1) A majority vote of a quorum consisting of directors who are not a party to such proceeding; (2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion; (3) Approval or ratification by the affirmative vote of a majority of the shares of this Corporation represented and voting at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For such purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or C-8 (4) The court in which such proceeding is or was pending upon application made by this Corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney or other person is opposed by this Corporation. (f) Expenses incurred in defending any proceeding may be advanced by the Corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent or executive officer to repay such amount if it shall be determined ultimately that the agent or executive officer is not entitled to be indemnified as authorized in this section. (g) The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the articles of this Corporation. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. Nothing contained in this section shall affect any rights to indemnification to which persons other than such directors and officers may be entitled by contract or otherwise. Nothing contained in this section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise. (h) No indemnification or advance shall be made under this section, except as provided in subsection (d) or paragraph (3) of subsection (e), in any circumstance where it appears: (1) That it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders or an agreement in effect at the time the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. (i) This Corporation may purchase and maintain insurance on behalf of any agent of this Corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such, whether or not this Corporation would have the power to indemnify the agent against such liability under the provisions of this section. The fact that this Corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subsection inapplicable if either of the following conditions are satisfied: (1) If authorized in the Articles of Incorporation of this Corporation, any policy issued is limited to the extent provided by paragraph (11) of subdivision (a) of Section 204 of the California Corporations Code; or (2) (A) The company issuing the insurance policy is organized, licensed, and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization, (B) The company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the Corporation that purchased that policy, and (C) The policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or re-insurer. (j) This Section 15 does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of the Corporation as defined in subsection (a) of this Section. This Corporation shall have power to indemnify such a trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 207 of the California General Corporation Law. C-9 ARTICLE IV Officers Section 1. Officers. The officers of the Corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. Election. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. Subordinate Officers, Etc. The Board of Directors may appoint, and may empower the president to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office, for such period, have such authority and perform such duties as are provided in the bylaws or as the Board of Directors may from time to time determine. Section 4. Removal and Resignation. Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors (subject, in each case, to the rights, if any, of an officer under any contract of employment). Any officer may resign at any time by giving written notice to the Board of Directors or to the president, or to the secretary of the Corporation, without prejudice, however, to the rights, if any, of the Corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office. Section 6. Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the bylaws. Section 7. President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the president shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws. Section 8. Vice President. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the vice president designated by the Board of Directors, shall perform all the duties of the president, and when so acting shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the bylaws. Section 9. Secretary. The secretary shall record or cause to be recorded, and shall keep or cause to be kept, at the principal executive office and such other place as the Board of Directors may order, a book of minutes C-10 of actions taken at all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the bylaws. Section 10. Chief Financial Officer. The Chief Financial Officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws. ARTICLE V Miscellaneous Section 1. Record Date. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to give consent to corporate action in writing without a meeting, to receive any report, to receive any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of any meeting, nor more than sixty (60) days prior to any other event for the purposes of which it is fixed. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or bylaws. If no record date is fixed: The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. C-11 The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Section 2. Inspection of Corporate Records. The accounting books and records, the record of shareholders, and minutes of proceedings of the shareholders and the Board and committees of the Board of this Corporation and any subsidiary of this Corporation shall be open to inspection upon the written demand on the Corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of the Corporation or who hold at least 1 percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the Corporation shall have (in person, or by agent or attorney) the right to inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the Corporation and to obtain from the transfer agent for the Corporation, upon written demand and upon the tender of its usual charges, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. Every shareholder and director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation. Such inspection by a shareholder or director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name, of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 4. Annual Report to Shareholders. The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly waived to the extent permitted by Section 1501 of the California General Corporation Law, but nothing herein shall be interpreted as prohibiting the Board from issuing annual or other periodic reports to shareholders. A shareholder or shareholders holding at least five percent of the outstanding shares of any class of the Corporation may make a written request to the Corporation for an income statement of the Corporation for the three- month, six-month or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the Corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the annual report for the last fiscal year. The Corporation shall use its best efforts to deliver on the statement to the person making the request within 30 days thereafter. A copy of any such statements shall be kept on file in the principal executive office of the Corporation for 12 months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. The Corporation shall, upon the written request of any shareholder, mail to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the Corporation or the certificate of an authorized officer of the Corporation that such financial statements were prepared without audit from the books and records of the Corporation. C-12 Section 5. Contracts, Etc., How Executed. The Board of Directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. Section 6. Certificate For Shares. Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman or vice chairman of the Board or the president or vice president and by the chief financial officer or an assistant financial officer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Any such certificate shall also contain such legend or other statement as may be required by Section 418 of the General Corporation Law, the Corporate Securities Law of 1968, the federal securities laws, and any agreement between the Corporation and the issuee thereof. Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof. No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate will be issued without the surrender and cancellation of the old certificate if (1) the old certificate is lost, apparently destroyed or wrongfully taken; (2) the request for the issuance of the new certificate is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction or theft; (3) the request for the issuance of a new certificate is made prior to the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser; (4) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the Corporation; and (5) the owner satisfies any other reasonable requirements imposed by the Corporation. In the event of the issuance of a new certificate, the rights and liabilities of the Corporation, and of the holders of the old and new certificates, shall be governed by the provisions of Sections 8104 and 8405 of the California Uniform Commercial Code. Section 7. Representation of Shares of Other Corporations. The president or any vice president and the secretary or any assistant secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Section 8. Inspection of Bylaws. The Corporation shall keep in its principal executive office in California, or, if its principal executive office is not in California, then at its principal business office in California (or otherwise provide upon written request of any shareholder) the original or a copy of the bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the shareholders at all reasonable times during office hours. Section 9. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation as well as a natural person. C-13 ARTICLE VI Amendments Section 1. Power of Shareholders. New bylaws may be adopted or these bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares represented at a meeting in which a quorum is present and voting, or by the written assent of shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation. Section 2. Power of Directors. Subject to the right of shareholders as provided in Section 1 of this Article VI to adopt, amend or repeal bylaws, bylaws, other than a bylaw or amendment thereof changing the authorized number of directors, may be adopted, amended or repealed by the Board of Directors. C-14 -----END PRIVACY-ENHANCED MESSAGE-----