OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
BRENCO, INCORPORATED
AT
$16.125 NET PER SHARE
BY
BAS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VARLEN CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, JULY 18, 1996 UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF BRENCO, INCORPORATED HAS UNANIMOUSLY APPROVED THE
OFFER, THE MERGER (AS HEREINAFTER DEFINED) AND THE ACQUISITION AGREEMENT (AS
HEREINAFTER DEFINED), HAS DETERMINED THAT THE TERMS OF THE OFFER, THE MERGER AND
THE ACQUISITION AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE
SHAREHOLDERS OF BRENCO, INCORPORATED AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES (AS HEREINAFTER DEFINED) PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS HEREINAFTER DEFINED)
A NUMBER OF SHARES OF BRENCO, INCORPORATED WHICH, TOGETHER WITH THE SHARES
BENEFICIALLY OWNED BY VARLEN CORPORATION, BAS, INC. AND/OR OTHER SUBSIDIARIES OF
VARLEN CORPORATION, REPRESENTS AT LEAST TWO-THIRDS OF THE TOTAL NUMBER OF SHARES
THEN OUTSTANDING ON A FULLY DILUTED BASIS. THE PURCHASER ESTIMATES THAT
APPROXIMATELY 6,639,627 SHARES WILL NEED TO BE VALIDLY TENDERED (AND NOT VALIDLY
WITHDRAWN) TO SATISFY THIS MINIMUM CONDITION (AS HEREINAFTER DEFINED). THE OFFER
IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTIONS 1, 13 AND 16.
VARLEN CORPORATION HAS ENTERED INTO A SHAREHOLDER TENDER AGREEMENT WITH
CERTAIN SHAREHOLDERS OF BRENCO, INCORPORATED INCLUDING THE CHAIRMAN AND CHIEF
EXECUTIVE OFFICER OF BRENCO, INCORPORATED AND CERTAIN MEMBERS OF HIS FAMILY,
PURSUANT TO WHICH, AMONG OTHER THINGS, SUCH SHAREHOLDERS HAVE AGREED (SUBJECT TO
CERTAIN EXCEPTIONS) TO TENDER IN THE OFFER APPROXIMATELY 20.7% OF ALL
OUTSTANDING SHARES.
---------------------
IMPORTANT
ANY SHAREHOLDER DESIRING TO TENDER ALL OR A PORTION OF SUCH SHAREHOLDER'S
SHARES SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL TOGETHER WITH THE
CERTIFICATE(S) EVIDENCING SUCH SHARES, AND ANY OTHER REQUIRED DOCUMENTS, TO THE
DEPOSITARY OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY
TRANSFER SET FORTH IN SECTION 4 OR (2) REQUEST HIS BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR HIM. A
SHAREHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH SHAREHOLDER
DESIRES TO TENDER SUCH SHARES.
A SHAREHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY
WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH
SHARES BY FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY SET FORTH IN SECTION
4.
QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE INFORMATION
AGENT OR TO THE DEALER MANAGER AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE
NUMBERS SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. ADDITIONAL COPIES
OF THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL, THE NOTICE OF GUARANTEED
DELIVERY AND OTHER RELATED MATERIALS MAY BE DIRECTED TO THE INFORMATION AGENT,
THE DEALER MANAGER, OR TO BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES.
---------------------
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
June 20, 1996
TABLE OF CONTENTS
SECTION PAGE
- ------- -----
INTRODUCTION............................................... 1
1. Terms of the Offer; Expiration Date............... 4
2. Acceptance of and Payment for Shares.............. 4
3. Withdrawal Rights................................. 5
4. Procedures for Accepting the Offer and Tendering
Shares........................................... 6
5. Certain Income Tax Consequences................... 8
6. Market Prices of Shares; Dividends................ 9
7. Certain Effects of the Offer...................... 9
8. Certain Information Concerning the Company........ 10
9. Certain Information Concerning the Purchaser and
Varlen........................................... 12
10. Background of the Offer........................... 14
11. Purpose of the Offer and the Merger; Plans for the 16
Company; the Acquisition Agreement and
Shareholder Tender Agreement.....................
12. Source and Amount of Funds........................ 24
13. Certain Conditions of the Offer and the Merger.... 25
14. Dividends and Distributions....................... 27
15. Certain Legal Matters............................. 28
16. Extension of Tender Period, Termination and
Amendments....................................... 31
17. Certain Fees and Expenses......................... 32
18. Miscellaneous..................................... 33
Schedule A -- Directors and Executive Officers of Varlen
and the Purchaser.......................................... A-1
TO THE HOLDERS OF COMMON STOCK OF BRENCO, INCORPORATED:
INTRODUCTION
BAS, Inc., a Virginia corporation (the "Purchaser") and a wholly owned
subsidiary of Varlen Corporation, a Delaware corporation ("Varlen"), hereby
offers to purchase all outstanding shares of the Common Stock, par value $1.00
per share (the "Shares"), of Brenco, Incorporated, a Virginia corporation (the
"Company"), 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 this Offer
to Purchase and in the related Letter of Transmittal (which together constitute
the "Offer"). Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares
pursuant to the Offer. The Purchaser will pay charges and reimbursable expenses
of Lehman Brothers Inc., which is acting as the Dealer Manager for the Offer (in
such capacity, the "Dealer Manager"), Harris Trust Company of New York, which is
acting as the Depositary (the "Depositary") and D.F. King & Co., Inc., which is
acting as the Information Agent (the "Information Agent"), incurred in
connection with the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE ACQUISITION AGREEMENT, HAS DETERMINED THAT THE TERMS OF THE
OFFER, THE MERGER AND THE ACQUISITION AGREEMENT ARE FAIR TO AND IN THE BEST
INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT SHAREHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF
THE COMPANY WHICH, TOGETHER WITH THE SHARES BENEFICIALLY OWNED BY VARLEN, THE
PURCHASER AND/OR OTHER SUBSIDIARIES OF VARLEN, REPRESENTS AT LEAST TWO-THIRDS OF
THE TOTAL NUMBER OF SHARES THEN OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION"). THE OFFER IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTIONS 1, 13 AND 16.
Wheat, First Securities, Inc., has delivered to the Company's Board of
Directors its opinion that the consideration to be received by the shareholders
of the Company pursuant to the Offer and the Merger is fair to such shareholders
from a financial point of view. The Purchaser has been advised by the Company
that a copy of such opinion will be set forth in full as an exhibit to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") which is being distributed to the Company's shareholders. Shareholders
are urged to read the opinion in its entirety for a description of the
assumptions made, matters considered and limitations of the review undertaken by
Wheat, First Securities, Inc.
The purpose of the Offer is to facilitate the acquisition of all of the
outstanding Shares and thereby to enable Purchaser to acquire control of, and
the entire equity interest in, the Company. The Offer will be followed by the
Merger which will enable the Purchaser to acquire all outstanding Shares not
tendered and purchased pursuant to the Offer or acquired pursuant to the
Shareholder Tender Agreement (as hereinafter defined).
The Offer is being made pursuant to an Acquisition Agreement, dated as of
June 15, 1996 (the "Acquisition Agreement"), by and among Varlen, the Purchaser
and the Company. Pursuant to the Acquisition Agreement, and subject to the
satisfaction or waiver of the conditions set forth therein, the Purchaser has
agreed to make the Offer and purchase any and all Shares validly tendered and
not withdrawn following the later of (i) the expiration or termination of all
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), applicable to the Offer and (ii) the Expiration
Date. After the completion of the Offer, the Purchaser will be merged with and
into the Company (the "Merger") and each Share then outstanding (other than
Shares held by Varlen, the Purchaser or any direct or indirect subsidiary of
Varlen, the Purchaser or the Company, and Shares with respect to which
dissenter's rights under the Virginia Stock Corporation Act, as amended (the
"Virginia Act") are properly exercised) will be converted upon effectiveness of
the
Merger (the "Effective Time") into the right to receive $16.125 in cash, without
any interest. Following the consummation of the Merger, the Company will
continue as the surviving corporation and will be a wholly owned subsidiary of
Varlen.
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 pursuant to 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 the
current members of such Board. In the Acquisition Agreement, the Company has
agreed to use its best efforts to cause the Purchaser's designees to be elected
to the Company's Board of Directors (including mailing to the Company's
shareholders the information required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder) and to use its reasonable best efforts to cause the
resignation of current directors, and/or an increase in the number of the
Company's directors, as may be directed by Varlen and required to implement the
foregoing.
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.
Holders of Shares may, in certain circumstances, have a statutory right to
dissent from the Merger and demand the "fair value" of their Shares under the
Virginia Act, provided they follow the
2
procedures established by the Virginia Act to exercise and perfect such right.
Any dissenting shareholders will have only such rights and privileges as a
shareholder of the Company as are provided for under Article 15 (DISSENTER'S
RIGHTS) of the Virginia Act. See Section 11.
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 family.
Pursuant to the Shareholder Tender Agreement, each Tendering Shareholder has
agreed to tender (subject to certain possible exceptions) pursuant to the Offer
and before the Expiration Date all of the Shares owned of record or beneficially
by such Tendering Shareholder (except for 50,000 Shares in the aggregate which
may be contributed to charity) 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 Acquisition Agreement and the Shareholder Tender Agreement are more
fully described in Section 11 of this Offer to Purchase. Shareholders are
encouraged to read that Section carefully, together with all other terms and
conditions of the Offer, before deciding whether to tender their Shares.
According to the Company, on June 14, 1996 there were (i) 10,207,440 Shares
(including 62,576 restricted Shares issued pursuant to the Company's restricted
stock plan) outstanding, and (ii) 442,000 shares reserved for issuance upon the
exercise of outstanding stock options issued pursuant to Company stock option
plans. As of the date of this Offer to Purchase, a subsidiary of Varlen
beneficially owns 460,000 Shares. Based on the foregoing, the Minimum Condition
will be satisfied if 6,639,627 Shares are validly tendered and not withdrawn
prior to the Expiration Date.
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY,
JULY 18, 1996, UNLESS THE OFFER IS EXTENDED.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING. ANY
SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY OR SOLICITATION
MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT,
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
3
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions set forth in the Offer (including, if the Offer is extended or
amended, the terms and conditions of any extension or amendment), the Purchaser
will accept for payment and will pay for any and all Shares validly tendered on
or prior to the Expiration Date and not withdrawn in accordance with Section 3
of this Offer to Purchase. The term "Expiration Date" means 12:00 midnight, New
York City time, on Thursday, July 18, 1996, unless the Purchaser, in its sole
discretion, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by the Purchaser, shall expire. See Section 16.
The Offer is subject to certain conditions set forth in Section 13,
including satisfaction of the Minimum Condition and the expiration or
termination of the waiting period applicable to the Purchaser's acquisition of
Shares pursuant to the Offer under the HSR Act. If any condition to the
Purchaser's obligation to purchase shares is not satisfied prior to the payment
for any such Shares, the Purchaser may (i) terminate the Offer and return all
tendered Shares to tendering shareholders, (ii) extend the Offer and, subject to
withdrawal rights as set forth in Section 3, retain all such Shares until the
expiration of the Offer as so extended, (iii) waive such condition and, subject
to any requirement to extend the period of time during which the Offer is open,
purchase all Shares validly tendered by the Expiration Date and not withdrawn,
or (iv) delay acceptance for payment of or payment for Shares, subject to
applicable law, until satisfaction or waiver of the conditions of the Offer.
The Acquisition Agreement provides that, unless previously approved by the
Company, the Purchaser will not reduce the price to be paid per Share pursuant
to the Offer, change the form of consideration to be paid in the Offer or the
Merger, increase the Minimum Condition or amend the terms of the Offer
(including any of the conditions set forth in Section 13) in a manner that is
materially adverse to the holders of Shares. For a description of the
Purchaser's right to extend the period of time during which the Offer is open,
and to amend, delay or terminate the Offer, see Section 16.
The Company has provided the Purchaser with the Company's shareholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares and will be furnished to brokers,
dealers, banks and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE OF AND PAYMENT FOR SHARES. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the Purchaser will
purchase, by accepting for payment, and will pay for, any and all Shares validly
tendered and not withdrawn following the later of (i) 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 (ii) the Expiration Date. In
addition, the Purchaser expressly reserves the right, in its sole discretion, to
delay the acceptance of, or payment for, Shares in order to comply, in whole or
in part, with any applicable law. See Section 15. In all cases, payment for
Shares purchased pursuant to the Offer will be made only after timely receipt by
the Depositary of certificates for such Shares or timely confirmation of
book-entry transfer (a "Book-Entry Confirmation") of such Shares into the
Depositary's account at The Depository Trust Company or the Philadelphia
Depository Trust Company (each, a "Book-Entry Transfer Facility" and
collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth in Section 4, a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) and any other documents
required by the Letter of Transmittal.
4
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment (and thereby purchased) tendered Shares as, if and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. Payment for Shares
purchased pursuant to the Offer will be made by deposit of the purchase price
with the Depositary, which will act as agent for tendering shareholders for the
purpose of receiving payment from the Purchaser and transmitting payments to
tendering shareholders. The Purchaser will not, under any circumstances, pay any
interest on the purchase price, regardless of any delay in making such payment.
If any tendered Shares are not purchased pursuant to the Offer, or if
certificates are submitted for more Shares than are tendered, certificates for
such unpurchased Shares will be returned, without expense to the tendering
shareholder (or, in the case of book-entry transfer within a Book-Entry Transfer
Facility, such Shares will be credited to an account maintained within such
Book-Entry Transfer Facility), as promptly as practicable after the expiration
or termination of the Offer.
The Purchaser will pay all stock transfer taxes, if any, payable with
respect to the transfer to it of Shares purchased pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or (in the
circumstances permitted by the Offer) if unpurchased Shares are to be registered
in the name of, any person other than the registered holder, or if tendered
certificates are registered in the name of any person other than the person
signing any Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such other person) payable on
account of such payment or transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted.
The Purchaser expressly reserves the right to transfer or assign to Varlen
or to one or more of Varlen's direct or indirect wholly owned subsidiaries the
right to purchase all or any portion of the Shares tendered pursuant to the
Offer, but no such transfer or assignment will relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
If, prior to the Expiration Date, the Purchaser shall decide, in its sole
discretion, to increase the consideration offered to shareholders pursuant to
the Offer, such increased consideration shall be paid to all holders of Shares
accepted for payment and paid for pursuant to the Offer.
3. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer will be
irrevocable, except that Shares tendered may be withdrawn at any time prior to
the Expiration Date and, unless previously accepted for payment, may also be
withdrawn after August 18, 1996. If the Purchaser is delayed in its acceptance
or purchase of or payment for Shares or is unable to purchase or pay for Shares
for any reason, then, without prejudice to the Purchaser's rights under Sections
1, 13 and 16, tendered Shares may be retained by the Depositary on behalf of the
Purchaser and may not be withdrawn except as permitted by this Section 3 and
subject to Rule 14e-1(c) under the Exchange Act. See Section 16.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its addresses
specified on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and, if certificates
representing such Shares have been delivered or otherwise identified to the
Depositary, the name(s) in which such certificate(s) is (are) registered, if
different from the name of the person tendering such Shares. If certificates
have been delivered or otherwise identified to the Depositary, then prior to the
physical release of such certificates, the tendering shareholder must also
submit the serial numbers shown on the particular certificates evidencing such
Shares and the signature on the notice of withdrawal must be guaranteed by a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office, branch or agency in the United States or any other
institution that is a member of the Medallion Signature Guaranty Program (each
being referred to herein as an "Eligible Institution"). If Shares
5
have been tendered pursuant to the procedure for book-entry tender as set forth
in Section 4, the notice of withdrawal must specify the name and account
number(s) of the account(s) at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Shares, in which case a notice of withdrawal will be
effective if delivered to the Depositary by any method of delivery described in
the first sentence of this paragraph. None of Varlen, the Purchaser, the Dealer
Manager, the Depositary or the Information Agent will be obligated to give
notice of any defects or irregularities in any notice of withdrawal, nor shall
any of them incur any liability for failure to give any such notice. All
questions as to the form and validity (including time of receipt) of notices of
withdrawal will be determined by the Purchaser, in its sole discretion, whose
determination shall be final and binding.
Withdrawals of Shares tendered may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. Withdrawn Shares, however, may be retendered by following one of the
procedures described in Section 4 at any time prior to the Expiration Date.
4. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
VALID TENDER. In order for a holder of Shares to validly tender Shares
pursuant to the Offer, a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof), together with any required
signature guarantees and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase, on or prior to the Expiration
Date. Either (i) the certificates for such Shares must be delivered to the
Depositary or (ii) such Shares must be tendered pursuant to the procedure for
book-entry transfer set forth below and a Book-Entry Confirmation must be
received by the Depositary (including an Agent's Message (as defined below), if
the tendering shareholder has not delivered a Letter of Transmittal), in each
case on or prior to the Expiration Date. Delivery of documents to a Book-Entry
Transfer Facility does not constitute delivery to the Depositary. Alternatively,
the tendering shareholder may comply with the guaranteed delivery procedure set
forth below. The term "Agent's Message" means a message transmitted by a
Book-Entry Transfer Facility to and received by the Depositary and forming a
part of a Book-Entry Confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgement from a participant in the
system established by such Book-Entry Transfer Facility tendering the Shares
which are the subject of such Book-Entry Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Purchaser may enforce such Letter of Transmittal against such
participant.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in a Book-Entry Transfer Facility's
system may make book-entry transfer of the Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account in
accordance with such Book-Entry Transfer Facility's procedure for such transfer.
Even if delivery of Shares is to be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal (or a manually signed
facsimile thereof) along with any required signature guarantees and any other
required documents, or an Agent's Message, must be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover page of
this Offer to Purchase on or prior to the Expiration Date, or the shareholder
must comply with the guaranteed delivery procedure set forth below.
SIGNATURE GUARANTEES. If the Letter of Transmittal is signed by the
registered holder of the Shares tendered therewith and payment is to be made
directly to such registered holder, or if Shares are tendered for the account of
an Eligible Institution, no signature guarantee is required. In all other cases,
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. If certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made or
certificates for Shares not accepted for payment or not tendered are to be
returned to a person other than the registered holder, then certificates must be
endorsed or
6
accompanied by appropriate stock powers, in either case signed exactly as the
name or the names of the registered owner or owners appear on certificates, with
the signature(s) on the certificates or stock powers guaranteed as aforesaid.
See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to
the Offer and such holder's certificates are not immediately available, or time
will not permit all required documents to reach the Depositary on or prior to
the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all of
the following conditions are met:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary as provided below by the Expiration Date; and
(iii) the certificates for all tendered Shares in proper form for
transfer (or a Book-Entry Confirmation), together with a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof) with any required signature guarantee and any other documents
required by the Letter of Transmittal, or an Agent's Message, are received
by the Depositary within three National Association of Securities Dealers,
Inc. Automated Quotation System trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or may be
transmitted by facsimile transmission, or by mail, to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
In all cases, payment for Shares tendered and purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of certificates
for such Shares (or a timely Book-Entry Confirmation), a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof) and
any other documents required by the Letter of Transmittal.
OTHER REQUIREMENTS. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of the Purchaser
as his proxies, in the manner set forth in the Letter of Transmittal, to the
full extent of such shareholder's rights with respect to the Shares tendered by
such shareholder and purchased by the Purchaser (and any and all other Shares
and other securities issued or issuable in respect thereof on or after June 15,
1996) prior to the time of any shareholder vote or other action. All such
proxies shall be irrevocable and coupled with an interest in the tendered
Shares. Such appointment will be effective when, and only to the extent that,
the Purchaser accepts such Shares for payment. Upon such appointment, all prior
proxies given by such shareholder with respect to such purchased Shares or other
securities will be revoked and no subsequent proxies may be given. The designees
of the Purchaser will, with respect to such Shares and other securities, be
empowered to exercise all voting and other rights of such shareholder as they,
in their sole discretion, may deem proper at any annual, special or adjourned
meeting of the Company's shareholders, by written consent or otherwise. The
Purchaser reserves the right to require that, in order for Shares to be validly
tendered, immediately upon the acceptance for payment of such Shares, the
Purchaser be able to exercise full voting and other rights of a record and
beneficial holder, including rights in respect of acting by written consent,
with respect to such Shares (and any and all other securities as set forth
above).
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING DELIVERY THROUGH A
BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
SHAREHOLDER. IF DELIVERY IS TO BE BY MAIL, INSURED REGISTERED MAIL, RETURN
RECEIPT REQUESTED IS RECOMMENDED. AMPLE TIME SHOULD BE ALLOWED FOR SUCH
DOCUMENTS TO REACH THE DEPOSITARY. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION
4, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
7
BACK-UP FEDERAL INCOME TAX WITHHOLDING. Under the federal income tax laws,
the Depositary will be required to withhold 31% of the amount of any payments
made to certain shareholders pursuant to the Offer. To prevent such backup
federal income tax withholding, each such shareholder must provide the
Depositary with his correct taxpayer identification number and certify that such
shareholder is not subject to such backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser and Varlen, in their sole
discretion, whose determination will be final and binding. The Purchaser and
Varlen reserve the absolute right to reject any or all tenders determined by
them not to be in proper form or the acceptance of or payment for which may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser and Varlen
also reserve the absolute right to waive any of the conditions of the Offer or
any defect in any tender with respect to any particular Shares or any particular
shareholder. No tender of Shares will be deemed to have been validly made until
all defects and irregularities relating thereto have been cured or waived. None
of Varlen, the Purchaser, the Dealer Manager, the Depositary or the Information
Agent will be obligated to give notice of any defects or irregularities in
tenders, nor shall any of them incur any liability for failure to give any such
notice. The Purchaser's and Varlen's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and instructions thereto) will
be final and binding.
5. CERTAIN INCOME TAX CONSEQUENCES. The receipt of cash for Shares
pursuant to the Offer or for Shares pursuant to the Merger will be taxable for
federal income tax purposes and may be taxable under applicable state, local,
foreign and other tax laws. The tax consequences of such receipt may vary
depending upon, among other things, the particular circumstances of the
shareholder. In general, a shareholder will recognize gain or loss equal to the
difference between the amount of cash received and his tax basis for his Shares.
Such gain or loss will generally be capital gain or loss provided that such
shareholder held his Shares as a capital asset, and will be long-term capital
gain or loss if, on the date of sale, such Shares were held for more than one
year. Otherwise, such gain or loss will be short-term capital gain or loss.
The foregoing may not be applicable to shareholders who acquired their
Shares pursuant to the exercise of employee stock options or otherwise as
compensation or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Internal Revenue Code
of 1986, as amended (such as life insurance companies, tax exempt entities and
regulated investment companies).
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISORS TO
DETERMINE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO SUCH
SHAREHOLDER, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
8
6. MARKET PRICES OF SHARES; DIVIDENDS. The Shares are traded in the
over-the-counter market, under the symbol "BREN." The Shares are quoted in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System ("NASDAQ") National Market System. The following table sets forth, for
the calendar periods shown, the range of high and low sales prices for the
Shares as quoted in the NASDAQ National Market System for such periods, in each
case as reported by published financial sources, and the cash dividend paid by
the Company for each such quarter. NASDAQ National Market System quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and do not necessarily reflect actual transactions.
QUARTERLY
HIGH LOW DIVIDEND
-------- -------- -----------
YEAR ENDED DECEMBER 31, 1994
1st Quarter................................. $12 1/2 $ 8 1/4 $ .05
2nd Quarter................................. 13 1/4 9 1/8 .05
3rd Quarter................................. 14 11 1/2 .06
4th Quarter................................. 13 1/4 11 1/4 .06
YEAR ENDED DECEMBER 31, 1995
1st Quarter................................. $13 $10 5/8 $ .06
2nd Quarter................................. 14 1/4 12 .07
3rd Quarter................................. 12 5/8 9 3/16 .07
4th Quarter................................. 12 10 1/8 .07
YEAR ENDING DECEMBER 31, 1996
1st Quarter................................. $12 13/16 $ 9 $ .07
2nd Quarter (through June 19, 1996)......... 16 1/4 12 1/8 --
On June 14, 1996, the last full day of trading prior to the announcement of
the Purchaser's intention to make the Offer, the last reported sale price for
the Shares, as reported in the NASDAQ National Market System, was $12.25 per
Share, according to published sources. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE SHARES.
7. CERTAIN EFFECTS OF THE OFFER. The purchase of Shares pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
may also be expected to reduce the number of holders of Shares. Such reductions
could adversely affect the liquidity and market value of the remaining Shares
held by the public.
NASDAQ QUOTATION. Depending on the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements of the NASD for
continued inclusion in the NASDAQ National Market System (the top tier market of
The NASDAQ Stock Market), which require that an issuer have at least 200,000
publicly held shares, held by at least 400 shareholders or 300 shareholders of
round lots, with a market value of $1,000,000, and have net tangible assets of
at least either $1,000,000, $2,000,000 or $4,000,000, depending on profitability
levels during the issuer's four most recent fiscal years. If these standards are
not met, the Shares might nevertheless continue to be included in the NASD's
NASDAQ Stock Market, with quotations published in the NASDAQ "additional list"
or in one of the "local lists", but if the number of holders of the Shares were
to fall below 300, or if the number of publicly held Shares were to fall below
100,000 or there were not at least two registered and active market makers for
the Shares, the NASD's rules provide that the Shares would no longer be
"qualified" for NASDAQ reporting and NASDAQ would cease to provide any
quotations. Shares held directly or indirectly by directors, officers or
beneficial owners of more than 10% of the Shares are not considered as being
publicly held for this purpose. If, as a result of the purchase of Shares
pursuant to the Offer, the Shares no longer meet the requirements of the NASD
for continued inclusion in The NASDAQ Stock Market or the NASDAQ National Market
System, as the case may be, the market for Shares could be adversely affected.
In the event that the Shares no longer meet the requirements of the NASD for
quotation through NASDAQ and the Shares are no longer included in The NASDAQ
Stock Market, it is possible that the Shares would continue to trade in the
over-the-counter market and that price quotations would be
9
reported by other sources. The extent of the public market for the Shares and
the availability of such quotations would, however, depend upon the number of
holders of Shares remaining at such time, the interests in maintaining a market
in Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act, as described below, and other
factors. The Purchaser has been advised by the Company that, as of June 15,
1996, there were approximately 1,951 record holders of Shares.
EXCHANGE ACT REGISTRATION. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Company to the Securities and Exchange Commission (the "Commission") if the
Shares are not listed on a national securities exchange and there are fewer than
300 record holders of Shares. Termination of registration of the Shares under
the Exchange Act would substantially reduce the information required to be
furnished by the Company to its shareholders and the Commission and would make
certain provisions of the Exchange Act (such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with shareholders' meetings pursuant to
Section 14(a) or (c) and the related requirement of an annual report) no longer
applicable to the Company. Furthermore, the ability of "affiliates" of the
Company and persons holding "restricted securities" of the Company to dispose of
such securities pursuant to Rule 144 or Rule 144A promulgated under the
Securities Act of 1933, as amended, may be impaired or, with respect to certain
persons, eliminated. If, as a result of purchases pursuant to the Offer or
otherwise, the Company is no longer required to maintain registration of the
Shares under the Exchange Act, the Purchaser intends to cause the Company to
apply for termination of such registration. See Section 11.
MARGIN REGULATIONS. The Shares are presently "margin securities" under the
rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities for the purpose of buying,
carrying or trading in securities ("Purpose Loans"). In the event that the
Shares were no longer quoted in the NASDAQ National Market System (which depends
on factors such as the number of holders of the Shares and the number and market
value of publicly-held Shares (see NASDAQ QUOTATION above)), the Shares would no
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for Purpose Loans made by brokers. In addition, if registration of the Shares
under the Exchange Act were terminated, the Shares would no longer constitute
"margin securities."
RULE 13E-3. The Commission has adopted Rule 13e-3 under the Exchange Act,
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger or other transactions
following the purchase of Shares pursuant to the Offer in which the Purchaser
seeks to acquire the remaining shares not held by it. However, Rule 13e-3 would
be inapplicable if (i) the Shares are deregistered under the Exchange Act prior
to the Merger or other transactions or (ii) the Merger or another business
combination is consummated within one year after the purchase of the Shares
pursuant to the Offer and the amount paid per Share for each class of Share in
the Merger or other business combination is at least equal to the amount paid
per Share for such class of Share in the Offer. If applicable, Rule 13e-3
requires, among other things, that certain financial information concerning the
fairness of the proposed transaction and the consideration offered to minority
shareholders in such transaction be filed with the Commission and disclosed to
shareholders prior to the consummation of the transaction.
8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Virginia
corporation with its principal executive offices located at One Park West
Circle, Midlothian, Virginia 23113, telephone (804) 794-1436. According to
information filed by the Company with the Commission, the Company is primarily
engaged in the manufacture, sale and servicing of roller bearings; the
manufacture and sale of automotive forgings; the provision of third party
railcar switching services; and the operation of short-line railroads.
10
Set forth below is a summary of certain selected financial information with
respect to the Company and its subsidiaries for the fiscal years ended December
31, 1995, December 31, 1994 and December 31, 1993 and for the three-month
periods ended March 31, 1996 and March 31, 1995, which has been excerpted or
derived from the audited consolidated financial statements contained in the
Company's Annual Reports on Form 10-K for the fiscal years ended December 31,
1995 and December 31, 1994, and from unaudited consolidated financial statements
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996. More comprehensive financial information is included in such
reports and other documents filed by the Company with the Commission, and the
following summary is qualified in its entirety by reference to such documents
and all of the financial statements and related notes contained therein.
BRENCO, INCORPORATED
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------
1996 1995 1995 1994 1993
--------- --------- ----------- ----------- ---------
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales......................................... $ 32,875 $ 35,232 $ 127,139 $ 117,897 $ 98,724
Costs and expenses................................ 28,825 29,224 110,177 102,727 89,413
Interest expense.................................. 178 214 723 799 741
Income before income taxes........................ 4,123 5,979 16,909 14,555 6,893
Net income........................................ 2,571 3,640 10,660 8,802 4,241
Earnings per share:
Net income per share............................ .25 .36 1.05 .88 .43
Average shares outstanding...................... 10,189 10,102 10,135 10,050 9,942
BALANCE SHEET DATA:
Current assets.................................... $ 56,780 $ 49,171 $ 49,520 $ 41,968 $ 36,900
Total assets...................................... 93,041 84,743 86,278 76,569 69,629
Current liabilities............................... 11,962 12,297 8,438 7,530 8,312
Long-term debt.................................... 8,184 9,540 8,212 9,567 10,000
Shareholders' equity.............................. 66,134 58,777 63,999 55,498 48,289
CERTAIN COMPANY PROJECTIONS. Prior to entering into the Acquisition
Agreement, Varlen conducted a due diligence review of the Company and in
connection with such review received certain non-public business and financial
information from the Company including summary business plans comprised of
income, balance sheet and cash flow statements, financial plans and certain
historical data detailing sales, costs and expenses and balance sheet data.
Certain projected information included in the non-public business and financial
records of the Company included that (i) net sales for the Company for the
fiscal years ending December 31, 1996 through 1998 would be approximately $125
million, $124 million and $130 million, respectively and (ii) net income for the
Company for the fiscal years ending December 31, 1996 through 1998 would be
approximately $9.6 million, $9.7 million and $10.3 million, respectively. None
of the assumptions which form the basis for the projected information give
effect to the Offer, the Merger or the financing thereof or the potential
combined operations of Varlen and the Company after consummation of such
transactions.
THE COMPANY HAS ADVISED THAT THE ABOVE PROJECTIONS AND FORECASTS WERE
PREPARED FOR INTERNAL PURPOSES ONLY, WERE NOT PREPARED WITH A VIEW TO COMPLIANCE
WITH THE COMMISSION'S PUBLISHED GUIDELINES FOR DISCLOSURE OF FORWARD-LOOKING
INFORMATION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS REGARDING PROJECTIONS, AND WERE NOT INTENDED FOR PUBLIC
DISSEMINATION. THE FOREGOING PROJECTIONS AND FORECASTS ARE NECESSARILY BASED ON
ASSUMPTIONS AS TO FACTS WHICH ARE NOT WITHIN THE COMPANY'S CONTROL. NO ASSURANCE
CAN BE GIVEN THAT SUCH PROJECTIONS OR FORECASTS WILL PROVE TO BE
11
ACCURATE TO ANY EXTENT AND NONE OF VARLEN, THE PURCHASER, THE COMPANY OR ANY OF
THEIR RESPECTIVE ADVISORS OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION
ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF SUCH PROJECTIONS OR FORECASTS.
VARLEN AND THE PURCHASER HAVE INCLUDED SUCH PROJECTIONS AND FORECASTS HEREIN
ONLY BECAUSE VARLEN WAS PROVIDED THEM PRIOR TO THE EXECUTION OF THE ACQUISITION
AGREEMENT. ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, THESE PROJECTIONS AND
FORECASTS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF
THE COMPANY WHICH MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS AND FORECASTS SET FORTH
ABOVE WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN.
THE PROJECTIONS AND FORECASTS HAVE NOT BEEN EXAMINED OR COMPILED BY THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. THE INCLUSION OF SUCH PROJECTIONS AND
FORECASTS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT VARLEN, THE
PURCHASER, THE COMPANY, ANY OF THEIR RESPECTIVE ADVISORS OR ANY OTHER PARTY WHO
RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS.
Except where otherwise stated, the information concerning the Company
contained in this Offer to Purchase or incorporated herein by reference has been
taken from or based upon publicly-available documents and records on file with
the Commission and other public sources or was provided by the Company. Although
the Purchaser has no knowledge that would indicate that any statements contained
herein based on such documents and records are untrue, neither Varlen nor the
Purchaser can take responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information which are unknown to Varlen or
the Purchaser.
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the Company's
business, principal physical properties, capital structure, material pending
legal proceedings, operating results, financial condition, the Company's
directors and officers, their remuneration, stock options and restricted stock
granted to them, the principal holders of the Company's securities, any material
interests of such persons in transactions with the Company and other matters, is
required to be disclosed in proxy statements and annual reports distributed to
the Company's shareholders and filed with the Commission. Such reports, proxy
statements and other information may be inspected at the Commission's public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies may be
obtained, by mail, for prescribed rates from the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such information
should also be available for inspection at the offices of NASDAQ Operations,
1735 K Street, N.W., Washington, D.C. 20006.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND VARLEN. The Purchaser
is a newly incorporated Virginia corporation and a wholly owned subsidiary of
Varlen. To date, the Purchaser has engaged in no activities other than those in
connection with the Offer. The principal executive offices of the Purchaser and
Varlen are located at 55 Shuman Boulevard, P.O. Box 3089, Naperville, Illinois,
60566-7089, telephone (708) 420-0400.
The name, business address, citizenship, present principal employment or
occupation and employment history for the past five years of each of the
directors and executive officers of the Purchaser and Varlen are set forth in
Schedule A to this Offer to Purchase.
Varlen, a Delaware corporation, was formed in 1969. Varlen is a manufacturer
of (i) aluminum permanent mold and die castings and structural molded plastic
components for trucks and trailers; (ii) components for railcars and
locomotives; (iii) remanufactured crankshafts and camshafts and railroad track
fastener systems; (iv) automatic transmission reaction plates, steering column
and
12
transmission components, seat frame brackets and precision stamped metal
components and weldments for cars and light trucks; and (v) instruments to
improve yield, certify products and monitor regulatory standards for petroleum
products.
Except as set forth in this paragraph or elsewhere in this Offer to
Purchase, and except for 460,000 shares beneficially owned by a subsidiary of
Varlen, neither the Purchaser nor Varlen nor, to the best of their knowledge,
any of the persons listed in Schedule A hereto nor any associate or majority
owned subsidiary of any of the foregoing, beneficially owns or has a right to
acquire any equity securities of the Company and neither the Purchaser nor
Varlen nor, to the best of their knowledge, any of the persons or entities
referred to above, nor any director, executive officer or subsidiary of any of
the foregoing, has effected any transaction in such equity securities during the
past 60 days.
Except as set forth in this Offer to Purchase, neither the Purchaser nor
Varlen nor, to the best of the knowledge of Varlen and the Purchaser, any of the
persons listed in Schedule A hereto, has any contract, arrangement,
understanding or relationship (whether or not legally enforceable) with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any of such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies. Except as set forth in this Offer
to Purchase, there have been no contacts, negotiations or transactions which
have occurred since January 1, 1993, between Varlen, the Purchaser, or any of
Varlen's other subsidiaries or, to the best of the knowledge of Varlen and the
Purchaser, any of the persons listed in Schedule A hereto, on the one hand, and
the Company or its affiliates, on the other hand, concerning: a merger,
consolidation or acquisition; a tender offer or other acquisition of securities;
an election of directors; or a sale or other transfer of a material amount of
assets. Except as described in this Offer to Purchase, neither the Purchaser nor
Varlen nor, to the best of the knowledge of Varlen and the Purchaser, any of the
persons listed in Schedule A hereto, has since January 1, 1993 had any
transaction with the Company or any of its executive officers, directors or
affiliates which would require disclosure under the rules and regulations of the
Commission applicable to the Offer.
Except as set forth in this Offer to Purchase, during the last five years,
neither the Purchaser nor Varlen nor, to the best of the knowledge of Varlen and
the Purchaser, any of the persons listed on Schedule A (i) has been convicted in
a criminal proceeding (excluding traffic violations and similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, Federal or state securities laws or finding any violation
of such laws.
Until immediately prior to the time the Purchaser purchases the Shares
pursuant to the Offer, it is not anticipated that the Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer. Because the Purchaser is a newly formed corporation and has
minimal assets and capitalization, no meaningful financial information regarding
the Purchaser is available.
Varlen is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information, as of particular dates,
concerning Varlen's business, principal physical properties, capital structure,
material pending legal proceedings, operating results, financial condition,
directors and executive officers, their remuneration, stock options granted to
them, the principal holders of Varlen's securities and any material interest of
such persons in transactions with Varlen and other matters is required to be
disclosed in proxy statements and annual reports distributed to Varlen's
stockholders and filed with the Commission. Such reports, proxy statements and
other information may be examined, and copies
13
may be obtained from the Commission in the same manner set forth in Section 8
with respect to information concerning the Company. Such information should also
be available for inspection at the offices of the NASDAQ Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Set forth below is a summary of certain selected financial information of
Varlen and its subsidiaries for the fiscal years ended January 31, 1996, January
31, 1995 and January 31, 1994 and for the three-month periods ended May 4, 1996
and April 29, 1995, which has been excerpted or derived from the audited
consolidated financial statements contained in Varlen's Annual Report on Form
10-K for the fiscal years ended January 31, 1996 and January 31, 1995 and from
unaudited financial information contained in the Company's Quarterly Report on
Form 10-Q for the quarter ended May 4, 1996. More comprehensive financial
information is included in such reports and other documents filed by Varlen with
the Commission, and the following summary is qualified in its entirety by
reference to such document and all of the financial statements and related notes
contained therein.
VARLEN CORPORATION
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
------------------------ FISCAL YEAR ENDED JANUARY 31,
APRIL 29, -------------------------------------
MAY, 4 1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
INCOME STATEMENT DATA:
Net sales..................................... $ 91,975 $ 106,969 $ 386,987 $ 341,521 $ 291,908
Cost of sales................................. 68,178 79,611 290,052 260,469 221,988
Selling, general and administrative
expenses..................................... 14,254 15,289 57,762 50,436 45,087
Interest expense, net......................... 1,053 1,173 4,467 4,762 6,110
Income before income taxes.................... 8,490 10,896 34,706 25,854 18,723
Net earnings.................................. 4,822 6,156 19,609 14,762 10,766
Earnings per share*:
Primary earnings per share.................. .79 1.01 3.19 2.44 1.80
Fully diluted earnings per share............ .60 .75 2.43 1.92 1.57
Average shares outstanding*:
Primary..................................... 6,095 6,101 6,141 6,064 5,986
Fully diluted............................... 9,159 9,166 9,199 9,136 8,062
BALANCE SHEET DATA:
Current assets................................ $ 112,008 $ 119,118 $ 111,514 $ 111,535 $ 84,575
Total assets.................................. 234,123 232,214 230,874 220,186 186,264
Current liabilities........................... 44,201 57,734 44,470 53,822 35,529
Long-term debt................................ 73,403 72,790 73,398 72,788 72,698
Shareholders' equity.......................... 101,399 86,766 97,953 79,031 63,644
- ------------------------
*Amounts prior to May 4, 1996 have been restated for a 10% stock dividend
declared on May 29, 1996 and payable on July 15, 1996.
10. BACKGROUND OF THE OFFER. 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 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
14
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.
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.
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.
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, Mr. Whitfield and others
to determine what financial and operating data was available to begin his
inquiries.
On April 10, 1996, Messrs. Wellek, Jean, Hoffman, Thomas A. 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, Mr. Nunemaker and Stephen E. Obendorf, met with Mr.
Feichtner and others to further discuss and review financial and operating data
of the Company. On the same date, 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.
15
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.
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, which was done the following week. 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.
At the June 13, 1996 Varlen Board of Directors' meeting, the Board of
Directors was updated on the status of negotiations relating to the Offer and
the proposed terms of the relevant agreements. 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. The
Board of Directors then approved the Acquisition Agreement and the Shareholder
Tender Agreement.
The negotiations culminated in the execution of the Acquisition Agreement
and the Shareholder Tender Agreement on Saturday, June 15, 1996. On June 17,
1996, Varlen and the Company, in a joint press release, announced Varlen's
intention to commence the Offer.
11. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; THE
ACQUISITION AGREEMENT AND SHAREHOLDER TENDER AGREEMENT.
PURPOSE OF THE OFFER AND THE MERGER
The purpose of the Offer is to facilitate the acquisition of all of the
outstanding Shares and thereby to enable the Purchaser to acquire control of,
and the entire equity interest in, the Company. The purpose of the Merger is to
acquire all outstanding Shares not tendered and purchased pursuant to the Offer
or acquired pursuant to the Shareholder Tender Agreement. The Offer is being
made pursuant to the Acquisition Agreement.
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 shares which, at the record date fixed to 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
16
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.
There can be no assurance that the Merger will be consummated, inasmuch as
the Merger is subject to various conditions, some of which are beyond the
control of Varlen, the Purchaser and the Company. See Section 13. In the event
that, for any reason, the Merger does not occur, depending on the results of the
Offer, Varlen and the Purchaser intend to consider the desirability of acquiring
either additional Shares or the entire remaining equity interest in the Company.
If Varlen and/or the Purchaser determine to do either, any such future
transaction or transactions might be by means of a merger, share exchange,
reverse stock split, open market or privately-negotiated purchases, one or more
additional tender offers, exchange offers or otherwise. Such transactions might
involve the exchange of Shares for cash, securities of the Company, Varlen, the
Purchaser or a subsidiary of any of the foregoing, or some combination of cash
and securities, and may be on terms and at prices more or less favorable than
those of the Offer. Moreover, the decision to enter into such future
transactions and the forms they might take will depend on the circumstances then
existing, including the financial resources of Varlen and the Purchaser and
Varlen's business, tax and accounting objectives, performance of the Shares in
the market, availability and alternative uses of funds, money market and stock
market conditions, general economic conditions, and other factors. Varlen and/or
the Purchaser may enter into one or more such transactions whether or not the
Purchaser purchases Shares pursuant to the Offer. Varlen and/or the Purchaser
may also engage in certain of such transactions during the period following
expiration of the Offer and prior to the Merger.
PLANS FOR THE COMPANY
As described in this Offer to Purchase, Varlen and the Purchaser have made
proposals which would, if completed, result in a merger of the Company, changes
in its board of directors, the termination of quotations for the Company's stock
on NASDAQ and the termination of the registration of the Company's stock under
the Exchange Act. At present Varlen and the Purchaser do not have any plans for
any material sale of the Company's assets, changes in capitalization or dividend
policy, or other changes in the Company's corporate structure or business. After
consummation of the Merger, Varlen will continue to review the business and
operations of the Company and, based on such review, may effect the acquisition
or disposition of assets or other changes in the Company's business, corporate
structure, capitalization, management or dividend policy which it considers
appropriate or desirable. Varlen has not yet determined what specific actions,
if any, it may take with respect to the Company.
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
17
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, the expiration or termination of all
waiting periods under the HSR Act and the other conditions described in Section
13. 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 in Section 13) 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, the Company or any direct or indirect subsidiary of
Varlen, the Purchaser or the Company, 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 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 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:
18
(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 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
19
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 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 confidential
information, non-disclosure, non-use and standstill agreements 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.
20
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 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.
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 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:
21
(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;
(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
22
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) of Section 13 of this
Offer to Purchase, (ii) paragraph (c) of Section 13 of this Offer to Purchase
(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) of Section 13 of this Offer to Purchase, 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.
SHAREHOLDER TENDER AGREEMENT
TENDER OF TENDERING SHAREHOLDER SHARES. Varlen and the Tendering
Shareholders have entered into the Shareholder Tender Agreement, which 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.
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,
23
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.
GENERAL. The preceding descriptions of the terms and provisions of the
Acquisition Agreement and the Shareholder Tender Agreement are qualified in
their entirety by reference to the texts of such agreements, which are exhibits
to the Tender Offer Statement on Schedule 14D-1 filed by the Purchaser and
Varlen with the Commission and is available for inspection and copying at the
principal office of the Commission in the manner set forth in Section 9.
12. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the
Purchaser to purchase all presently outstanding Shares pursuant to the Offer and
the Merger and to pay related fees and expenses is estimated to be approximately
$165 million. Such funds will be obtained by the Purchaser or provided by Varlen
or one or more of its subsidiaries to the Purchaser from available cash on hand
and pursuant to a $190 million credit facility (the "Credit Facility") to be
provided by The First National Bank of Chicago (the "Agent Bank") and other
banks and financial institutions who may become party thereto (collectively with
the Agent Bank, the "Banks"), the identity of which has not yet been determined.
The Credit Facility will be comprised of a term loan commitment (the "Facility A
Commitment") in the aggregate principal amount of approximately $135 million to
be provided to the Purchaser, and a revolving credit/letter of credit facility
(the "Facility B Commitment") in the aggregate principal amount of approximately
$55 million to be provided to Varlen, the Purchaser and/or any other wholly
owned subsidiary of Varlen who may satisfy the conditions to becoming a
"Borrowing Subsidiary" under the applicable credit agreement (Varlen, the
Purchaser and each such other subsidiary, in such capacity, the "Borrowers").
The Facility A Commitment and the revolving credit portion of the Facility B
Commitment will bear interest, at the Borrower's option from time to time, at a
rate equal to either the "Alternate Base Rate," the "Eurocurrency Rate" or the
"Fixed CD Rate," in each case plus a spread based on Varlen's Leverage Ratio."
The "Alternate Base Rate" for any day will mean the greater of (i) the rate of
interest announced by the Agent Bank as its "Corporate Base Rate" for such day
or (ii) the "Federal Funds Effective Rate" in effect on such day plus .50% per
annum, changing as and when such Corporate Base Rate or Federal Funds Effective
Rate changes. "Eurocurrency Rate" generally will mean the rate for dollar
deposits appearing on Telerate Page 3750, as adjusted for maximum statutory
reserves. The "Fixed CD Rate" generally will mean the rate determined by the
Agent Bank based on the average of the prevailing bid rates on the borrowing
date for the purchase of certificates of deposit of the Agent Bank, adjusted for
maximum Federal Reserve Board reserve requirements and the Federal Deposit
Insurance Corporation assessment rate. The Credit Facility will provide for
customary provisions relating to yield protection, availability and capital
adequacy.
The Credit Facility will provide for the payment by Varlen of certain fees
including a (i) commitment fee at a rate ranging from .175% to .375% per annum
based on the average daily unused portion of the Facility A Commitment and the
Facility B Commitment and (ii) certain letter of credit fees ranging from .50%
to 1.25% per annum based on the undrawn stated amount of each letter of credit,
a letter of credit fronting fee of 0.15% of the face amount of each standby
letter of credit and customary fees in connection with commercial letters of
credit and performance letters of credit.
The Credit Facility will have customary conditions to borrowing,
representations and warranties, covenants and events of default. Without
limiting the generality of the foregoing, the Lenders obligation to fund shall
be conditioned upon the satisfaction of the Minimum Condition.
24
Each of Varlen and its domestic subsidiaries (including the Purchaser and,
upon consummation of the Offer or the Merger, the Company) will unconditionally
guarantee the indebtedness, obligations and liabilities of the Borrowers under
the Credit Facility.
The commitment of the Banks under the Credit Facility will expire on the
sixth anniversary of the date of the closing of the Credit Facility, subject to
certain extension provisions. It is anticipated that borrowings under the Credit
Facility will be repaid from funds generated internally by Varlen and its
subsidiaries (including the Company) and from other sources, which may include
other bank financings.
THE OFFER IS NOT SUBJECT TO A FINANCING CONDITION.
13. CERTAIN CONDITIONS OF THE OFFER AND THE MERGER. 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
the Acquisition Agreement, which for purposes of this section of the Offer to
Purchase includes the same as it may be modified, amended, supplemented and/or
restated from time to time) 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 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"), or 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 the provisions of the
Acquisition Agreement summarized in the third paragraph of "The Acquisition
Agreement -- The Offer and Merger" in Section 11 of this Offer to Purchase,
or (y) adopted any resolution to do so, or (ii) the opinion of Virginia
counsel to the Company received by the Company pursuant to the Acquisition
Agreement (which opinion relates to the actions of the Board of Directors of
the Company described in the foregoing clause (i)) 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 taken in
accordance with the provisions of the Acquisition Agreement summarized in
the third paragraph of "The Acquisition Agreement -- The Offer and Merger"
in Section 11 of this Offer to Purchase 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
25
(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 the Tendering 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 Tendering 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, 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 affiilate 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;
(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, 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;
(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 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
26
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 its 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 this Section 13,
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.
14. DIVIDENDS AND DISTRIBUTIONS. If, on or after June 15, 1996, the
Company should (i) split, combine or otherwise change the Shares or the
Company's capitalization, (ii) issue or sell any additional securities of the
Company or otherwise cause an increase in the number of outstanding securities
of the Company (except for Shares issuable upon the exercise of employee stock
options outstanding on the date of the Acquisition Agreement), (iii) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares, or (iv) disclose that it has taken any such action, then,
without prejudice to Purchaser's rights under Sections 1 and 13, the Purchaser
may, in its sole discretion, make such adjustments as it deems appropriate to
reflect such split, combination or other change in the purchase price and the
other terms of the Offer or the Merger (including, without limitation, the
number and type of securities offered to be purchased, the amounts payable
therefor and the fees payable hereunder).
Except for regular quarterly cash dividends paid by the Company on its
Shares in an amount not in excess of $.07 per Share on the Shares, if, on or
after June 15, 1996, the Company should declare or
27
pay any cash or stock dividend or other distribution or issue any rights with
respect to the Shares, payable or distributable to shareholders of record on a
date prior to the transfer to the name of the Purchaser or its nominee or
transferee on the Company's stock transfer records of the Shares accepted for
payment pursuant to the Offer, then, without prejudice to the Purchaser's rights
under Sections 1 and 13 and without limiting the rights of the Purchaser
described in the preceding paragraph of this Section 14, any such dividend,
distribution or right to be received by the tendering shareholders will be
received and held by the tendering shareholder for the account of the Purchaser
and will be required to be promptly remitted and transferred by each tendering
shareholder to the Depositary for the account of Purchaser, accompanied by
appropriate documentation and transfer. Pending such remittance, the Purchaser
will be entitled to all rights and privileges as owner of any such dividend,
distribution or right and may withhold the entire purchase price or deduct from
the purchase price the amount or value thereof, as determined by the Purchaser
in its sole discretion.
15. CERTAIN LEGAL MATTERS. Except as set forth in this Section 15, based
on a review of publicly available filings by the Company with the Commission and
other information concerning the Company provided to Varlen, the Purchaser is
not aware of any license or other regulatory permit which appears to be material
to the business of the Company and that might be adversely affected by the
Purchaser's acquisition of Shares pursuant to the Offer (and the indirect
acquisition of the stock of the Company's subsidiaries), or of any approval or
other action by any domestic or foreign governmental or administrative agency
that would be required prior to the acquisition of Shares by the Purchaser
pursuant to the Offer. Should any such approval or other action be required, it
is the Purchaser's present intention that such additional approval or action
would be sought. While the Purchaser does not presently intend to delay the
purchase of Shares tendered pursuant to the Offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Company's or Varlen's business, or that certain parts of the Company's or
Varlen's business might not be required to be disposed of or held separate or
other substantial conditions complied with in order to obtain such approval or
action or in the event that such approvals were not obtained or such actions
were not taken. The Purchaser's obligation to purchase and pay for Shares is
subject to certain conditions relating to the legal matters discussed in this
Section 15. See Section 13.
ANTITRUST. Under the HSR Act, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission ("FTC") and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer and the Acquisition
Agreement is subject to such requirements. On June 20, 1996, Varlen filed with
the Antitrust Division and the FTC a Notification and Report Form with respect
to the Offer and the Merger.
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares pursuant to the Offer may not be consummated prior to the expiration of a
15-calendar day waiting period following the filing by Varlen, unless earlier
terminated. Accordingly, as such filing was made on June 20, 1996, the waiting
period which is applicable to the Offer will expire at 11:59 p.m., New York City
time, on July 5, 1996, unless Varlen receives a request from either the FTC or
the Antitrust Division for additional information or documentary material, or
the Antitrust Division and the FTC terminate the waiting period prior thereto.
If, within such 15-day waiting period either the Antitrust Division or the FTC
requests additional information or material from Varlen concerning the Offer,
the waiting period will be extended and would expire at 11:59 p.m., New York
City time, on the tenth calendar day after the date of substantial compliance by
Varlen with such request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the rules promulgated under
the HSR Act. Thereafter, the waiting period could be extended only by court
order or with the consent of the Purchaser. The additional 10-calendar-day
waiting period may be terminated sooner by the FTC or the Antitrust Division. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Antitrust Division or
28
the FTC raises substantive issues in connection with a proposed transaction, the
parties frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Although the
Company is required to file certain information and documentary material with
the Antitrust Division and the FTC in connection with the Offer and the Merger,
neither the Company's failure to make such filings nor a request made to the
Company from the Antitrust Division or the FTC for additional information or
documentary material will extend the Offer period with respect to the purchase
of Shares pursuant to the Offer and the Acquisition Agreement. The Purchaser
will not accept for payment Shares tendered pursuant to the Offer unless and
until the waiting period requirements imposed by the HSR Act with respect to the
Offer have been satisfied. See Section 13.
If the acquisition of Shares is delayed pursuant to a request by the FTC or
the Antitrust Division for additional information or documentary material
pursuant to the HSR Act, the Offer may, at the discretion of the Purchaser, be
extended and, in any event, the purchase of and payment for Shares will be
deferred until ten days after the request is substantially complied with by
Varlen, unless the ten-day extended period expires on or before the date when
the initial waiting period would otherwise have expired or unless the waiting
period is sooner terminated by the FTC and the Antitrust Division. See Section
2. Unless the Offer is extended, any extension of the waiting period will not
give rise to any additional withdrawal rights. See Section 3.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer and the Merger. At any time before or after the
Purchaser's purchase of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as either deems necessary or desirable in
the public interest, including seeking to enjoin the purchase of Shares pursuant
to the Offer and the Merger or seeking divestiture of Shares purchased
thereunder or the divestiture of assets of the Company, the Purchaser, Varlen or
any of their respective subsidiaries or affiliates. Private parties as well as
state attorneys general may also bring legal actions under the antitrust laws
under certain circumstances. If any such action by the FTC, the Antitrust
Division or any other person should be instituted, the Purchaser could decline
to accept for payment any Shares tendered. See Section 13 for certain conditions
to the Offer. Based upon an examination of information relating to the
businesses in which Varlen and the Company are engaged, Varlen believes that the
consummation of the Offer would not violate any antitrust laws. However, there
can be no assurance that a challenge to the Offer on antitrust grounds will not
be made or, if a challenge is made, what the result will be.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
STATE TAKEOVER LAWS
The Company is incorporated under the laws of the State of Virginia. The
following is a summary of certain provisions of the Virginia Act which are
applicable to the Offer.
SHAREHOLDER VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTIONS. Section 13.1-718
of the Virginia Act provides that, except for certain parent-subsidiary mergers
(see "Introduction" above), certain significant corporate actions must be
approved by a vote of more than two-thirds of the votes entitled to be cast on
the matter unless the corporation's articles of incorporation specify a higher
or lower vote. These matters include mergers (with certain exceptions), share
exchanges, sales of all or substantially all of a corporation's assets,
dissolutions and amendments to a corporation's articles of incorporation
("Fundamental Actions"). The Company's Charter currently provides that the vote
required to approve certain Fundamental Actions constituting a "business
combination" (as defined therein) with a beneficial owner of 10% or more of the
Shares is 75% of the Shares. See "The Acquisition Agreement -- The Offer and
Merger" in Section 11 above.
29
AFFILIATED TRANSACTIONS STATUTE. Article 14 of the Virginia Act (the
"Affiliated Transactions Statute") generally prohibits a publicly held Virginia
corporation from engaging in an "affiliated transaction" with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless (i) a majority of
disinterested directors approved in advance the transaction in which the
interested shareholder became an interested shareholder or (ii) the affiliated
transaction is approved by the affirmative vote of a majority of the
disinterested directors and the holders of two-thirds of the voting shares other
than the shares beneficially owned by the interested shareholder. A corporation
may engage in an affiliated transaction with an interested shareholder beginning
three years after the date of the transaction in which the person became an
interested shareholder, if the transaction is approved by a majority of the
disinterested directors or by two-thirds of the disinterested shareholders or if
it complies with certain statutory fair price provisions.
Subject to certain exceptions, under the Virginia Act an "interested
shareholder" is a person who, together with affiliates and associates,
beneficially owns 10% or more of the corporation's outstanding voting
securities. "Affiliated transactions" include (i) any merger or share exchange
with an interested shareholder; (ii) the transfer to any interested shareholder
of corporate assets with a fair market value greater than 5% of the
corporation's consolidated net worth; (iii) the issuance to any interested
shareholder of voting shares with a fair market value greater than 5% of the
fair market value of all outstanding voting shares of the corporation; (iv) any
reclassification of securities or corporate reorganization that will have the
effect of increasing by 5% or more the percentage of the corporation's
outstanding voting shares held by any interested shareholder; and (v) any plan
or proposal for dissolution of the corporation proposed by or on behalf of any
interested shareholder.
Under certain circumstances, the Affiliated Transactions Statute may make it
more difficult for an interested shareholder to effect various transactions with
the Company, after the consummation of the Merger. These provisions may have the
effect of preventing changes in management and possibly making it more difficult
to accomplish transactions which shareholders may otherwise deem to be in their
best interests.
CONTROL SHARE ACQUISITIONS STATUTE. Article 14.1 of the Virginia Act (the
"Control Share Acquisitions Statute") provides that shares of a publicly held
Virginia corporation that are acquired in a "control share acquisition"
generally will have no voting rights unless such rights are conferred on those
shares by the vote of a majority of all the outstanding shares other than
interested shares. A control share acquisition is defined, with certain
exceptions, as the acquisition of the beneficial ownership of voting shares
which would cause the acquirer to have voting power within the following ranges
or to move upward from one range into another: (i) 20% to 33 1/3%; (ii) 33 1/3%
to 50%; or (iii) more than 50%, of such votes.
The foregoing summary of the provisions of the Virginia Act does not purport
to be complete and is qualified in its entirety by reference to the provisions
of the Virginia Act.
The Board of Directors of the Company has approved the Offer and the Merger
and recommended acceptance of the Offer by holders of Shares and approval (if
required by the Virginia Act) by holders of Shares. The Board of Directors of
the Company has also taken actions to exempt Varlen, the Purchaser, their
respective direct and indirect subsidiaries and the Offer and the Merger from
the restrictions and provisions of the Affiliated Transactions Statute and
Control Share Acquisitions Statute as well as from the super-majority
shareholder vote provisions of Article I of the Company's Charter. In addition,
in connection with Section 13.1-730 (DISSENTER'S RIGHTS) of the Virginia Act,
the Board of Directors of the Company has approved the Merger by a majority of
"disinterested directors" (as defined in Section 13.1-725 of the Virginia Act).
See Section 11.
In 1995, in WLR FOODS, INC. V. TYSON FOODS INC., the United States Court of
Appeals for the Fourth Circuit ruled that four Virginia anti-takeover statutes,
including the Affiliated Transactions Statute, the Control Share Acquisitions
Statute, the "poison pill statute" and the "business judgment statute" contained
in the Virginia Act are not preempted by applicable federal securities law, are
constitutional and, even though the statutes favor incumbent management over
bidders, do not impermissibly restrict the ability of a bidder to take over a
Virginia corporation.
30
A number of states have adopted takeover laws which purport, to varying
degrees, to be applicable to attempts to acquire securities of corporations
which are incorporated in such states or which have substantial assets, security
holders, principal executive offices or principal places of business therein. To
the extent that certain provisions of certain of these state takeover statutes
purport to apply to the Offer or the Merger, the Purchaser believes that such
laws conflict with federal law and constitute an unconstitutional burden on
interstate commerce. In 1982, the Supreme Court of the United States, in EDGAR
V. MITE CORP., held that the Illinois Business Takeovers Statute, which as a
matter of state securities law, made takeovers of corporations meeting certain
requirements more difficult, imposed a substantial burden on interstate commerce
and therefore was unconstitutional. In 1987, however, in CTS CORP. V. DYNAMICS
CORP. OF AMERICA, the Supreme Court of the United States held that the State of
Indiana could, as a matter of corporate law and, in particular, those aspects of
corporate law concerning corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
the prior approval of the remaining shareholders, provided that such laws were
applicable only under certain conditions. The state law before the Supreme Court
was by its terms applicable only to corporations that had a substantial number
of stockholders in the state and were incorporated therein. Subsequently, a
number of Federal courts ruled that various state takeover statutes were
unconstitutional insofar as they apply to corporations incorporated outside the
state of enactment.
Except as described herein, the Purchaser does not know whether the Offer is
subject to any state takeover statutes and neither Varlen nor the Purchaser has
attempted to comply with any state takeover statutes in connection with the
Offer. Should any person seek to apply any such statute to the Offer, Varlen and
the Purchaser reserve the right to challenge the validity or applicability of
any state law allegedly applicable to the Offer and nothing in this Offer to
Purchase nor any action taken in connection herewith is intended as a waiver of
that right. In the event that any state takeover statute is found applicable to
the Offer and an appropriate court does not determine that such laws are
inapplicable or invalid as applied to the Offer, the Purchaser may be required
to file certain information with, or receive approvals from, the relevant state
authorities, or the Purchaser might be unable to purchase and accept for payment
or pay for Shares tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer. In the circumstances described above, the Purchaser may
not be obligated to accept for purchase and payment or pay for any Shares
tendered.
16. EXTENSION OF TENDER PERIOD, TERMINATION AND AMENDMENTS. The
Acquisition Agreement provides that the Offer may not be amended to reduce the
price to be paid per Share, change the form of consideration to be paid in the
Offer or the Merger, increase the Minimum Condition or amend the terms of the
Offer in a manner that is materially adverse to the holders of the Shares.
Subject to such restrictions, the Purchaser expressly reserves the right, in its
sole discretion, at any time from time to time, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary. If the Purchaser shall decide, in its sole
discretion, to increase the consideration offered in the Offer to holders of
Shares or make any other material change in the terms of the Offer (including
the Minimum Condition) or the information concerning the Offer, the Purchaser
will disseminate additional tender offer materials and extend the Offer to the
extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The
minimum period during which the Offer must remain open following material
changes in the terms of the Offer or information concerning the Offer, other
than a change in price or a change in percentage of securities sought, will
depend upon the facts and circumstances, including the relative materiality of
the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten-business day period from the date
of announcement thereof is required to allow for adequate dissemination to
shareholders and investor response. If, prior to the Expiration Date, the
Purchaser should decide to increase the price per Share being offered in the
Offer, such increase will be applicable to all shareholders whose Shares are
accepted for payment pursuant to the Offer. As used in this Offer to Purchaser,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
31
The Purchaser also expressly reserves the right (i) to delay payment for any
Shares, regardless of whether such Shares were theretofore accepted for payment,
or to terminate the Offer and not accept for payment or pay for any Shares not
theretofore accepted or paid for, upon the occurrence of any of the conditions
specified in Section 13 by giving oral notice thereof to the Depositary, and
(ii) subject to the restrictions set forth in the Acquisition Agreement, at any
time or from time to time, to amend the Offer in any respect. See Section 13.
Any extension, delay, termination, waiver or amendment of the Offer will be
followed, as soon as practicable, by public announcement thereof, and such
announcement in the case of an extension will be made in accordance with Rule
14e-1(d) no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. Without limiting the manner in
which the Purchaser may choose to make any public announcement, the Purchaser
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to either the Dow Jones or
Reuters News Services and making any appropriate filing with the Commission.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in Section 3. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
17. CERTAIN FEES AND EXPENSES. Lehman Brothers Inc. ("Lehman") is acting
as Dealer Manager for the Offer and as financial advisor to Varlen in connection
with the transactions described in this Offer to Purchase. Pursuant to an
engagement letter dated March 15, 1996 (the "Engagement Letter"), Varlen has
agreed to pay Lehman an advisory fee in connection with the acquisition of the
Company, in one or a series or combination of transactions whereby, directly or
indirectly, control (i.e., 51% of the Shares of the Company), or substantially
all of the assets of the Company or any of its affiliates is transferred to
Varlen or Purchaser or any of their affiliates (an "Acquisition"), of 0.75% of
the gross value of all cash, securities and other property paid directly or
indirectly by Varlen and/or the Purchaser in connection with an Acquisition (the
"Consideration"); provided that the Acquisition occurs on or prior to December
31, 1998 (the "Termination Date"). Varlen has further agreed that in the event
that Varlen or the Purchaser shall acquire less than 50% of the Shares but more
than 20% of the Shares outstanding on a fully diluted basis prior to the
Termination Date, and during such period Varlen or Purchaser shall have a
designee appointed to the Company's Board of Directors, then Varlen has agreed
to pay to Lehman an advisory fee of 0.75% of the price paid by the Company for
such shares. Varlen has agreed to pay Lehman the foregoing fees as follows: (x)
one-third upon commencement of an Acquisition and (y) two-thirds upon
consummation of an Acquisition. Pursuant to the Dealer Manager Agreement, dated
June 20, 1996, Varlen has also agreed to pay Lehman a fee equal to $.065 per
Share for each Share accepted for payment in the Offer as compensation for
serving as Dealer Manager for the Offer, which amount will be credited against
the above-described advisory fee being paid to Lehman by Varlen. In addition,
Varlen has agreed to reimburse Lehman for its reasonable expenses (including
professional fees and expenses of up to $10,000, plus 50% of its reasonable
professional fees and expenses in excess of $10,000, up to a maximum of $50,000)
and has agreed to indemnify Lehman against certain liabilities and expenses in
connection with their engagement. The amount of the total advisory fees and
reimbursable expenses payable to Lehman pursuant to the Engagement Letter, if
the Acquisition is consummated, is currently estimated not to exceed $1.4
million.
The Purchaser has retained D.F. King & Co. to act as Information Agent and
Harris Trust Company of New York to act as Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telex, telegraph and personal interview and may request
32
brokers, dealers and other nominee shareholders to forward material relating to
the offer to beneficial owners. The Information Agent and the Depositary will
receive reasonable and customary compensation for services relating to the Offer
in addition to reimbursement of reasonable out-of-pocket expenses. The Purchaser
has agreed to indemnify the Information Agent and the Depositary against certain
liabilities and expenses in connection with the Offer including certain
liabilities under the federal securities laws.
Neither Varlen nor the Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the above-described fee to Lehman)
for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by the
Purchaser for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
18. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction in which
the making of the Offer is not in compliance with applicable law. If the
Purchaser becomes aware of any jurisdiction in which the making of the Offer
would not be in compliance with applicable law, the Purchaser will make a good
faith effort to comply with any such law. If, after good faith effort, the
Purchaser cannot comply with any such law, the Offer will not be made to, nor
will tenders be accepted from or on behalf of, holders of Shares residing in any
jurisdiction in which the making of the Offer or acceptance thereof would not be
in compliance with the securities, blue sky or other laws of such jurisdiction.
In any jurisdiction the securities, blue sky or other laws of which require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Purchaser by the Dealer Manager or by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
Varlen and the Purchaser have filed with the Commission a Tender Offer
Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of
the General Rules and Regulations under the Exchange Act, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. Such Tender Offer Statement and any amendments thereto, including
exhibits, may be obtained in the manner described in Section 8 with respect to
information concerning the Company, except that such information will not be
available at the regional offices of the Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF VARLEN OR THE PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
BAS, Inc.
33
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF VARLEN AND THE PURCHASER
The names and principal business positions for the past five years of each
director and executive officer of Varlen are set forth below. The business
address of each such person is 55 Shuman Boulevard, P.O. Box 3089, Naperville,
Illinois 60566-7089. All persons listed below are citizens of the United States
of America.
NAME PRINCIPAL BUSINESS POSITIONS FOR THE PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
Richard L. Wellek Director; President and Chief Executive Officer of Varlen since 1983. From
1968 through 1983 he held various executive and operational positions at
Varlen.
Vicki L. Casmere Vice President, General Counsel and Secretary since April 1, 1996. Ms.
Casmere served as Corporate Counsel of Caremark Inc. from 1992 to 1996 and
as Vice President of Caremark Inc. from 1994 to 1996. Previously, Ms.
Casmere served as Corporate Counsel of Baxter Healthcare Corporation from
1988 to 1992.
Rudolph Grua Director; Vice Chairman of General Binding Corporation, a manufacturer of
business machines and related supplies, since January 1995 and a director
since May 1984. Prior to January 1995, Mr. Grua was President and Chief
Executive Officer of General Binding Corporation, positions he had held
since May 1984.
George W. Hoffman Railroad Group Vice President since 1990. Mr. Hoffman was an Executive at
Keystone Railway Equipment Company, a subsidiary of Varlen, from 1979 to
1994.
Raymond A. Jean Executive Vice President and Chief Operating Officer since 1993.
Previously, Mr. Jean served as Group Vice President from 1988 to 1992.
Ernest H. Lorch Director; Of Counsel to Whitman Breed Abbott & Morgan, attorneys, a
position he has held since January 1993. He retired as Chairman and Chief
Executive Officer of The Dyson-Kissner-Moran Corporation ("DKM"), a private
investment company, in December 1992, a position he held since January
1992. DKM owned approximately 30% of the Common Stock of Varlen prior to
Varlen's purchase of all of the Varlen shares owned by DKM in January 1993.
Mr. Lorch was President of DKM from June 1984 to January 1992. Mr. Lorch is
also a director of Tyler Corporation, a retail supplier of automotive parts
that also provides products for fundraising programs.
L. William Miles Director; Vice President for Administration at Fairfield University,
Connecticut, a position he has held since July 1992. From February 1988 to
June 1992 he was Senior Vice President of Call Interactive, a provider of
interactive telephone services. Mr. Miles is also a director of Bouton
Corporation, a manufacturer of safety glasses.
Richard A. Nunemaker Vice President, Finance and Chief Financial Officer since 1991. Previously,
Mr. Nunemaker served as Vice President and Controller from 1987 to 1991.
A-1
NAME PRINCIPAL BUSINESS POSITIONS FOR THE PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
Greg A. Rosenbaum Director; President of Palisades Associates, Inc., a merchant banking and
consulting company, since August 1989. Mr. Rosenbaum is also director of
Richey Electronics, Inc., a distributor of electronic components, a
position he has held since 1993.
Joseph J. Ross Director; Chairman, President and Chief Executive Officer of Federal Signal
Corporation, a manufacturer of public safety, signaling and communications
equipment. He has been Chairman of Federal Signal since February 1990 and
has served as its President and Chief Executive Officer since December
1987.
Theodore A. Ruppert Director; For more than the last five years, a general partner in the
Village Development Partnership, a real estate, manufacturing and oil
development holding company; Chairman, Chief Executive Officer and director
of Glaize Development Corporation, a real estate developer; and a director
of Pioneer Bank & Trust Company.
A-2
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The names and principal business positions for the past five years of the
director and executive officers of the Purchaser are set forth below. The
business address of each such person is 55 Shuman Boulevard, P.O. Box 3089,
Naperville, Illinois 60566-7089. All persons listed below are citizens of the
United States of America. For further information regarding such persons, see
"Directors and Executive Officers of Varlen."
NAME POSITION
- ------------------------------------ -------------------------------------------------------
Richard L. Wellek Director and President
Richard A. Nunemaker Vice President and Treasurer
Vicki L. Casmere Vice President and Secretary
A-3
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each shareholder
of the Company or his broker, dealer, commercial bank or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
----------------
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Wall Street Station 77 Water Street, 4th Receive Window
P.O. Box 1010 Floor 77 Water Street, 5th
New York, New York New York, New York 10005 Floor
10268-1010 New York, New York
10005
BY FACSIMILE
TRANSMISSION:
(FOR ELIGIBLE
INSTITUTIONS ONLY)
(212) 701-7636
(212) 701-7637
CONFIRM FACSIMILE BY
TELEPHONE:
(212) 701-7624
---------------------
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be directed to the Information Agent or the Dealer
Manager at their respective telephone numbers and locations listed below. You
may also contact your broker, dealer, commercial bank or trust company or
nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (collect)
or
Call Toll Free: 1-800-848-3402
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
(212) 526-2864 (CALL COLLECT)