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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
BRENCO, INCORPORATED
(NAME OF SUBJECT COMPANY)
BRENCO, INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE,
(TITLE OF CLASS OF SECURITIES)
107061 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
NEEDHAM B. WHITFIELD
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
BRENCO, INCORPORATED
ONE PARK WEST CIRCLE
MIDLOTHIAN, VIRGINIA 23113
(804) 378-2900
NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
F. CLAIBORNE JOHNSTON, JR.
MAYS & VALENTINE
NATIONSBANK CENTER
1111 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(804) 697-1214
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Brenco, Incorporated, a Virginia
corporation (the "Company"). The address of the principal executive offices of
the Company is One Park West Circle, Midlothian, Virginia 23113. The title of
the class of equity securities to which this Solicitation/ Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9" or the "Statement") relates is
the Common Stock, par value $1.00 per share, of the Company (the "Common
Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by Varlen Corporation, a Delaware
corporation ("Varlen") and its wholly-owned subsidiary, BAS, Inc., a Virginia
corporation (the "Purchaser"), disclosed in a Tender Offer Statement on Schedule
14D-1, dated June 20, 1996 (the "Schedule 14D-1"), to purchase all of the
outstanding shares (the "Shares") of Common Stock at $16.125 per share, net to
the seller in cash, without any interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated June 20, 1996 (the "Offer
to Purchase"), and the related Letter of Transmittal (collectively, the
"Offer"), copies of which are filed herewith as Exhibits A and B, respectively,
and incorporated herein by reference.
The Offer is being made pursuant to the Acquisition Agreement, dated as of
June 15, 1996 (the "Acquisition Agreement"), by and among the Company, Varlen
and the Purchaser, a copy of which is filed herewith as Exhibit C and
incorporated herein by reference, and a Shareholder Tender Agreement, dated as
of June 15, 1996, by and among Varlen, the Purchaser and Needham B. Whitfield,
Anne Whitfield Kenny and certain members of their families (the "Shareholder
Tender Agreement"), a copy of which is filed herewith as Exhibit D and
incorporated herein by reference. Pursuant to the Acquisition Agreement, as soon
as practicable after completion of the Offer and satisfaction or waiver, if
permissible, of all applicable conditions specified in the Acquisition
Agreement, the Purchaser will be merged with and into the Company (the
"Merger"), and the Company will become a wholly-owned subsidiary of Varlen (the
"Surviving Corporation"). At the effective time of the Merger (the "Effective
Time"), each share of Common Stock then outstanding (other than shares held by
Varlen, the Purchaser, or any other subsidiary of Varlen, and shares held by
shareholders who exercise their dissenters' rights, if any, in accordance with
the Virginia Stock Corporation Act (the "Virginia Act") will be converted into
the right to receive $16.125 in cash, without any interest.
Based on information in the Offer to Purchase, the principal executive
offices of Varlen and the Purchaser are located at 55 Shuman Boulevard, P.O. Box
3089, Naperville, Illinois 60566-7089, telephone (708) 420-0400.
ITEM 3. IDENTITY AND BACKGROUND.
(A) NAME AND ADDRESS OF THE COMPANY. The name and address of the Company,
which is the person filing this Statement, is set forth in Item 1 above. All
information contained in this Statement or incorporated herein by reference
concerning the Purchaser, Varlen or their affiliates, or actions or events with
respect to any of them, was provided by the Purchaser or Varlen, respectively,
and the Company takes no responsibility for such information.
(B) MATERIAL CONTRACTS. Each material contract, agreement, arrangement and
understanding or actual or potential conflict of interest between the Company
and/or its affiliates and (i) its executive officers, directors or affiliates
and (ii) Varlen, its executive officers, directors or affiliates, is described
below.
(B) (1) CERTAIN CONTRACTS. Effective March 22, 1996, the Company entered
into change in control agreements (the "Agreements") with Needham B. Whitfield,
J. Craig Rice, Jacob M. Feichtner, Howard J. Bush and Donald E. Fitzsimmons (the
executive officers named in the Company's proxy statement for the Annual Meeting
of Shareholders) and certain other executives and employees. The Agreements
provide that termination compensation will be paid if the executive's employment
is terminated by the Company within two years after a Change in Control other
than for "cause" (as defined in the Agreements) or upon the death, permanent
disability or retirement of the executive, or if the executive voluntarily
terminates his employment for "good reason" (as defined in the Agreements).
Change in Control is defined generally to include (i) acquisition of more than
20% of the Company's voting stock, (ii) certain changes in the composition of
its Board of Directors,
(iii) shareholder approval of certain business combinations or asset sales in
which the Company's historic shareholders hold less than 50% of the resulting or
purchasing company or (iv) shareholder approval of the liquidation or
dissolution of the Company. Termination compensation consists of a cash payment
equal to a multiple (generally one, two or three times) of the highest annual
rate of base salary paid to the executive in effect for the 12-month period
immediately prior to the executive's termination of employment ("Base Salary").
The multiple is one times Base Salary for Messrs. Whitfield and Fitzsimmons,
three times Base Salary for Mr. Rice, two times Base Salary for Mr. Bush, and
the number of years from date of termination to age 62 times Base Salary for Mr.
Feichtner (who is now age 59). In addition, the Agreements provide for the
continuation of certain medical, life and disability benefits. The Agreements
supersede employment agreements between the Company and certain executives which
were previously in place.
The Company's Executive Retirement Incentive Plan, as amended and restated
effective March 22, 1996 (the "Executive Plan"), provides a monthly retirement
benefit for life to those executives selected for participation by the
Compensation Committee of the Board of Directors equal to the excess of (i) 3%
of the executive's remuneration multiplied by his years of service (up to a
maximum of 20 years), over (ii) the value of benefits payable to the executive
by the company retirement plan and the executive's Social Security benefit.
Messrs. Whitfield, Rice, Feichtner, Bush and Fitzsimmons are among the
executives participating in the Executive Plan. In order to receive a benefit
under the Executive Plan, the executive must have at least five years of vesting
service and must retire after attaining age 55 but no later than the first day
of the calendar quarter coinciding with or next following his attaining age 62.
The Executive Plan provides for benefit payment options and spousal and
beneficiary rights and payments in the event of the executive's death. No
benefits are payable under the Executive Plan to any executive who terminates
employment before attaining age 55 or who does not retire during the available
retirement window period. In addition, benefits under the Executive Plan are
forfeited if a retired executive competes with the Company under certain
circumstances.
The Company has established a grantor trust to accumulate the amounts
anticipated to be needed to pay benefits under the Executive Plan. Assets of the
trust are considered general assets of the Company and are subject to claims of
the Company's creditors. The Company is obligated to make contributions to the
trust annually in an amount equal to its reported annual financial expense for
the Executive Plan, as adjusted for trust earnings and expenses. In addition, in
the event there is a Change in Control (as defined in the Agreements), the
Company is obligated to contribute an amount to the trust within 90 days equal
to the Executive Plan's unfunded actuarial liability at that time.
The Executive Plan provides additional benefits for Messrs. Feichtner,
Fitzsimmons, and Rice in the event there is a Change in Control. First, the
Executive Plan may not be amended to cause Messrs. Feichtner, Fitzsimmons, or
Rice to cease to be participants. Secondly, if Mr. Feichtner's employment is
terminated within two years after the Change in Control and on or before June
30, 1999, by the Company without cause or by Mr. Feichtner for good reason, then
his benefit under the Executive Plan will be calculated as though he had
continued to work to June 30, 1999, and his benefit under the Executive Plan
will not be reduced for early payment before age 62 and will include an amount
equal to the amount of any reduction to his benefit under the Company retirement
plan for early payment. Thirdly, if either Messrs. Fitzsimmons or Rice ceases to
be employed before age 62 (including before age 55), respectively, he will be
fully vested in his benefit under the Executive Plan, he may start drawing that
benefit at age 55 or his later termination, his beneficiary will be entitled to
his death benefit regardless of his vesting service or his termination before
age 55, and the prohibition on competition with the Company will be waived if he
resigns for good reason (other than the right to voluntarily terminate during a
30 day period after the first anniversary of the Change in Control). As of March
8, 1996, the ages of each such executive officer were as follows: Needham B.
Whitfield - 59, J. Craig Rice - 48, Jacob M. Feichtner - 58, Howard J. Bush - 42
and Donald E. Fitzsimmons - 54.
The Company's estimate of the total amount of all payments which may be
payable upon a Change in Control under the Agreements and the Executive Plan is
$3,435,000.
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The Company also provides long-term incentive compensation for executives of
the Company (and other Company employees) through the grant of stock options and
restricted stock under the Company's 1988 Stock Option Plan (the "Stock Option
Plan") and 1987 Restricted Stock Plan (the "Restricted Stock Plan"). Stock
options under the Stock Option Plan are granted to executive officers at the
fair market value of the Common Stock on the date of grant. Historically,
options have typically been granted with a five-year period of exercise and a
three-year vesting schedule. However, options granted after July 1994 have been
granted with a ten-year period of exercise and are fully exercisable one year
after the date of grant. Shares of restricted stock granted under the Restricted
Stock Plan typically vest over a four-year period. As of June 14, 1996, the
Company had outstanding: (1) options to purchase 442,000 shares of Common Stock
heretofore granted under the Company's 1988 Stock Option Plan ("Options") and
like number of shares reserved for issuance upon the exercise thereof, and (2)
62,576 shares of Common Stock heretofore granted under the Company's 1987
Restricted Stock Plan ("Restricted Shares"). Effective March 22, 1996, the Stock
Option Plan and the Restricted Stock Plan were amended to provide that the
events which would constitute a "change in control" under such plans will be the
same as the events which would constitute a Change in Control under the
Agreements. Thus, upon a Change in Control, outstanding Options would be freely
exercisable and any restrictions on Restricted Shares would lapse.
Under the Acquisition Agreement, the Company will, to the extent necessary,
adjust the terms of all outstanding Options and all Restricted Shares to provide
for (a) cancellation of the Options, not later than immediately before the
Effective Time in exchange for cash payment equal to the product of (i) the
total number of Shares subject to the Option and (ii) the excess, if any, of
$16.125 (or any such higher price per Share as may be paid in the Offer) over
the exercise price per Share subject to such Option; and (b) cancellation,
effective as of the Effective Time, of each Restricted Share outstanding
immediately prior to the Merger in exchange for a payment equal to the product
of (i) the total number of Restricted Shares and (ii) $16.125 (or any such
higher price per Share as may be paid in the Offer).
(B)(2) THE ACQUISITION AGREEMENT AND THE SHAREHOLDER TENDER AGREEMENT. The
following is a summary of certain provisions of the Acquisition Agreement and
the Shareholder Tender Agreement and is qualified in its entirety by reference
to the Acquisition Agreement and the Shareholder Tender Agreement, copies of
which are filed herewith as Exhibits C and D, respectively.
THE ACQUISITION AGREEMENT.
THE OFFER AND MERGER. The Acquisition Agreement provides for the public
announcement of the Offer within one business day after the execution thereof
and for the commencement of the Offer as promptly as practicable, but in no
event later than five business days, after such public announcement. The
obligation and right of Purchaser to accept for payment and pay for any Shares
tendered pursuant to the Offer is subject to satisfaction of the Minimum
Condition (as defined in the Offer to Purchase), the expiration or termination
of all waiting periods under the HSR Act and the other conditions described
below under "Certain Conditions." The Purchaser expressly reserves the right to
waive any such condition, to increase the price per Share payable in the Offer
and to make any other changes in the terms and conditions of the Offer; provided
that the Purchaser has agreed that it will not (i) decrease the price payable in
the Offer, (ii) change the form of consideration payable in the Offer or the
Merger, (iii) increase the Minimum Condition, or (iv) amend any other term of
the Offer (including the conditions described under "Certain Conditions" below)
in a manner materially adverse to the holders of Shares.
The Acquisition Agreement provides that, as soon as practicable following
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged into the Company, with the Company surviving the
Merger. Pursuant to the Merger, each outstanding Share (other than Shares held
by Varlen, the Purchaser, or any direct or indirect subsidiary of Varlen or the
Purchaser, and Shares with respect to which dissenter's rights under the
Virginia Act are properly exercised) will be converted into the right to receive
$16.125 in cash, without any interest. Following
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the Merger, the Company will be a wholly owned subsidiary of Varlen. The Merger
is subject to the satisfaction of various conditions, including approval by the
Company's shareholders if required under the Virginia Act.
In the Acquisition Agreement the Company has represented and warranted that
its Board of Directors has approved the Offer and the Merger and recommended
acceptance of the Offer by holders of Shares and approval of the Merger (if such
approval is required by the Virginia Act) by holders of Shares. The Company has
further represented and warranted that its Board of Directors (all of whom, the
Company's counsel has opined to Varlen, are "disinterested directors" within the
meaning of the Virginia Act with respect to Varlen and the Purchaser) has taken
certain actions in order to exempt Varlen, the Purchaser, their respective
direct and indirect subsidiaries and the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the restrictions and
other provisions of: (A) Article 14 (AFFILIATED TRANSACTIONS) of the Virginia
Act, in the manner provided by Section 13.1-727.B.1(iv) which (absent such an
exemption or similar board action) generally prohibits mergers,
recapitalizations, share exchanges, asset sales and other transactions between
certain Virginia corporations and holders of 10% or more of their voting
securities ("interested shareholders") unless approved by a majority of
"disinterested directors" and/or holders of two-thirds of the corporation's
shares excluding those of the interested shareholder; (B) Article 14.1 (CONTROL
SHARE ACQUISITIONS) of the Virginia Act, which (absent such an exemption or
similar board action) generally denies voting rights to certain acquirers of 20%
of more of the outstanding voting power of a public Virginia corporation
("acquiring persons") unless granted by a majority of the shares entitled to
vote in the election of directors of the corporation other than those held by
acquiring persons and certain corporate insiders; and (C) Article I of the
Articles of Incorporation, as amended of the Company (the "Charter"), which
(absent such an exemption or similar board action) generally requires the
affirmative vote of holders of 75% of the Shares in order to approve a merger,
consolidation and certain other business combinations between the Company and a
beneficial owner of 10% or more of its Shares. The Company and its Board of
Directors have agreed to take such other actions necessary or appropriate at the
request of Varlen or the Purchaser to: (1) exempt Varlen, the Purchaser, their
respective direct and indirect subsidiaries, the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the provisions of
any takeover, affiliated transactions, business combination, control share
acquisition or other provision of (i) law or regulation of the Commonwealth of
Virginia or any department or agency thereof or (ii) the Charter or Bylaws of
the Company, and (2) maintain the shareholder vote required to approve the
Merger at the two-thirds level.
COVENANTS OF THE COMPANY. Under the Acquisition Agreement, the Company has
agreed that, except as Previously Disclosed (as hereinafter defined) and unless
Varlen or the Purchaser otherwise agree in writing, prior to the Effective Time
or such earlier time as designees of the Purchaser constitute a majority of the
Board of Directors of the Company:
(i)
the business of the Company and its subsidiaries shall be conducted
in the ordinary course of business and consistent with past practice,
and the Company shall use its reasonable best efforts to maintain and
preserve its and its subsidiaries' business organization, assets, employees
and advantageous business relationships;
(ii)
neither the Company nor any of its subsidiaries shall: (1) amend or
propose to amend its articles of incorporation or bylaws; (2) split,
combine or reclassify any shares of its capital stock or declare, set aside
or pay any dividend payable in cash, stock or property with respect to its
capital stock except for regular quarterly cash dividends not in excess of
$.07 per Share on the Shares and except for any dividend by a wholly owned
subsidiary payable to the Company or another wholly owned subsidiary; (3)
issue, sell, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any capital
stock of any class of the Company or any of its subsidiaries other than
Shares which the Company is required to issue pursuant to the options
outstanding on June 14, 1996; (4) transfer, lease, license, sell, mortgage,
pledge, dispose of or encumber any material assets of the Company or any of
its subsidiaries other than in the ordinary
4
course of business and consistent with past practice; (5) redeem, purchase
or otherwise acquire directly or indirectly any of the capital stock or
other equity securities of the Company; (6) adopt a plan of liquidation or
resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company or any of its
subsidiaries, except for mergers among wholly owned subsidiaries; (7)
acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof
or make any investment with respect thereto; (8) directly or indirectly: (i)
incur or modify any long-term indebtedness or short-term indebtedness for
money borrowed or other material liability other than in the ordinary course
of business and consistent with past practice, (ii) incur any additional
indebtedness for money borrowed other than in the ordinary course of
business and consistent with past practice, or (iii) make any loans or
advances other than in the ordinary course of business and consistent with
past practice and intercompany loans and advances among the Company and its
wholly owned subsidiaries; (9) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business and consistent with past practice; (10) waive,
release, grant or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or other document,
other than in the ordinary course of business and consistent with past
practice; or (11) enter into any material commitment or transaction, other
than in the ordinary course of business and consistent with past practice;
(iii)
neither the Company nor any of its subsidiaries shall: (1) grant any
increase in the compensation payable or to become payable by the
Company or any of its subsidiaries to any of its directors, executive
officers or key employees or adopt any new, or amend or otherwise increase
the amounts payable or to become payable under any existing, bonus,
incentive compensation, severance, deferred compensation, profit sharing,
stock option, stock purchase, insurance, pension, retirement or other
employee benefit plan (including (but not limited to) the granting of stock
options, stock appreciation rights or restricted stock), or (2) enter into
or amend any employment or change-in-control agreement with, or, except in
accordance with the existing written policies and agreements of the Company,
grant any severance or termination pay to, any director, officer or employee
of the Company or any of its subsidiaries; and
(iv)
neither the Company nor any of its subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any
action which would make any representation or warranty of the Company in the
Acquisition Agreement untrue or incorrect in any material respect.
NON-SOLICITATION. The Acquisition Agreement further provides that neither
the Company nor any of its subsidiaries, nor any of their respective directors,
officers, employees, investment bankers, representatives or agents shall,
directly or indirectly, make, solicit, initiate or encourage the initiation of,
any inquiries or proposals from, or provide any confidential information or
participate in any discussions or negotiations with, or otherwise cooperate in
any way with or assist, any person (other than Varlen and its subsidiaries,
those third parties previously disclosed in writing by the Company to Varlen
prior to the execution of the Acquisition Agreement ("Previously Disclosed") and
their respective directors, officers, employees, investment bankers, commercial
banks, representatives and agents) concerning any merger, consolidation, other
business combination, recapitalization, liquidation or dissolution or any
purchase or other acquisition or sale or other disposition of assets (other than
in the ordinary course of business) or shares of capital stock of the Company or
any of its subsidiaries or any similar transaction involving the Company or
(except as Previously Disclosed) any subsidiary or division of the Company or
any subsidiary; PROVIDED, HOWEVER, that (i) the Company or its Board of
Directors shall not be prohibited from taking and disclosing to the Company's
shareholders a position contemplated by Rule 14d-9 or Rule 14e-2 promulgated
under the Exchange Act, and (ii) in the event that the Company shall receive an
unsolicited proposal from a third party which the Company's Board of Directors
determines, based on the advice of its legal counsel and independent financial
advisor, is capable of consummating such transaction, for the acquisition for
cash of all the outstanding Shares on terms that the Company's Board of
Directors determines, based on the advice of its financial advisor (the receipt
of which advice shall be confirmed in writing to Varlen by the
5
Company), are economically superior to those of the Offer and the Merger and
which in the written opinion of legal counsel to the Company (the delivery of
which shall be confirmed in writing to Varlen by such counsel) a failure to
consider by the Board of Directors of the Company would create a substantial
risk of violating their fiduciary duties to shareholders, the Company may
provide information to such third party to the same extent that such information
has been provided to the Purchaser and Varlen. The Company must promptly advise
Varlen of, and communicate to Varlen the terms of, any such inquiry or proposal
the Company may receive.
CONFIDENTIALITY AND STANDSTILL AGREEMENTS. Under the Acquisition Agreement,
the Company has agreed to use its reasonable best efforts to obtain a
confidential information, non-disclosure, non-use and standstill agreement from
any third party with or for whom the Company or any subsidiary has taken any
action or received any proposal not prohibited under the non-solicitation
provisions of the Acquisition Agreement. The Company also agreed not to consent
to the termination or amendment of the confidential information, non-disclosure
or non-use provisions of any agreement with a third party without the prior
written consent of Varlen or the Purchaser, and to use its reasonable best
efforts to take all actions necessary or proper to enforce strict compliance
with such provisions.
STOCK INCENTIVE PLANS. Under the Acquisition Agreement, the Company is
required to adjust the terms of all outstanding employee stock options to
purchase Shares granted under any stock option plan of the Company and all
restricted Shares granted under any restricted stock plan to cancel such options
and restricted shares. Not later than immediately prior to the Merger, each such
option and restricted Share shall become fully exercisable or unrestricted, as
the case may be, and vested. The Company has agreed to use its reasonable best
efforts to cancel each option outstanding not later than immediately prior to
the Merger in exchange for a cash payment equal to the product of (i) the total
number of Shares subject to the option and (ii) the excess, if any, of $16.125
(or any such higher price per Share as may be paid in the Offer) over the
exercise price per Share subject to such option. The Company has also agreed to
use its reasonable best efforts to cancel each restricted Share outstanding not
later than immediately prior to the Merger in exchange for $16.125. In addition,
the Board of Directors has agreed to take appropriate action with respect to the
Company's Employee Stock Savings Plan (the "Savings Plan") to provide that: (i)
until the earlier to occur of the Effective Time or any termination of the
Acquisition Agreement, participants in the Savings Plan will not be eligible to
receive matching Shares on any Shares purchased by such participants after the
date the Acquisition Agreement, and (ii) any rights of participants in the
Savings Plan to receive matching Shares from the Company as of the date of the
Acquisition Agreement accrued as a result of Shares purchased prior to the date
of the Acquisition Agreement shall be cancelled in exchange for a payment, not
later than immediately prior to the Effective Time, from the Company (subject to
any applicable withholding taxes) in cash equal to the product of (x) the total
number of such accrued matching Shares and (y) $16.125. Under the Acquisition
Agreement, any other plan providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary shall
terminate as of the consummation of the Merger.
DESIGNATION OF DIRECTORS. The Acquisition Agreement provides that, promptly
upon the acceptance for payment of and payment by the Purchaser in accordance
with the Offer for Shares constituting 50% or more of all Shares then
outstanding in accordance with the Offer, and from time to time thereafter, the
Purchaser will be entitled to designate such number of directors, rounded up to
the next whole number, on the Board of Directors of the Company as will give the
Purchaser representation on the Board of Directors equal to at least that number
of directors which equals the product of the total number of directors on the
Board of Directors multiplied by the percentage that such number of Shares so
accepted for payment and paid for or owned by Varlen or the Purchaser bears to
the total number of Shares outstanding; PROVIDED, HOWEVER, that the Purchaser
shall have the right (in its discretion) to designate a number of directors less
than such product; AND PROVIDED FURTHER, HOWEVER, that at all times prior to the
Merger there shall be at least two members of the Board of Directors of the
Company selected by current members of such Board. Subject to the preceding
sentence, upon the Purchaser's purchase of the Shares pursuant to the Offer, the
Purchaser will have sufficient voting
6
power to remove the entire Board of Directors of the Company and replace it with
the Purchaser's nominees. In the Acquisition Agreement, the Company has agreed
to take all action necessary to cause the Purchaser's designees to be elected to
the Company's Board of Directors (including mailing to the shareholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder) and to use its reasonable best efforts to cause the
resignation of such directors, and/ or an increase in the number of its
directors, as may be directed by Varlen and required to implement the foregoing.
SHAREHOLDERS MEETING. The Merger is subject to the satisfaction of various
conditions, including, among other things, approval by the shareholders of the
Company if required under the Virginia Act. If the Purchaser acquires the number
of Shares required to satisfy the Minimum Condition, it will control two-thirds
of the outstanding Shares on a fully diluted basis. Accordingly, the Purchaser
would have sufficient voting power to approve the Merger at a meeting of
shareholders to vote thereon. In the event that as a result of the Offer Varlen
owns 90% or more of the outstanding Shares, the Purchaser and Varlen would be
able to effect the Merger pursuant to the short form merger provisions of the
Virginia Act without any action by any other shareholder of the Company, but
subject to the requirements of the Virginia Act that a copy of the Acquisition
Agreement be mailed to shareholders and to the applicable dissenter's rights
provisions of the Virginia Act.
In connection with the Merger, the Company has agreed that it shall take all
action necessary, in accordance with the Virginia Act and its charter and
bylaws, to convene a meeting of its shareholders as promptly as practicable to
consider and vote upon the Merger (if and to the extent required by the Virginia
Act), and to not take any action which would result in the affirmative vote of
shareholders required for approval of the Merger to be greater than two-thirds
of the votes entitled to be cast. Unless in the written opinion of legal counsel
to the Company (the delivery of which shall be confirmed in writing to Varlen by
such counsel) any of the following actions would create a substantial risk of
violating the fiduciary duties of the Board of Directors to the shareholders of
the Company, the Company has also agreed: (i) that the proxy or information
statement with respect to any meeting of the Company's shareholders or other
corporate action to approve the Acquisition Agreement and the Merger, shall
contain the recommendation of the Board of Directors that the shareholders of
the Company vote to adopt and approve the Merger and the Acquisition Agreement,
and (ii) if proxies are solicited, to use its reasonable best efforts to solicit
from its shareholders proxies in favor of such adoption and approval and to take
all other action necessary or, in the reasonable judgment of Varlen, helpful to
secure the vote or consent of shareholders required by the Virginia Act to
effect the Merger. At such meeting of the shareholders of the Company, Varlen,
the Purchaser and their direct and indirect subsidiaries will vote all of the
Shares then owned by any of them in favor of the Merger.
CONFIDENTIALITY. Under the Acquisition Agreement, Varlen and the Purchaser
have agreed to, and to cause their officers, employees, agents and
representatives to, keep confidential, unless compelled to disclose by judicial
or administrative process or by other requirements of law, all non-public,
confidential or proprietary information provided by the Company (except to the
extent that such information can be shown to have been (i) previously known by
Varlen or the Purchaser, (ii) in the public domain through no fault of Varlen or
the Purchaser, or (iii) later lawfully acquired by Varlen from other sources)
and will not release or disclose such information to any other person.
INDEMNIFICATION AND INSURANCE. The Acquisition Agreement provides that the
Charter or Bylaws of the Company, after the Merger (the "Surviving Corporation")
shall contain provisions no less favorable with respect to indemnification than
those that are set forth in the Company's Charter and Bylaws, as amended to the
date the Acquisition Agreement, which provisions may not be amended, repealed or
otherwise modified for a period of five years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors, officers, employees or agents of
the Company (the "Indemnified Parties"). Varlen shall cause the Surviving
Corporation to fulfill such indemnification obligations. Varlen also agreed to
use its reasonable best efforts to cause to be maintained in effect for three
years from the Effective Time the current policy (or successor policies) of the
directors' and officers' liability insurance maintained
7
by the Company with respect to matters occurring prior to the Effective Time, to
the extent available; PROVIDED, HOWEVER, that Varlen is not required to expend
more than an amount per year equal to 150% of current annual premiums paid by
the Company to maintain or procure insurance coverage pursuant hereto.
REPRESENTATIONS AND WARRANTIES. The Acquisition Agreement contains various
customary representations and warranties of the parties thereto, including
representations by Varlen and the Purchaser as to their organization and
qualification, authority relative to the Acquisition Agreement, compliance,
financing, and brokers and finders, and by the Company as to its organization
and qualification, capitalization, capitalization of its subsidiaries, authority
relative to the Acquisition Agreement, lack of conflicts, filing of reports and
financial statements, litigation, employee benefit plans, taxes, absence of
certain changes, brokers and finders, liabilities, contracts, board actions, and
cash and cash equivalents.
TERMINATION. The Acquisition Agreement may be terminated at any time prior
to the Effective Time, whether prior to or after approval by the shareholders of
the Company:
(A)
by mutual written consent of the Boards of Directors of Varlen and
the Company;
(B)
by either the Company or Varlen if any court of competent
jurisdiction or other governmental body shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable best efforts to
lift), in each case, permanently restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, decree, ruling or other
action shall have become final and non-appealable;
(C)
by the Company, if the Offer shall have been terminated, or the Offer
shall have expired, without the purchase of any Shares thereunder
within two business days thereof and such non-purchase shall not have been
due to a failure to satisfy any of the conditions of the Offer described in
Section 13 of this Offer to Purchase; PROVIDED that the Company may not
terminate the Acquisition Agreement if the Company is in breach of such
agreement;
(D)
by the Company, if the Effective Time shall not have occurred on or
before December 31, 1996 due to a failure of any of the conditions to
the obligations of the Company to effect the Merger as described in the
Acquisition Agreement; PROVIDED that the Company may not terminate the
Agreement if the Company's failure to fulfill any obligation under the
Acquisition Agreement has been the cause of, or resulted in, in whole or in
part, the failure of the Effective Time to occur on or before such date;
(E)
by the Company, if: (1) any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act)
other than Varlen or the Purchaser or any of their respective subsidiaries
or affiliates (a "Qualified Person") shall have commenced (within the
meaning of Rule 14d-2 under the Exchange Act) a cash tender offer for any
and all Shares at a price at or in excess of $16.125 per Share, or (2) any
Qualified Person shall have made a bona fide written proposal involving a
merger or consolidation of the Company or the acquisition of all the Shares
or all or a substantial portion of its assets which would result in a cash
distribution to shareholders of the Company in excess of $16.125 per Share
(any such proposal described in subclause (1) or (2) being referred to as a
"Qualified Proposal"), and the Board of Directors of the Company shall have
been advised in a writing by its legal counsel (the delivery of which advice
shall have been confirmed in writing to Varlen by such counsel) that there
would be a substantial risk of liability for breach of their fiduciary
obligations to shareholders if they failed to recommend such offer or accept
such Qualified Proposal; PROVIDED, HOWEVER, that the Company may not
terminate the Acquisition Agreement: (i) until the expiration of five
business days after notice of such Qualified Proposal has been delivered to
Varlen, or (ii) unless otherwise consented to in writing by Varlen, if any
such offer or Qualified Proposal is made in breach of, or as a result of a
breach of its non-solicitation obligation described herein;
8
(F)
by either of Varlen or the Purchaser, if due to a failure to satisfy
any of the conditions of the Offer described in Section 13 of this
Offer to Purchase: (i) Varlen or any of its subsidiaries or affiliates shall
not have commenced the Offer, or shall have terminated the Offer, or (ii)
the Offer shall have expired without the purchase of any Shares thereunder
within two business days thereof, or (iii) Varlen shall have determined not
to proceed with the Merger; PROVIDED that neither Varlen nor the Purchaser
may terminate the Acquisition Agreement if either Varlen or the Purchaser is
in material breach of such agreement;
(G)
by either of Varlen or the Purchaser, if the Effective Time shall not
have occurred on or before December 31, 1996 due to a failure of any
of the conditions to the obligations of Varlen and the Purchaser to effect
the Merger described in the Acquisition Agreement; PROVIDED that neither
Varlen nor the Purchaser may terminate the Acquisition Agreement if Varlen's
or the Purchaser's failure to fulfill any material obligation under the
Acquisition Agreement has been the cause of, or resulted in, in whole or in
part, the failure of the Effective Time to occur on or before such date; or
(H)
by either of Varlen or the Purchaser, if prior to the purchase of
Shares in the Offer, the Board of Directors of the Company shall
have: (1) withdrawn, or modified in a manner adverse to Varlen or the
Purchaser, its approval or recommendation of the Offer or the Merger or any
of its other actions taken in accordance with the provisions of the
Acquisition Agreement summarized in the third paragraph of "The Acquisition
Agreement -- The Offer and Merger" hereinabove, (2) taken any of the actions
referred to in the third paragraph of "The Acquisition Agreement -- The
Offer and Merger" hereinabove for the benefit of any person (other than
Varlen, the Purchaser or any of their respective subsidiaries) or any
transaction (other than the Offer and Merger), or (3) resolved to do any of
the foregoing.
TERMINATION FEE. If the Acquisition Agreement is terminated by the Company
pursuant to the provision described in clause (E) of "The Acquisition Agreement
- -- Termination" above or if the Acquisition Agreement and/or the Offer is
terminated by Varlen or the Purchaser by reason of a failure of any condition to
the Offer described in (i) paragraphs (a), (b) or (g) as set forth below under
"Certain Conditions," (ii) paragraph (c) as set forth below under "Certain
Conditions," (but only if due, in whole or in part, to any (x) act of the
Company or any affiliate thereof, or (y) other occurrence, event, fact or
circumstance not beyond the control of the Company or any affiliate thereof), or
(iii) clause (vi) of paragraph (c) as set forth below under "Certain
Conditions," the Company has agreed to pay to Varlen a termination fee of
$6,500,000 plus an amount sufficient to reimburse Varlen and its subsidiaries
for all fees, costs and expenses relating to the transactions contemplated by
the Acquisition Agreement, the financing contemplated by the Acquisition
Agreement and the transactions contemplated thereby (PROVIDED that the Company
shall not be obligated to reimburse Varlen or its subsidiaries for more than
$2,000,000 of such fees, costs and expenses).
In the event of the termination of the Acquisition Agreement, it will become
null and void and have no effect without any liability on the part of any party,
except that provisions relating to the termination fee, expenses of the parties
and confidentiality of information will survive any such termination and
provided that a party will not be relieved from liability for any breach of the
Acquisition Agreement.
COSTS AND EXPENSES. The Acquisition Agreement provides that except as
provided above under "Termination Fee," all costs and expenses incurred in
connection with the transactions contemplated by the Acquisition Agreement shall
be paid by the party incurring such costs and expenses.
DISSENTER'S RIGHTS. No dissenter's rights are available in connection with
the Offer. Holders of Shares may be entitled to dissenter's rights in connection
with the Merger if, at the record date with respect to the meeting at which the
Acquisition Agreement and the Merger will be acted upon, certain requirements
are satisfied.
Section 13.1-730 of the Virginia Act (as effective from July 1, 1996)
provides that no dissenter's rights are available for the shares of any class or
series of stock which, at the record date fixed to
9
determine the shareholders entitled to receive notice of and to vote at the
meeting of shareholders to act upon the agreement or plan of merger, were either
(i) listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System or (ii) held of record by at least
2,000 shareholders, unless, among other things, in either case (i) the holders
of such class or series of shares are required by the terms of such agreement or
plan to accept for such shares anything except cash or (ii) the transaction to
be voted on is an "affiliated transaction" that has not been approved by a
majority of "disinterested directors." See Section 15.
If the conditions of Section 13.1-730 of the Virginia Act are not met and if
the Merger or a similar business combination is consummated, the holders of
Shares not purchased pursuant to the Offer would have certain rights to dissent
and demand to be paid the "fair value" of their Shares under the Virginia Act.
Under the Virginia Act, dissenting shareholders who comply with applicable
statutory procedures would be entitled to payment of the "fair value" of the
Shares as to which dissenter's rights are properly claimed as of the time
immediately before the effectuation of the Merger (excluding any appreciation or
depreciation in anticipation of the Merger, unless such exclusion would be
inequitable). In the first instance, the "fair value" estimation is made by the
corporation. Dissatisfied dissenters may then notify the corporation of their
own "fair value" estimation. If the corporation and the dissatisfied shareholder
cannot settle on the amount owed, the shareholder will ultimately be entitled to
a judicial determination of "fair value." Any such judicial determination of the
"fair value" of the Shares could be based upon considerations other than or in
addition to the price paid in the Offer and the market value of the Shares,
including asset values, the investment value of the Shares and any other
valuation considerations generally accepted in the investment community. The
"fair value" of the Shares so determined could be more or less than the price
per Share to be paid pursuant to the Offer and the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE COMPLETE. THE EXERCISE AND PRESERVATION OF DISSENTER'S RIGHTS
REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE VIRGINIA ACT.
SHAREHOLDER TENDER AGREEMENT.
SUMMARY. Simultaneously with entering into the Acquisition Agreement,
Varlen entered into a Shareholder Tender Agreement (the "Shareholder Tender
Agreement") with certain shareholders of the Company (the "Tendering
Shareholders"), including Needham B. Whitfield, Chairman and Chief Executive
Officer of the Company, Anne Whitfield Kenny (whose husband, John C. Kenny, is a
director of the Company), and certain members (and trusts for the benefit of
members) of their families. Pursuant to the Shareholder Tender Agreement, each
Tendering Shareholder has agreed to tender pursuant to the Offer and before the
Expiration Date all of the Shares owned of record or beneficially by such
Tendering Shareholder on the date of the Shareholder Tender Agreement, together
with any Shares acquired by any such Tendering Shareholder prior to the
termination of the Shareholder Tender Agreement. As of the date hereof, the
Tendering Shareholders beneficially own 2,108,343 Shares, or approximately 20.7%
of all outstanding Shares.
The Shareholder Tender Agreement provides that each Tendering Shareholder
will tender its Shares pursuant to the Offer before the Expiration Date and will
not withdraw any Shares so tendered without Varlen's prior written consent;
PROVIDED, HOWEVER, that each Tendering Shareholder may: (i) refrain from so
tendering its Shares, and may withdraw any Shares previously so tendered, if and
for so long as there shall have been commenced and not terminated a cash tender
offer by any person or "group" (other than Varlen or the Purchaser or any of
their respective subsidiaries or affiliates) for any and all Shares at a price
in excess of $16.125 per share (a "Superior Offer"); and (ii) tender its Shares
pursuant to such Superior Offer; AND PROVIDED FURTHER, HOWEVER, that in the
event that (x) any such Superior Offer shall have expired or been terminated
without purchase of such Tendering Shareholder's Shares, and (y) the Offer shall
then be in effect, then such Tendering Shareholder shall again be subject to the
foregoing provisions.
10
Notwithstanding the foregoing, the Shareholder Tender Agreement permits up
to 50,000 of the Tendering Shareholders' Shares (in the aggregate) to be
contributed to one or more charitable organizations and, if and to the extent so
contributed, such Shares will not be required to be tendered pursuant to the
Offer.
OTHER AGREEMENTS. During the term of the Shareholder Tender Agreement, and
except as otherwise provided therein or with the prior written consent of
Varlen, each Tendering Shareholder may not (i) sell, pledge or otherwise dispose
of any of its Shares, (ii) deposit its Shares into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares, (iii) grant any
proxy, power-of-attorney or other authorization in or with respect to such
Shares, or (iv) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, assignment, transfer or
other disposition of such Shares.
The Shareholder Tender Agreement requires each Tendering Shareholder to
abide by the terms of the non-solicitation provisions of the Acquisition
Agreement summarized in "The Acquisition Agreement -- Non-Solicitation" section
set forth above in this Section 11.
TERMINATION. The Shareholder Tender Agreement will terminate upon the
earlier to occur of: (i) the termination of the Acquisition Agreement (if any),
and (ii) the Effective Date.
CERTAIN CONDITIONS.
Notwithstanding any other provision of the Acquisition Agreement or the
Offer, and except as expressly limited below, the Purchaser: shall not be
required to commence or continue the Offer; or accept for payment, purchase or
pay for any Shares tendered; may postpone the acceptance for payment, the
purchase of, and/or payment for, Shares; and/or may amend (subject to the
restrictions contained in Section 1.1 of the Acquisition Agreement,) or
terminate the Offer; if: (1) there shall not have been validly tendered and not
withdrawn prior to the expiration of the Offer a number of Shares which,
together with the Shares beneficially owned by the Purchaser and Varlen,
represents two-thirds of the total voting power of all shares of capital stock
of the Company outstanding on a fully diluted basis, or (2) any waiting period
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended ("HSR
Act"), applicable to the purchase of the Shares pursuant to the Offer shall not
have expired or been terminated, or (3) at any time on or after June 1, 1996,
and prior to the time of payment for any such Shares (whether or not any Shares
have theretofore been accepted for payment or paid for pursuant to the Offer),
any of the following events (each, an "Event") shall have occurred (each of
paragraphs (a) through (h) providing a separate and independent condition to the
Purchaser's obligations pursuant to the Offer):
(a)the Company shall have authorized, recommended or proposed, or shall have
announced an intention to authorize, recommend or propose, or shall have
entered into an agreement or agreement in principle with respect to, any merger,
consolidation, other business combination, recapitalization, liquidation or
dissolution, or any purchase or other acquisition or sale or other disposition
of assets (other than in the ordinary course of business) or shares of capital
stock of the Company or any of its Subsidiaries, or any similar transaction
involving the Company or any Subsidiary or division of the Company or any
Subsidiary (other than the Merger and as Previously Disclosed with respect to
certain subsidiaries) (the foregoing being collectively referred to as a
"Business Combination"), any material change in its capitalization, or any
release or relinquishment of any material contract or other rights not in the
ordinary course of business; or
(b)(i) the Board of Directors of the Company shall have (x) modified or
amended in any respect its recommendation of the Offer, the Merger or any
of its other actions taken in accordance with Section 1.2(a) and/or 4.14 of the
Acquisition Agreement, or (y) adopted any resolution to do so, or (ii) the
opinion of Virginia counsel to the Company referred to in Section 4.14 of the
Acquisition Agreement shall have been disclaimed, disavowed, retracted or
revoked in any respect, or shall otherwise have been rendered inaccurate or
erroneous, or (iii) the Board of Directors of the Company shall have (x) taken
any of the actions referred to in Section 1.2(a) and/or 4.14 of the Acquisition
11
Agreement for the benefit of any person, entity or group (as defined in Section
13(d)(3) of the Exchange Act) (other than Varlen, the Purchaser or any of their
respective subsidiaries) or any Business Combination (other than the Offer and
the Merger), or (y) adopted any resolution to do so; or
(c)it shall have been publicly disclosed, or Varlen, the Purchaser or the
Company shall have learned that: (i) any person, entity (including the
Company or any of its subsidiaries or affiliates) or group (as defined in
Section 13(d)(3) of the Exchange Act) (a "Person") shall have (x) acquired or
become the beneficial owner of more than 10% of the outstanding Shares (other
than those shareholders of the Company party to that certain Shareholder Tender
Agreement, (the "Permitted Shareholders")), or (y) been granted by the Company
any warrant, option or right, conditional or otherwise, to acquire beneficial
ownership of more than 10% of the outstanding Shares, other than acquisitions by
a Person who has publicly disclosed such ownership in a Schedule 13D or 13G (or
amendment thereto) on file with the Commission prior to June 1, 1996, and other
than for bona fide arbitrage purposes, or (ii) any such Person (other than, in
the case of the following clause (x), a Permitted Shareholder) who has publicly
disclosed in such a Schedule 13D or 13G any such ownership of more than 10% of
the outstanding Shares prior to such date shall have (x) acquired or become the
beneficial owner of, or proposed to acquire or become the beneficial owner of,
additional Shares, or (y) been granted by the Company any warrant, option or
right, conditional or otherwise, to acquire any Shares, or (iii) any new group
shall have been formed which beneficially owns more than 10% of the Shares, or
(iv) any Person shall have commenced, or publicly proposed to commence, a tender
offer for outstanding Shares, or publicly proposed any Business Combination, or
(v) any Person shall have commenced any solicitation of proxies with respect to
the Shares in opposition to the Merger, or (vi) any Person shall have acquired
or become the beneficial owner of more than 50% of the outstanding Shares; or
(d)there shall be pending any action or proceeding before any court,
government or governmental authority or agency: (i) challenging or
seeking to make illegal, or to delay or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of,
payment for, or the purchase of, some or all of the Shares by Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen or the consummation of
the Merger, or seeking to obtain material damages in connection with the Offer
or the Merger, or (ii) seeking to prohibit ownership or operation by Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen of all or a material
portion of the business or assets of Varlen, the Company or any of their
respective subsidiaries or affiliates or to compel Varlen, the Purchaser or any
other subsidiary or affiliate of Varlen to dispose of or to hold separately all
or a material portion of the business or assets of Varlen, the Company or any of
their respective subsidiaries or affiliates, as a result of the Offer or the
Merger, or (iii) seeking to impose or confirm limitations on the ability of
Varlen, the Purchaser or any other subsidiary or affiliate of Varlen effectively
to exercise full rights of ownership and control of any Shares (or any shares of
capital stock of any subsidiary of the Company) (including, without limitation,
the right to vote any such Shares (or shares of a subsidiary)) acquired pursuant
to the Offer or otherwise (directly or indirectly), on all matters properly
presented to the Company's shareholders (or any such subsidiary's shareholders),
or (iv) seeking to require divestiture by Varlen, the Purchaser or any other
subsidiary or affiliate of Varlen of any Shares, or (v) invalidating or
rendering unenforceable any material provision of the Acquisition Agreement, or
(vi) which otherwise might materially adversely affect Varlen, the Company or
any of their respective subsidiaries or affiliates; or
(e)there shall be any action taken, or any statute, rule, regulation,
judgment, order or injunction proposed, enacted, entered, enforced,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency (other than the
application of the waiting period provisions of the HSR Act to the Offer or to
the Merger) which may, directly or indirectly, result in any of the consequences
referred to in paragraph (d) above; or
(f)there shall have occurred: (i) any general suspension of, or limitation
on prices for, trading in securities on any national securities exchange
or in the over-the-counter market, or (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, or (iii)
any limitation (whether or not mandatory) by any governmental authority on, or
any other event
12
which, in the sole judgment of Varlen, might affect the extension of credit by
banks or other lending institutions in the United States, or (iv) any material
change in the United States or any other currency exchange rates or any
suspension of, or limitation on, the markets therefor, or (v) any extraordinary
adverse change in the financial markets or the market price of the Shares, or
(vi) any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in the sole judgment of
Varlen, have a material adverse effect upon the business or operations of the
Company or any of its subsidiaries or affiliates or the trading of the Shares,
or (vii) a commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, or (viii)
in the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g)the representations and warranties of the Company in the Acquisition
Agreement shall not be true and correct in all material respects, or the
Company shall not have performed in all material respects each covenant and
complied with each agreement to be performed and complied with by the Company
under the Acquisition Agreement; or
(h)the Company and Varlen shall have agreed to terminate the Offer or the
Acquisition Agreement, or the Acquisition Agreement shall otherwise have
been terminated in accordance with it terms;
which, in the sole judgment of the Purchaser, in any such case, and regardless
of the circumstances (including any action or inaction by the Purchaser and
Varlen) giving rise to any such condition, make it inadvisable to proceed with
acceptance for payment or purchase of or payment for any Shares tendered or to
proceed with the Merger.
The foregoing conditions are for the sole benefit of Varlen and the
Purchaser and may be asserted by Varlen and the Purchaser regardless of the
circumstances giving rise to such condition, including (without limitation) any
action or inaction by Varlen or the Purchaser, or may be waived by Varlen or the
Purchaser in whole at any time or in part from time to time in their sole
discretion. The failure by Varlen or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by Varlen or the Purchaser concerning any
Event shall be final and binding upon all parties.
In addition, under the Acquisition Agreement the obligations of Varlen and
the Purchaser to consummate and effect the Merger are subject to the condition
that the Company shall not have received demands for payment of the fair value
of Shares (pursuant to Article 15 (Dissenter's Rights) of the Virginia Act) with
respect to more than 5% of the outstanding Shares.
In addition, notwithstanding anything to the contrary in the Acquisition
Agreement, the obligations of the Purchaser to accept for payment, purchase or
pay for any Shares tendered shall also be subject to the expiration or
termination of all waiting periods under the HSR Act that are applicable to the
purchase of Shares pursuant to the Offer and the Acquisition Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD. The Company's Board of Directors
unanimously has determined that the Offer and the Merger are fair to and in the
best interests of the shareholders of the Company, has approved the Merger
Agreement, the Offer and the Merger and recommends that all shareholders of the
Company accept the Offer and tender all of their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR BOARD'S RECOMMENDATION.
On December 11, 1995, at Varlen's request, two senior officers of Varlen,
Richard L. Wellek, President and Chief Executive Officer, and Raymond A. Jean,
Executive Vice President and Chief Operating Officer, visited the Company's
facilities in Petersburg, Virginia and met with Needham B. Whitfield, Chairman
of the Board of the Company and Chief Executive Officer, J. Craig Rice,
President and Chief Operating Officer, and Howard J. Bush, Vice
President--Marketing. After a presentation by
13
Mr. Bush of the Company's markets and businesses, the Varlen executives were
given a tour of the manufacturing facilities, and afterwards a general
discussion ensued. The Varlen executives pointed to a variety of changes in the
railroad markets domestically and internationally, and proposed that a large
supplier, with a wide variety of products important to the rail industry, would
be better positioned to deal with these changing conditions. The Varlen
executives asked the Company if they would be interested in combining with
Varlen to form such a supplier. The Company's executives agreed to think about
the proposition, and to have further discussions with Varlen.
At its regular monthly meeting on December 15, 1995, the Company's Board of
Directors was advised of the Varlen visit and its interest.
On January 25, 1996, Mr. Wellek, together with George W. Hoffman, Railroad
Group Vice President for Varlen, returned to Petersburg and resumed discussions
with Messrs. Whitfield, Rice, and Bush. A number of marketing synergies were
identified between the two companies, and both parties agreed to explore each
other's operations in greater depth.
At its regular monthly meeting on January 26, 1996, the Company's Board of
Directors was advised of the Varlen visit and its continuing interest.
On February 20, 1996, Messrs Whitfield, Rice and Bush visited Keystone
Industries, Inc. in Camp Hill, Pennsylvania. Keystone is a manufacturer of
railroad equipment components and a wholly owned subsidiary of Varlen. After a
tour of the facilities, further discussions about operations and railroad
markets were conducted with Messrs. Wellek and Hoffman.
On February 21, 1996, Messrs. Whitfield and Rice accompanied Mr. Wellek to
Vassar, Michigan to tour two automotive parts plants of a Varlen subsidiary and
meet local managers of these operations. Business philosophies, marketing
strategies, organizational culture and operating methods were discussed.
On March 11, 1996, Mr. Wellek visited Messrs. Whitfield and Rice at the
Company's administrative headquarters in Midlothian, Virginia to discuss whether
there was enough fit between the two companies to explore in earnest the
possibility of a business combination. The two companies agreed to continue
discussions.
On March 20, 1996, Messrs. Wellek and Jean met Mr. Rice and Keith Poe,
Executive Vice President of Quality Bearing Service ("QBS"), the Company's
wholly owned reconditioning subsidiary, in Little Rock, Arkansas to tour QBS's
newest reconditioning plant and discuss the reconditioning operations.
On March 21, 1996, Messrs. Wellek and Jean, who were in Louisville, Kentucky
for an annual truck show, made a brief tour of QBS's reconditioning plant in
Louisville.
At its regular monthly meeting on March 22, 1996, the Company's Board of
Directors was advised of the continuing Varlen visits and discussions between
the two companies, and the process the Company intended to follow with respect
to these discussions was discussed in more detail.
On March 27, 1996, Varlen signed a confidentiality agreement with the
Company providing for the transfer of confidential information to Varlen about
the Company's operations and financial results, and holding Varlen subject to a
standstill provision in the event Varlen wished to use this information for
purposes of, among other things, making a public tender for the Company shares.
On April 3, 1996, Richard A. Nunemaker, Vice President, Finance and Chief
Financial Officer of Varlen, met with Jacob M. Feichtner, Executive Vice
President and Chief Financial Officer of the Company and Mr. Whitfield to
determine what financial and operating data was available and to begin his
inquiries.
14
On April 10, 1996, Messrs. Wellek, Jean, Hoffman, Thomas Robinson, and
others visited the Company's facilities in Petersburg to conduct an engineering
review of the Company's new bearing developments and its development of a
one-way clutch for the automotive market. Mr. Rice and several of the Company's
engineers were involved in the discussions.
On April 11, 1996, Messrs. Wellek, Jean, Hoffman and Robinson met with
Messrs. Rice, Whitfield, and James W. Benz, President of Rail Link, a contract
switching subsidiary wholly owned by the Company. A variety of railroad industry
and international sales issues were discussed.
On April 15, 1996, Vicki L. Casmere, Vice President, General Counsel and
Secretary of Varlen, met with the Company's counsel in Richmond and later with
Messrs. Feichtner and Whitfield in Midlothian to conduct a general review of
legal matters related to the Company's operations.
At its regular monthly meeting on April 18, 1996, the Company's Board of
Directors was brought up to date on the discussions with Varlen. The Board
determined that the Company would require the services of a financial advisor to
guide the Board and express an opinion on fairness of whatever consideration and
terms were offered.
On May 7, 1996, Mr. Wellek met with Messrs. Whitfield and Rice at the
Company's Midlothian headquarters to review the status of Varlen's inquiries and
to advise the Company's executives that Varlen wished to acquire the Company,
assuming the contract terms, timing and price were satisfactory to both parties.
There was a general discussion as to how this process might proceed and Mr.
Wellek indicated the possible price range of a Varlen offer.
A Special Meeting of the Company's Board of Directors was called on May 13,
1996. The details of the meeting with Mr. Wellek were reported to the Board, who
determined to engage the investment banking firm of Wheat, First Securities,
Inc. ("Wheat") of Richmond, Virginia to serve as financial advisor to the
Company.
Wheat immediately proceeded to conduct a preliminary evaluation of potential
price ranges of comparable and hypothetical transactions. At the Company Board's
regular monthly meeting on May 24, 1996, the Company's senior management made
presentations on the markets and prospects for the Company's various businesses
and why a combination with Varlen would be in the strategic interest of the
company. This was followed by Wheat's presentation of its preliminary
evaluation. Based on the discussions that followed, the Board directed Messrs.
Whitfield and Rice to pursue serious negotiations with Varlen as to price, terms
and how such a combination might be effected.
On May 29, 1996, Messrs. Whitfield and Rice met with Messrs. Wellek, Jean,
Nunemaker, Robinson and Ms. Casmere at Varlen's headquarters in Naperville,
Illinois Mr. Whitfield reported the Company Board's response to Varlen's
proposal and asked for definitive terms.
On May 31, 1996, Mr. Wellek called Mr. Whitfield and informed him that
Varlen wished to make a cash tender offer for the Shares and assuming the
Company would cooperate by entering into an acquisition agreement, Varlen would
submit a proposed draft of the agreement. Mr. Wellek indicated that the final
price offered would depend on the terms of the agreement.
On June 11, 1996, Mr. Wellek and Ms. Casmere of Varlen, together with
Varlen's outside counsel, met with Messrs. Whitfield and Rice of the Company and
its counsel, and negotiated the basic terms subject to approval of both boards.
Negotiations continued over the period from June 11 to June 14 concerning
certain additional terms.
On June 13, 1996, the Varlen Board of Directors met and approved the terms
of the offer and the agreements between the two companies. Mr. Bush of the
Company was in attendance at the beginning of the meeting, made a presentation
on the Company's railroad bearing markets and answered questions by the Varlen
directors.
At a Special Meeting on June 15, 1996, the Company's Board of Directors met.
Wheat advised the board, based on various analyses and subject to the
limitations set forth in its written opinion, that the
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consideration was fair to the Company's shareholders from a financial point of
view, and the Board, after discussion, approved the Acquisition Agreement and
agreed to recommend Varlen's offer to the Company's shareholders.
During the process of its discussions with Varlen, the Company had
conversations with several other parties who expressed some degree of interest
in a business combination. A confidentiality agreement was entered into with one
party and information shared. However, no proposals were made by any other party
and based on the timing and substance of the Varlen offer and advice from
management concerning the nature of discussions that had occurred with such
parties and from its advisor that the company was unlikely to receive
substantially higher offers, the Company's Board decided to proceed with the
Varlen negotiations and enter into an agreement recommending the Varlen offer.
The negotiations culminated in the execution of the Acquisition Agreement,
and the Shareholder Tender Agreement on Saturday, June 15, 1996. On Monday, June
17, 1996, Varlen and the Company, in a joint press release, announced its
intention to commence the Offer.
* * * * *
In approving the Acquisition Agreement and the transactions contemplated
thereby, and recommending that all shareholders tender their Shares pursuant to
the Offer, the Board of Directors considered a number of factors, including:
(i) the financial and other terms of the Offer, the Merger and the
Acquisition Agreement;
(ii)that the $16.125 per Share tender offer price represents a premium of
approximately 32% over the closing price of the Shares on the NASDAQ
National Market System ("NMS") on June 14, 1996, the last full trading day
prior to the public announcement of the execution of the Acquisition
Agreement;
(iii)
recent trading prices of the Shares on the NMS, including the fact
that the Shares have not traded at or above the $16.125 tender offer
price in more than fifteen (15) years;
(iv)the written opinion of Wheat delivered to the Board on June 15, 1996,
to the effect that, as of that date, and based upon its review and
analysis and subject to the limitations set forth therein, the consideration
to be received by the holders of the Shares pursuant to the Offer and the
Merger as contemplated in the Acquisition Agreement is fair, from a
financial point of view, to such holders. The full text of Wheat's written
opinion, which sets forth, among other things, assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Exhibit J and is incorporated herein by reference. Shareholders are urged to
read the opinion in its entirety. Wheat's opinion is directed to the Board,
addresses only the fairness of the consideration to be received by holders
of the Shares from a financial point of view and does not constitute a
recommendation to any shareholder as to whether such shareholder should
accept the Offer and tender its Shares;
(v) the view of the Board of Directors, based in part upon the
presentations of management and of Wheat to the Board of Directors on
May 24 and again on June 15, 1996, regarding the likelihood of a superior
offer arising;
(vi)the continuing consolidation in the rail industry, encouraging
consolidation among suppliers, as well, to compete effectively;
(vii)
the Company's long-term and short-term prospects and capital needs,
especially in light of the developing market for the Company's
automotive one-way clutch products;
(viii)
the provisions of the Acquisition Agreement, including the provision
allowing the Company to respond to unsolicited inquiries concerning
an acquisition of the Company, and the provisions which permit the Company
to terminate the Acquisition Agreement upon payment to
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Purchaser of a break-up fee in the amount set forth in the description of
the Acquisition Agreement set forth in Item 3(b)(2), in the event that the
Board of Directors determines to withdraw its recommendation that
shareholders accept the Offer based on the Board of Directors' determination
that such action is necessary to comply with its fiduciary duties under
applicable law;
(ix)the fact that Varlen's and the Purchaser's obligations under the
Offer were not subject to any financing condition;
(x) the familiarity of the Board of Directors with the business, results
of operations, properties and financial condition of the Company and
the nature of the industry in which it operates; and
(xi)the Board of Directors' belief that the transactions contemplated by
the Acquisition Agreement would result in relatively few changes to
the Company's operations and customer relationships, and that employment
opportunities within the combined companies would offer growth and security
to the Company's employees.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
Acquisition Agreement and the Offer, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Board of Directors may have given different weights to
different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated May 31, 1996, between the Company and
Wheat, the Company retained Wheat to render certain financial advisory and
investment banking services to the Company in connection with a possible
business combination. Pursuant to this engagement, one of the services that
Wheat agreed to provide was a written opinion to the Board of the Company as to
the fairness of the consideration, to be received by shareholders of the
Company, from a financial point of view in connection with the proposed sale of
the Company to Varlen. Pursuant to the Engagement Letter, the Company agreed to
pay Wheat a fee of $50,000 after the delivery of an oral opinion to the Board by
Wheat as to the fairness of the consideration to received in the transaction by
the Company's shareholders, from a financial point of view; an additional fee of
$150,000 at the time the opinion is included in a proxy statement or a 14D-9
recommendation to the shareholders; and an additional $150,000 payable upon the
closing of the transaction. In addition, the Company agreed to reimburse Wheat
for reasonable out-of-pocket expenses incurred (including reasonable legal fees
and expenses) in performing its services under the Engagement Letter, whether or
not the transaction is consummated or the engagement terminates or expires. In
addition, the Company has agreed to indemnify Wheat and certain related persons
against certain liabilities related to or arising out of Wheat's engagement
under the Engagement Letter.
In the ordinary course of business, Wheat and its affiliates may trade the
equity securities of the Company for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Wheat has in the past provided financial advisory and
investment banking services to the Company for which services they have received
customary fees.
Wheat is a nationally recognized investment banking firm engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated primary and secondary underwritings, private placements
and valuations for corporate and other purposes. The Company selected Wheat as
its financial advisor based upon its familiarity with the Company and the
industry in which the Company operates and its experience, ability and
reputation with respect to mergers and acquisitions.
17
Except as disclosed herein or in the Offer to Purchase, neither the Company
nor any person acting on its behalf currently intends to employ, retain or
compensate any other person to make solicitations or recommendations to security
holders on its behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) SHARE TRANSACTIONS IN LAST 60 DAYS. Except for exercises of outstanding
options, during the past 60 days, no transactions in shares have been effected
by the Company or, to the best of the Company's knowledge, by any of its
executive officers, directors, affiliates or subsidiaries.
(b) INTENT TO TENDER. To the best of the Company's knowledge, all of the
Company's executive officers and directors (except those individuals who would
be subject to liability therefor pursuant to the short-swing profit recapture
provisions of Sections 16(b) of the Exchange Act) have agreed to tender in the
Offer all shares that they now own. As described above, Mr. Whitfield and Mrs.
Kenny and members of their families have entered into a Shareholder Tender
Agreement pursuant to which such shareholders have agreed, among other things,
to validly tender (and not to withdraw, subject to the right not to tender or to
withdraw in the event of a superior offer) pursuant to and in accordance with
the terms of the Offer, all shares owned by them on the date of the Shareholder
Tender Agreement, as well as any Shares acquired after such date and prior to
the termination of such agreement.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) CERTAIN NEGOTIATIONS. Except as described in this Schedule 14D-9,
including as set forth in the Offer to Purchase, to the knowledge of the
Company, no negotiation is being undertaken or is under way by the Company in
response to the Offer which relates to or would result in (i) any extraordinary
transaction, such as a merger or reorganization, involving the Company or any
affiliate or subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company. Pursuant to the Acquisition Agreement, however, and as described under
"No Solicitation." in Item 3(b)(2) above, the Company may, subject to certain
limitations, take certain actions in respect of proposed transactions necessary
for the directors of the Company to discharge their fiduciary duties to
shareholders under applicable law.
(b) CERTAIN TRANSACTIONS. Except as described in this Schedule 14D-9, there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to or would result in one or
more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT DESCRIPTION
- ------------------ ---------------------------------------------------------------------------------------------
Exhibit A Offer to Purchase dated June 20, 1996.*
Exhibit B Letter of Transmittal.*
Exhibit C Acquisition Agreement, dated June 15, 1996, by and among Varlen, the Purchaser and the
Company.
Exhibit D Shareholder Tender Agreement, dated June 15, 1996, by and among Varlen, the Purchaser, the
Company and the parties identified therein.
Exhibit E(1) Change in Control Agreement dated as of March 22, 1996, between the Company and Needham B.
Whitfield.
Exhibit E(2) Change in Control Agreement dated as of March 22, 1996, between the Company and J. Craig
Rice.
Exhibit E(3) Change in Control Agreement dated as of March 22, 1996, between the Company and Jacob M.
Feichtner.
Exhibit E(4) Change in Control Agreement dated as of March 22, 1996, between the Company and Howard J.
Bush.
Exhibit E(5) Change in Control Agreement dated as of March 22, 1996, between the Company and Donald E.
Fitzsimmons.
Exhibit F Executive Retirement Incentive Plan, as amended and restated effective March 22, 1996.
Exhibit G Trust Agreement for the Company's Executive Retirement Incentive Program dated as of May 31,
1996.
Exhibit H 1987 Restricted Stock Plan of the Company, as amended and restated effective March 22, 1996.
Exhibit I 1988 Stock Option Plan of the Company, as amended and restated effective March 22, 1996.
Exhibit J Fairness opinion of Wheat dated June 15, 1996.**
Exhibit K Joint Press Release of Varlen and the Company, dated June 17, 1996.
Exhibit L Joint Press Release of Varlen and the Company, dated June 20, 1996.
Exhibit M Letter dated June 20, 1996, from the Company's Chairman and Chief Executive Officer to the
Company's shareholders.**
* Included in the Offer to Purchase materials sent to Company
shareholders.
** Included in the Schedule 14D-9 materials sent to Company
shareholders.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 20, 1996 Brenco, Incorporated
By _______/s/_Needham B. Whitfield______
Needham B. Whitfield
Chairman of the Board and
Chief Executive Officer
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