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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES
EXCHANGE ACT OF 1934
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VARITRONIC SYSTEMS, INC.
(Name of Subject Company)
VARITRONIC SYSTEMS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
922247-10-1
(CUSIP Number of Class of Securities)
Mr. Scott F. Drill, President
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, Minnesota 55426
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
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WITH A COPY TO:
James C. Diracles
Best & Flanagan Professional Limited Liability Partnership
4000 First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4331
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The title of the class of equity securities to which this Statement relates
is Common Stock, $.01 par value ("Shares"), of Varitronic Systems, Inc., a
Minnesota corporation (the "Company"). The address of the principal executive
offices of the Company is 300 Interchange North, 300 Highway 169 South,
Minneapolis, Minnesota 55426.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Brady Offer") of VSI
Acquisition, Inc., a Minnesota corporation (the "Offeror"), and a wholly-owned
subsidiary of Brady USA, Inc., a Wisconsin corporation ("BUSA"), which is a
wholly owned subsidiary of W. H. Brady Co., a Wisconsin corporation ("Brady"),
disclosed in a Tender Offer Statement on Schedule 14D-1 and filed with the
Securities and Exchange Commission (the "Commission") on February 29, 1996 (the
"Schedule 14D-1"), to purchase Shares for cash at $17.50 net per share (the
"Offer Price"). The Schedule 14D-1 states that the principal executive offices
of the Offeror are located at 6555 West Good Hope Road, Milwaukee, WI 53223.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
Purpose of the Brady Offer and the Merger.
(b) Pursuant to the Brady Offer, the Offeror, BUSA, Brady and the Company
entered into a Plan of Agreement of Merger (the "Merger Agreement") providing
for the Brady Offer followed by a Merger between the Company and Offeror (the
"Merger"). The purpose of the Offer, the Merger, and the Merger Agreement is to
enable Brady to acquire control of, and the entire equity interest in, the
Company. Upon consummation of the Merger, the Company will become an indirect
wholly-owned subsidiary of Brady. The Brady Offer is being made pursuant to the
Merger Agreement.
Under the Company's Articles of Incorporation, the approval of the Board of
Directors of the Company and the affirmative vote of the holders of two-thirds
of the outstanding Shares are required to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. The Company's
Articles of Incorporation and the Merger Agreement require the affirmative vote
of the holders of two-thirds of the outstanding Shares to approve the Merger and
the Merger Agreement. The Board of Directors of the Company, including a special
committee of disinterested directors, has approved the Brady Offer, the Merger
and the Merger Agreement, and, unless the Merger is consummated pursuant to the
short form merger provisions under the Minnesota Corporations Act ("MCA")
described below, the only remaining required corporate action of the Company is
the approval and adoption of the Merger Agreement by the affirmative vote of the
holders of at least two-thirds of the Shares. If the Minimum Condition (as
defined in Brady's Offer to Purchase) is satisfied, including as a result of the
exercise of the stock option held by Brady for up to 19.9% of the Company's
outstanding common stock, as described below, the Offeror will have sufficient
voting power to cause the approval and adoption of the Merger Agreement and the
transactions contemplated thereby without the affirmative vote of any other
shareholder.
In the Merger Agreement, the Company has agreed to take all action
necessary to convene a meeting of its shareholders as promptly as practicable
after the consummation of the Brady Offer for the purpose of considering and
taking action on the Merger Agreement and the transactions contemplated thereby,
if such action is required by the MCA. Brady has agreed that all Shares owned by
Brady or the Offeror will be voted in favor of the Merger Agreement.
The Merger Agreement.
The following summary of certain provisions of the Merger Agreement, a copy
of which is attached as Exhibit (c)1 to this Schedule 14D-9, is qualified in its
entirety by reference to the text of the Merger Agreement.
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The Brady Offer. The Offeror commenced the Brady Offer in accordance with
the terms of the Merger Agreement. Pursuant to the terms and conditions of the
Merger Agreement, Brady, BUSA, the Offeror and the Company are required to use
all reasonable efforts to take all action as may be necessary or appropriate in
order to effectuate the offer and the Merger as promptly as possible and to
carry out the transactions provided for or contemplated by the Merger Agreement.
Company Actions. Pursuant to the Merger Agreement, the Company has agreed
that, subject to the fiduciary duties of the Board of Directors of the Company
under applicable law as determined by the Board of Directors of the Company in
good faith after consultation with the Company's outside counsel, it will file
with the Commission and mail to its shareholders this
Solicitation/Recommendation Statement on Schedule 14D-9 containing the
recommendations of the Board of Directors that the Company's shareholders accept
the Brady Offer and approve the Merger and Merger Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the MCA, the
Offeror shall be merged with and into the Company at the Effective Time, as
defined in the Merger Agreement. Following the Merger, the separate corporate
existence of the Offeror shall cease and the Company shall continue as the
Surviving Corporation and shall succeed to and assume all the rights and
obligations of the Offeror in accordance with the MCA and the Merger Agreement.
The Articles of Incorporation of the Company shall become the Articles of
Incorporation of the Surviving Corporation and at least a majority of the
directors of the Surviving Corporation shall be nominees of Brady, and the
officers of the Company shall be the officers of the Surviving Corporation, in
each case, until their successors are chosen.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior thereto shall be canceled and extinguished and
each Share (other than Shares owned by the Company, Brady, or any subsidiary of
either, including the Offeror, and any Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the Offeror, the Company or the
holders of the Shares, be converted into and represent the right to receive an
amount equal to the Offer Price. Each share of common stock of the Offeror
issued and outstanding immediately prior to the Effective Time shall, at the
Effective Time, by virtue of the Merger and without any action on the part of
the Offeror, the Company or the holders of Shares, be converted into and shall
thereafter evidence one validly issued and outstanding share of common stock of
the Surviving Corporation.
Dissenting Shares. Shares which are held by holders who have properly
exercised appraisal rights with respect thereto in accordance with Sections
302A.471 and 302A.473 of the MCA will not be exchangeable for the right to
receive an amount equal to the Offer Price in cash, and instead holders of such
Shares will be entitled to receive payment of the appraised value of such stock,
unless such holders fail to perfect or withdraw or lose their right to appraisal
and payment under the MCA.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Offeror, including, but not
limited to, representations and warranties relating to: the Company's
organization, qualification and capitalization; its authority to enter into the
Merger Agreement and carry out related transactions; filings made by the Company
with the Commission under the Securities Act of 1933, as amended or the Exchange
Act (including financial statements included in the documents filed by the
Company under these Acts); required consents and approvals; compliance with
applicable laws; the Company's intellectual property; and the absence of certain
changes or events.
The Offeror, BUSA and Brady have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating the Offeror's, BUSA'S, and Brady's organization and
qualification, authority to enter into the Merger Agreement, required consents
and approvals, and the availability of sufficient funds to consummate the Brady
Offer and the Merger.
Covenants Relating to the Conduct of Business. The Company has agreed that
it will, and will cause its subsidiaries to, carry on their respective
businesses in, and not enter into any material transaction other than in
accordance with, the usual and ordinary course of business. The Company has
agreed that, except as contemplated by the Merger Agreement or as disclosed by
the Company to Brady prior to the execution of the
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Merger Agreement, it shall not, and shall not permit any of its subsidiaries to,
without the prior consent of Brady:
(a) issue, sell, pledge or encumber, or authorize or propose the
issuance, sale, pledge or encumbrance of (i) any shares of capital stock of
any class (including the shares of Common Stock), or securities convertible
into any such shares, or any rights, warrants or options to acquire any
such shares or other convertible securities, or grant or accelerate any
right to convert or exchange any securities of the Company or any of its
subsidiaries for such shares, other than shares of Common Stock issuable,
upon exercise or currently outstanding options, or (ii) any other
securities in respect of, in lieu of or in substitution for shares of
Common Stock outstanding on the date of the Merger Agreement;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including
the shares of Common Stock);
(c) split, combine or reclassify any shares of its capital stock or
declare or pay any dividend or distribution on any shares of capital stock
of the Company;
(d) except pursuant to agreements or arrangements in effect on the
date of the Merger Agreement which have been disclosed to the Offeror,
authorize capital expenditures in excess of $500,000 in the aggregate, make
any acquisition or disposition of a material amount of assets (other than
inventory) or securities, enter into or amend or terminate any contract,
material to the business of the Company and its subsidiaries taken as a
whole, or release or relinquish any contact rights or claims, material to
the business of the Company and its subsidiaries taken as a whole;
(e) pledge or encumber any material assets of the Company except in
the ordinary course of business;
(f) incur any long-term debt for borrowed money or short-term debt for
borrowed money in an aggregate amount in excess of $100,000 except for debt
incurred in the ordinary course of business (including, without limitation,
to fund working capital needs);
(g) propose or adopt any amendments to the Articles of Incorporation
or By-Laws of the Company;
(h) adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any of its subsidiaries;
(i) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except wholly owned subsidiaries of the
Company in the ordinary course of business and consistent with past
practice;
(j) make any loans, advances or capital contributions to, or
investments in, any other person (other than loans or advances to
subsidiaries and customer loans or advances to employees in accordance with
past practices);
(k) except as required by applicable laws, adopt or amend any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, severance, termination, employment or other employee benefit
plan, agreement, trust, fund, policy or other arrangement for the benefit
or welfare of any employee or director or former employee or director or,
except as required by applicable laws, increase the compensation or fringe
benefits of any employee or pay any employee or pay any benefit not
required by any existing plan, arrangement or agreement;
(l) make any tax election or settle or compromise any federal, state,
local or foreign income tax liability, except in the ordinary course of
business and consistent with past practice; or
(m) agree in writing or otherwise to take any of the foregoing
actions.
No Solicitation. The Merger Agreement provides that neither the Company nor
any of its subsidiaries, nor any of their respective directors, officers,
employees, representatives, agents or affiliates will, directly or indirectly,
encourage, solicit, initiate or, except as is required in the exercise of
fiduciary duties of the Company's directors and officers to its shareholders,
upon advice of counsel to the Company, participate in any discussions or
negotiations with, or knowingly provide any information to, any corporation,
partnership,
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person or other entity or group (other than Brady, BUSA, or the Offeror or any
affiliate or agents) concerning any merger, sale of substantial assets or shares
of capital stock or similar transactions involving the Company or any material
subsidiary or division of the Company, provided, however, that nothing contained
in the Merger Agreement will prohibit the Company or its Board of Directors from
(i) taking and disclosing to the Company's shareholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act, (ii) making such disclosure to the Company's
shareholders which, in the judgment of the Board of Directors with the advice of
counsel, may be required under applicable law or (iii) providing information to,
or participating in discussions or negotiations with, any party that the Board
of Directors believes in good faith would be capable of effecting an acquisition
of the Company on terms that are superior, from a financial point of view, to
the Brady Offer and the Merger. The Merger Agreement requires the Company
promptly to communicate to Offeror if it is furnishing information to or
engaging in negotiations with any third party with respect to the acquisition of
the Company or any of its assets or subsidiaries.
Options. Options to purchase Shares are outstanding under employee stock
option plans of the Company (the "Company Stock Option Plans") and pursuant to
the Merger Agreement, the Company has granted Brady the Option providing for the
purchase of a number of newly issued Shares equal to 19.9% of the outstanding
shares of the Company's common stock for $17.50 per share. (See below). As of
the date of the Merger Agreement, options for a total of 193,500 Shares were
outstanding under the Company's Stock Option Plans and pursuant to an agreement
with an officer (collectively, the "Company Stock Options"). The Merger
Agreement provides that at the Effective Time each outstanding Company Stock
option shall be canceled for a payment equal to the difference between the
exercise price of the option and $17.50 per Share.
Indemnification. From and after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company in each case to the
full extent permitted under the MCA.
Employee Benefits. Under the Merger Agreement, the Offeror agreed to honor
and to cause the Surviving Corporation to honor and perform its obligations
under certain benefit plans, programs, policies and agreements and certain
compensation agreements.
The Merger Agreement provides that if any salaried or non-union hourly
employee of the Company or any of its subsidiaries is or becomes a participant
in any written employee benefit plan or program of the Offeror or any member of
its controlled group within the meaning of the Section 414(b) or (c) of the
Code, such employee shall be credited under such plan or program with all
service prior to the Effective Time with the Company and its subsidiaries (and
any predecessor employer) to the extent credit was given by the Company and its
subsidiaries for purposes of eligibility and vesting under such plan or program.
Brady, BUSA and the Offeror have acknowledged in the Merger Agreement that
consummation of the Brady Offer will constitute a change of control of the
Company (to the extent such concept is relevant) for purposes of certain
employment, severance or benefit agreements and plans.
Brady, BUSA and the Offeror have agreed in the Merger Agreement to the
amendment of certain specified compensation and benefit plans and programs to
permit the acceleration of payment thereunder on or after the later of the date
of the acquisition of Shares pursuant to the Brady Offer or five business days
after the participant's termination of employment for any reason (other than his
or her retirement at or after age 65, death or disability); provided however,
that such termination occurs within two years after such acquisition of Shares
and that no payments shall be accelerated or made to the extent they could
constitute non-deductible excess parachute payments within the meaning of
Section 28OG(l) and (2)(A) of the Code.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan (the "Plan")
is a payroll deduction plan pursuant to which the deductions of all
participating employees are accumulated for twelve-month periods, at the end of
which the Company issues and sells Shares to the participants. The Company has
advised Brady that the current twelve-month period began on October 1, 1995. The
Merger Agreement provides that at the Effective Time the Plan will terminate and
that each participant will receive an amount equal to the sum of (a) the balance
of the participant's account under the Plan, plus (b)(i) the excess of
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$17.50 per Share over the purchase price per Share applicable to purchases under
the Plan, multiplied by (ii) the number of Shares that could have been purchased
from the balance of the participant's account under the Plan.
Board Representation. The Merger Agreement provides that promptly upon the
purchase of Shares pursuant to the Brady Offer, Brady shall be entitled to
designate such number of members of the Board of Directors of the Company,
rounded up to the next whole number, but in no event more than one less than the
total number of directors, as will give Brady, subject to compliance with the
provisions of Section 14(f) of the Exchange Act, representation on the Board of
Directors of the Company equal to the product of (i) the total number of
directors on such Board and (ii) the percentage that the aggregate number of
Shares owned by Brady bears to the total number of outstanding Shares. The
Company has agreed, upon the request of Brady and upon the purchase of Shares
pursuant to the Offer, to promptly increase the size of the Board of Directors
of the Company and/or use its reasonable best efforts to secure the resignations
of such number of directors as is necessary to enable Brady's designees to be
elected to the Board of Directors and shall cause Brady's designees to be so
elected. The Company has agreed to take, at its expense, all actions required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder to
effect any such election, including the mailing to its shareholders the
information required to be disclosed pursuant thereto. Brady will supply to the
Company in writing, and be solely responsible for, any information with respect
to itself and its nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-l.
Following the election of designees of Brady as described above and prior
to the Effective Time, any amendment to the Merger Agreement or the Articles of
Incorporation or Bylaws of the Company, any termination of the Merger Agreement,
or any action with respect to the various rights granted to the Company under
the Merger Agreement shall require the concurrence of a majority of the
Company's directors then in office who are not designees of Brady.
Conditions Precedent. The respective obligations of each party to effect
the Merger are subject to the fulfillment at or prior to the Effective Time of
the following conditions: (a) if required by applicable law, the Merger
Agreement shall have been approved by the requisite vote of the holders of
two-thirds of the outstanding Shares; (b) no governmental entity or United
States court shall have enacted, issued, promulgated, enforced or entered any
state, rule, regulation, executive order, decree or injunction which prohibits
or has the effect of prohibiting the consummation of the Merger; (c) any waiting
period applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have expired or been terminated; and
(d) the Offeror shall have accepted and paid for Shares tendered pursuant to the
Brady Offer, including satisfaction of the Minimum Condition.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time: (a)
by mutual written consent duly authorized by the Board of Directors of the
Company (excluding any representative of the Offeror or an affiliate of the
Offeror), the Offeror and Brady (b) by either the Offeror or the Company if the
Effective Time shall not have occurred on or before December 31, 1996; (c) by
either the Offeror or the Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling, or taken any other action restraining, enjoining, or
otherwise prohibiting the Merger and such order, decree, ruling or other action
has become final and non-appealable; (d) by the Offeror, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of the
conditions set forth in Section 15 of the Brady Offer to Purchase, the Offeror
shall have (A) failed to commence the Brady Offer within twenty days following
the date of the Merger Agreement, (B) terminated the Brady Offer or the Brady
Offer shall have expired without the purchase of shares thereunder at any time
after the latest date, if any, to which the Brady Offer shall have been extended
pursuant to the Merger Agreement or (C) failed to pay for Shares pursuant to the
Brady Offer by the fortieth business day following such commencement, unless
such failure to commence, terminate or failure to pay for Shares shall have been
caused by or resulted from the failure of the Offeror or an affiliate to perform
in any respect its covenants and agreements contained in the Merger Agreement;
or (ii) prior to the purchase of Shares pursuant to the Brady Offer, the Board
of Directors of the Company shall have withdrawn or modified in a manner adverse
to the Offeror its approval or recommendation of the Brady Offer, the Merger
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Agreement or the Merger, or shall have recommended another Offer, or shall have
resolved to do any of the foregoing; provided, however, that the Offeror shall
have no right to terminate the Merger Agreement and abandon the Merger if the
Company withdraws or modifies its recommendation of the Brady Offer, the Merger
Agreement, or the Merger, by reason of taking and disclosing to the Company's
shareholders a position contemplated by Rule 14e-2(a)(2) or (3) promulgated
under the Exchange Act with respect to another proposal, and if within ten days
of taking and disclosing to its shareholders the aforementioned position, the
Company publicly reconfirms its recommendation of the Brady Offer, the Merger
Agreement or the Merger and takes and discloses to the Company's shareholders a
recommendation to reject such other proposal as contemplated by Rule 14e-2(a)(1)
promulgated under the Exchange Act; or (e) by the Company, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of the
conditions set forth in Section 15 of the Brady Offer to Purchase or otherwise,
the Offeror shall have (A) failed to commence the Brady Offer as provided in the
Merger Agreement within twenty days following the date of the Merger Agreement,
(B) terminated the Brady Offer or the Brady Offer shall have expired without the
purchase of Shares thereunder at any time after the latest date, if any, to
which the Brady Offer shall have been extended in accordance with the terms of
the Merger Agreement or (C) failed to pay for Shares pursuant to the Brady Offer
by the fortieth business day following such announcement, unless such failure to
commence, terminate or failure to pay for Shares shall have been caused by or
resulted from the occurrence or existence of the condition described in
paragraph (d) of Section 15 of the Brady Offer to Purchase, or (ii) prior to the
purchase of Shares pursuant to the Brady Offer, (A) a corporation, partnership,
person or other entity or group shall have made a bona fide proposal that the
Board of Directors of the Company believes, in good faith, after consultation
with its legal and financial advisors, it is more favorable to the Company and
its shareholders than the Brady Offer and the Merger, (B) the Offeror does not
make, within ten days of the Offeror receiving notice of such third party
proposal containing all of the terms, provisions, and conditions thereof, an
offer which the Board of Directors believes, in good faith after consultation
with its legal and financial advisors, is at least as favorable to the Company's
shareholders as such third party proposal.
Fees and Expenses. The Company has agreed in the Merger Agreement to pay
the Offeror the sum of (x) $1 Million and (y) all actual, documented
out-of-pocket expenses relating to the Brady Offer and the Merger in an amount
not to exceed $750,000 if the Merger Agreement or the transactions contemplated
thereby are terminated or abandoned (unless at such time BUSA or the Offeror are
in breach in any material respect of any of its material obligations or material
representations and warranties thereunder) and prior to or contemporaneously
with such termination or abandonment, (1) any corporation, partnership, person,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Brady or any of its subsidiaries or affiliates (collectively, "Person"),
shall have acquired or beneficially owns (as defined in Rule 13d-3 promulgated
under the Exchange Act) and failed to tender in the Brady Offer at least 33.34%
of the then outstanding Shares.
Stock Option. The Company has granted Brady an option to purchase a number
of newly issued Shares equal to 19.9% of its outstanding shares of Common Stock
at a price of $17.50 per share. The Option is intended to increase the
likelihood that the Brady Offer and Merger will be consummated in accordance
with the terms of the Merger Agreement. Consequently, certain aspects of the
Option may have the effect of discouraging persons who might now, or prior to
the Effective Time may, be interested in acquiring all or a significant interest
in, or otherwise effecting a business combination with the Company or from
considering or proposing such a transaction, even if such persons were prepared
to offer to pay consideration which had a higher value than $17.50 per share.
The Option may be exercised, in whole or in part, at any time. The Option will
terminate upon the earlier of (i) the Effective Time or (ii) December 31, 1996.
The Company may exercise the Option in order to meet the Minimum Condition.
Notwithstanding the foregoing, the Option cannot be exercised if Brady is in
material breach of any of its material representations or warranties or in
material breach of its covenants or agreements pursuant to the Merger Agreement.
Except as provided in the preceding paragraphs, the Merger Agreement
provides that whether or not the Merger is consummated, each party thereto shall
pay its own expenses incident to preparing for, entering into and carrying out
the Merger Agreement and the consummation of the Brady Offer and the Merger.
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Dividends and Distributions.
The Merger Agreement provides that neither the Company nor any of its
subsidiaries will, among other things, prior to the Effective Time (i) declare
or pay any dividend (whether in cash, stock or property) or make any other
distribution with respect to any shares of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) repurchase or otherwise acquire any
shares of capital stock of the Company; or issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, any shares of its capital stock of
any class of securities convertible into, or subscriptions, rights, warrants or
options to acquire, or enter into other agreements or commitments of any
character obligating it to issue any such shares or other convertible securities
other than the issuance of Shares pursuant to the exercise of stock options
outstanding on the date of the Merger Agreement.
Certain Conditions to Offeror's Obligations.
Notwithstanding any other term of the Brady Offer or of the Merger
Agreement, the Offeror is not required to accept for payment or pay for, subject
to any applicable rules and regulations of the Commission, including Rule
14e-1(c) of the Exchange Act, any Shares not theretofore accepted for payment or
paid for and may terminate or amend the Brady Offer as to such Shares unless (i)
there shall have been validly tendered and not withdrawn prior to the expiration
of the Brady Offer a number of Shares which, when added to the Shares
beneficially owned by Brady and its affiliates, at least equal to the Minimum
Condition and (ii) any waiting period under the HSR Act applicable to the
purchase of the Shares pursuant to the Brady Offer has expired or been
terminated. Furthermore, notwithstanding any other term of the Brady Offer or
the Merger Agreement, the Offeror is not required to accept for payment or,
subject as aforesaid, to pay for any Shares not theretofore accepted for payment
or paid for, and may terminate or amend the Brady Offer if at any time on or
after the date of the Merger Agreement and before the acceptance of such Shares
for payment or the payment therefor, any of the following conditions exist or
shall occur and remain in effect:
(a) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) a commencement of a war, armed
hostilities or other national or international calamity directly or
indirectly involving the United States, (iv) any material limitation
(whether or not mandatory) by any governmental authority on, or any other
event which might materially and adversely affect the extension of credit
by lending institutions, or (v) 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
(b) there shall have been any statute, rule or regulation enacted,
promulgated, entered or enforced or deemed applicable, or any decree, order
or injunction entered or enforced by any government or governmental
authority in the United States or by any court in the United States that
(i) restrains or prohibits the making or consummation of the Brady Offer or
the consummation of the Merger, (ii) prohibits or restricts the ownership
or operation by the Offeror (or any of its affiliates or subsidiaries) of
any portion of its or the Company's business or assets which is material to
the business of all such entities taken as a whole or (iii) imposes
material limitations on the ability of the Offeror effectively to acquire
or to hold or to exercise full rights of ownership of the shares of Common
Stock, including, without limitation, the right to vote the shares of
Common Stock purchased by the Offeror on all matters properly presented to
the shareholders of the Company; provided, however, that the Offeror and
Brady shall have used their best efforts to have any such decree, order or
injunction vacated or reversed, including, without limitation, by
proffering their willingness to accept an order embodying any arrangement
required to be made by the Offeror, Brady or BUSA pursuant to the Merger
Agreement (and notwithstanding anything in this subsection (b) to the
contrary, no terms, conditions or provisions of an order embodying such an
arrangement shall constitute a basis for the Offeror asserting
nonfulfillment of the conditions contained in this subsection (b)); or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
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(d) the Company shall have breached or failed to perform any of its
covenants or agreements which breach or failure to perform is material to
the obligations of the Company under the Merger Agreement taken as a whole,
or any of the representations and warranties of the Company set forth in
the Merger Agreement shall not have been true in any respect which is
material to the Company and its subsidiaries taken as a whole, in each
case, when made, or a material adverse change has occurred in the financial
condition or results of operations of the Company and its subsidiaries
taken as a whole, provided that the aggregate effect under this condition
shall be in excess of $500,000; or
(e) the Board of Directors of the Company shall have publicly
withdrawn or modified in any material respect adverse to the Offeror its
recommendation of the Offer; provided, however, the Offeror shall have no
right to terminate the Brady Offer or not accept for payment or pay for any
Shares of Common Stock if the Company withdraws or modifies its
recommendation of the Brady Offer and the Merger, by reason of taking and
disclosing to the Company's shareholders a position contemplated by Rule
14e-2(a)(2) or (3) promulgated under the Exchange Act with respect to
another proposal, and if within ten days of taking and disclosing to its
shareholders the aforementioned position, the Company publicly reconfirms
its recommendation of the Brady Offer and Merger and takes and discloses to
the Company's shareholders a recommendation to reject such other proposal
as contemplated by Rule 14e-2(a)(1) promulgated under the Exchange Act; or
(f) the Offeror and the Company shall have agreed that the Offeror
shall terminate the Offer.
The foregoing conditions may be waived by Brady, in whole or in part, at
any time and from time to time, in the sole discretion of Brady. The failure by
Brady, BUSA, or the Offeror at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right, the waiver of such right with respect
to any particular facts or circumstances shall not be deemed a waiver with
respect to any other facts or circumstances, and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
Should the Brady Offer be terminated pursuant to the foregoing provisions,
all tendered Shares not theretofore accepted for payment shall forthwith be
returned by the Depositary to the tendering shareholders.
Other Agreements.
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers or
affiliates are described at pages 9 and 10 of the Company's Information
Statement Pursuant to Section 14(f) of the Securities and Exchange Act of 1934
and Rule 14f-1 thereunder dated February 28, 1996 (the "14f-1 Information
Statement"). The Company's Employee Stock Purchase Plan and 1994 Incentive Stock
Option Plan are also described on pages 5 and 6 of the 14f-1 Information
Statement. A copy of the 14f-1 Information Statement is attached hereto as
Exhibit (a)3, and is incorporated herein by reference.
In December, 1995, the Company entered into severance pay agreements with
17 of its executive officers and employees ("Severance Pay Agreements"). These
Severance Pay Agreements provide for certain benefits in the event of a Change
of Control (as hereinafter defined) of the Company. If, during the 24-month
period after a Change of Control, the employee's employment terminates under
certain conditions as specified in the Severance Pay Agreements, the employee
becomes entitled to certain lump-sum (or, at the employee's election, monthly)
payments. Such payments will be equal to 1.5 times (or, in the case of nine
employees, one times), the employee's Annual Base Salary, as defined in the
Agreement. If the employee's termination is voluntary and within 30 days after a
Change in Control occurring before June 30, 1996, then the employees otherwise
entitled to payments equal to 1.5 times Annual Base Salary will receive payments
equal to one times Annual Base Salary instead. Finally, employees otherwise
entitled to one times Annual Base Salary will receive .75 times Annual Base
Salary if their termination is "Constructive", as defined in the Severance Pay
Agreements. The Severance Pay Agreements contain a clause which provides that
the Company is not required to make any payments which constitute nondeductible
"excess parachute payments" as defined in the Internal Revenue Code.
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The Board of Directors has determined that consummation of the Brady Offer
will constitute a "Change of Control" for purposes of the Severance Pay
Agreements.
The Severance Pay Agreements provide that, in consideration for the
severance pay provided, the covered employee agrees, during the term of the
Agreement and for a period thereafter equal to the period for which the employee
receives severance pay pursuant to the Severance Pay Agreement, the employee
will not compete with the Company or the surviving or acquiring corporation
after a Change of Control, or solicit the Company's or the surviving or
acquiring corporation's employees for employment.
Except as set forth above, to the best knowledge of the Company, there are
no contracts, agreements, arrangements or understandings or any actual or
potential conflicts of interest between the Company or its affiliates, and (i)
the Company, its executive officers, directors or affiliates or (ii) the
Offeror, BUSA or Brady or their respective executive officers, directors or
affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Background of the Offer.
On July 6, 1995, in the course of a meeting between Scott F. Drill, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Katherine M. Hudson, Brady's President and Chief Executive Officer, the two
discussed potential synergies that would result from Brady and the Company
combining their operations. Brady is the largest customer of the Company. On
December 11, 1995, Katherine M. Hudson and Brady's Vice President Donald P.
DeLuca met with Scott F. Drill and the Company's Vice President of Finance
Norbert F. Nicpon and the Company's Vice President of Corporate Development,
Deborah L. Moore and discussed synergies from a combination of the respective
companies. No understandings or agreements were reached during these
discussions.
On December 22, 1995, Ms. Hudson wrote to Mr. Drill requesting the
opportunity to meet with the Company's Board of Directors during the first week
of January 1996 to discuss a potential business combination of Brady and the
Company. Although this letter did not extend an offer to the Company, it
expressed the opinion that a price of $13.50 per Company share would be fair to
the Company's shareholders. By letter of December 27, 1995, Mr. Drill advised
Ms. Hudson that her letter would be brought to the attention of Company's board
of directors after January 3, 1996 and that a response would be forthcoming
during the week of January 8, 1996.
On January 5, 1996, BUSA commenced an arbitration action against the
Company challenging the Company's November 1995 notice of termination of the
Company's distributor agreement with BUSA. BUSA sought both equitable and
monetary relief. BUSA also requested interim injunctive relief in federal court.
On January 30, 1996, the Company commenced separate litigation against Brady in
federal court alleging, among other things, violations of federal anti-trust
law, tortious interference, deceptive trade practices, and business defamation.
On January 12, 1996, the Company informed Brady that it had retained the
investment banking firm of Brown, Gibbons, Lang & Company, L.P. ("Brown,
Gibbons") to explore methods of maximizing the Company's long and short term
value. Discussions occurred between representatives of the Company and Brady
during January 1996. On January 29, 1996, Brady addressed a letter to the
Company's Board of Directors again requesting an opportunity to discuss a
potential business combination at an increased price of $14.00 per share. Brady
also issued a January 29, 1996 press release announcing its request for an
opportunity to discuss potential business combination with the Company. Pursuant
to a January 30, 1996 letter from the Company, representatives of the Company
and Brady met on February 7, 1996, and discussed potential advantages of a
business combination.
On February 9, 1996, Brady delivered a letter to the Company's Board of
Directors by which it offered to purchase the Company for $16.00 per share,
subject to certain conditions.
On February 12, 1996, the Company's Board of Directors met to consider
Brady's proposal to acquire all of the Company's outstanding common shares for a
price of $16.00. For the reasons discussed below, the
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Board of Directors determined the $16.00 price to be fair, and responded to
Brady on February 13, 1995, by letter from Mr. Drill to Ms. Hudson, that Brady
should make a definitive proposal for the Board of Directors to consider. The
Board also appointed a special committee of all of the outside directors to
review the Brady Offer (the "Special Committee"). On February 26, 1996 the
Special Committee reviewed the Merger Agreement and drafts of the proposed
tender offer documents presented by Brady in response to Mr. Drill's February
13th letter, and approved the Offer, and the Merger Agreement subject to
successful completion of the Offer.
At both the February 12th and February 26th meetings, the Special Committee
received presentations from the Company's management and its legal and financial
advisors concerning the legal and financial terms of the Offer, including the
conditions thereof, and the Board's fiduciary obligations to the Company's
shareholders. At the February 12th meeting the Board of Directors received an
oral opinion from Brown, Gibbons that the $16.00 per share net cash price for
all of the Corporation's outstanding common stock was fair, from a financial
point of view, to the shareholders of the Company.
At its meeting on February 26, 1996, the Special Committee of the Board of
Directors received an offer from a group led by Mr. Scott F. Drill, the
Company's President and Chief Executive Officer, which included all of the other
executive officers of the Company, to make an all cash tender offer for all of
the Company's outstanding common stock at a net cash price to shareholders of
$17.50 per share (the "Management Group Offer"). The Management Group Offer was
open for acceptance by the Company until 5:00 o'clock on the following day,
February 27, 1996, at which time the Company was required to reject the offer or
accept it and sign a proposed Letter of Intent. The Letter of Intent provided,
among other things:
1. The Company would not negotiate with, participate in any
discussions with, furnish any information to, or otherwise cooperate in any
way with any other person or entity seeking to acquire the Company or enter
into any transaction;
2. The Company and the Management Group would work toward completion
of a definitive merger agreement by March 10, 1996. If such an agreement
was not entered into by that date, the Letter of Intent, and the Management
Group Offer, would terminate. Further, if an offer at a price in excess of
$17.50 per share were received during that time, and the merger agreement
was not entered into by that date, the Company would become liable to pay
to the Management Group $1,500,000 on March 11, 1996. Finally, it was
proposed that the definitive merger agreement would contain a provision
allowing the Company to terminate it upon receipt of a bona fide offer from
any third party to enter into a transaction, upon the payment of a
$1,500,000 termination fee plus reimbursement of the Management Group's
out-of-pocket expenses, without limit.
3. The offer, and consummation of any definitive merger agreement, was
subject to, and conditioned upon, receipt of financing by the Management
Group. It was represented that approximately $18,000,000 of the necessary
financing would be in the form of equity investment, $15,000,000 in the
form of senior debt financing, and $9,000,000 in the form of subordinated
debt financing, resulting in the estimated $42,000,000 necessary to
purchase all of the Company's outstanding common stock, retire all options
and pay expenses.
The Board met with Mr. Drill and the Management Group's legal and financial
advisors, and held extensive discussions regarding the proposed structure, and
the status and prospects of obtaining the necessary financing.
Following the Management Group's presentation of its offer, Ms. Hudson, Mr.
Gary Nie, a director of Brady, and Brady's legal counsel met with the Special
Committee to reiterate its continued interest in acquiring the Company pursuant
to its existing proposal for $16.00 per share. After reviewing the two
proposals, representatives of the Special Committee met again later that day
with Ms. Hudson, Mr. Nie, and their legal and financial advisors, and conducted
further negotiations regarding Brady's Offer in light of the Management Group's
Offer. As a result of these discussions, Brady raised its offering price to
$17.50, and agreed to other changes in Brady's proposed Merger Agreement,
subject to certain conditions and subject to approval by its board of directors.
Based upon its review of these changes, as compared to the Management
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Group's Offer, the Special Committee later that day met and determined that the
Brady Offer was in the best interest of shareholders and should be accepted
(subject to completion of satisfactory documentation), and that the Management
Group's Offer should be rejected.
At the February 26th meeting, representatives of Brown, Gibbons expressed
the view that the $17.50 price offered was fair, from a financial point of view,
to the shareholders of the Company, and this opinion was confirmed in writing by
letter dated February 27th. At the February 26th meeting, the Special Committee
also considered several other factors as favoring the Brady Offer over the
Management Group Offer including, but not limited to, the following:
1. The fact that the Brady Offer was an all cash tender offer, not
subject to a financing contingency, which could be consummated relatively
quickly, where as the Management Group Offer contained a financing
contingency and could not be begun until at least March 11, 1996;
2. The Special Committee's view that the Management Group was in the
early stages of financing negotiations, and that the risk of
nonconsummation due to failure of the Management Group to obtain sufficient
financing in a timely fashion was high;
3. The fact that the Management Group Offer contained a "break-up fee"
which the Company would be obligated to pay if : (a) it did not reach a
definitive agreement with the Management Group and it had received (but not
necessarily accepted) another offer for at least $17.50 per share; or (b)
it terminated the agreement with the Management Group at any time after it
was executed, regardless of whether or not an acquisition or other
transaction was entered into with a third party, whereas the "topping fee"
provided for in the Merger Agreement with Brady became payable only if a
significant percentage of the shares of the Company were acquired by a
third party;
4. The fact that the Management Group Offer would prevent the Company
from carrying on any further discussions with Brady, or any third party,
until March 10, 1996, and the Special Committee's concern that this could
prevent the Board from maximizing shareholder value, and that the necessary
delay could result in Brady's withdrawal of its Offer;
5. The opinion of Brown, Gibbons that the consideration to be received
pursuant to the Brady Offer was fair, from a financial point of view, to
the shareholders of the Company, and that the Brady Offer was superior to
the Management Group Offer due to, among other things, timing and the lack
of any financing contingency.
Based upon these presentations and factors, and upon its review of the
terms of the Brady Offer and of the Company's financial position and business,
the Board of Directors determined that approval of the Brady Offer was in the
best interests of the Company and its shareholders. The Board therefore approved
the Brady Offer and the Merger Agreement. The Special Committee of the
disinterested directors of the Board also approved the acquisition of Shares
pursuant to the Brady Offer under MCA Section 302A.671, with the effect that no
special meeting of the shareholders of the Company will be required under that
section to approve the acquisition of Shares pursuant to the Offer. On February
27, 1996, Brady and the Company jointly announced, among other things, that they
had entered into the Merger Agreement and that the Offer would commence within
three business days.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY ACCEPT THE BRADY OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
At the February 26th meeting, and in accordance with the terms of the
Merger Agreement, the Board also adopted resolutions (i) terminating the
Company's Restated Incentive Stock Option Plan, the 1994 Incentive Stock Option
Plan, the Employee Stock Purchase Plan and the Nonqualified Stock Option Plan,
and a Nonqualified Stock Option Plan and Agreement between the Company and
Timothy P. Fitzgerald, Vice President of Operations, effective upon consummation
of the Merger; (ii) providing that, on the date that Shares are purchased
pursuant to the Offer, all of the options outstanding under those plans and
agreements shall become 100% vested; and (iii) that the Company will pay to each
holder of an option, in cash and less applicable tax withholding, an amount
equal to the product of (a) the total number of shares subject to any
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option; and (b) the excess of the amount paid in the Brady Offer over the per
share exercise price of the option.
A copy of Brown, Gibbon's opinion is filed as Exhibit (a)2 hereto, and is
incorporated herein by reference. The opinion should be read in its entirety.
A copy of a joint press release of Brady and the Company relating thereto
is filed as Exhibit (a)4 hereto, and is incorporated herein by reference.
A copy of a letter communicating the recommendations of the Board of
Directors of the Company is attached to the front of this Statement, and is
incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Brown, Gibbons, Lang & Company, L.P. ("Brown,
Gibbons") to act as its financial advisors. The Company has paid a fee of
$50,000 to Brown, Gibbons for advice to the Company with respect to responding
to the Offer. The Company has also agreed to pay to Brown, Gibbons a
"Transaction Fee" equal to a percentage of the Transaction Value as follows:
5% of the first $1,000,000, plus
4% of the second $1,000,000, plus
3% of the third $1,000,000, plus
2% of the fourth $1,000,000, plus
1% of the amount in excess of $4,000,000 up to $40,000,000, plus
2.5% of the amount in excess of $40,000,000.
This amount is payable in cash promptly upon consummation of a Transaction, as
defined in the Agreement. Consummation of the Brady Offer and the Merger will
constitute a "Transaction". The "Transaction Value" is defined in the Agreement
to mean the total proceeds and other consideration paid or received in
connection with a Transaction. The Company has also agreed to reimburse Brown
Gibbons for its expenses (including fees and expenses of counsel) and to
indemnify it against certain liabilities, including liabilities and expenses
which may arise under the federal securities laws. A copy of the Engagement
Letter between the Company and Brown, Gibbons dated January 5, 1996 is attached
as Exhibit (c)3, and is incorporated herein by reference.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, none of its executive officers,
directors, affiliates or subsidiaries presently has determined whether to tender
into the Brady Offer any Shares which are held of record or beneficially owned
by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as indicated above in connection with the Brady Offer and the
Management Group Offer, no negotiation is under way or is being undertaken by
the Company in response to the Brady Offer which relates to or would result in
(1) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization or dividend policy of the
Company.
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(b) Except as otherwise set forth in response to Items 3 and 4 above, there
is no transaction, Board resolution, agreement in principle or signed contract
in response to the Offer.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The parties have agreed to a stay of the arbitration and litigation between
them described in Item 4 above until the Brady Offer and Merger has been
consummated or the Merger Agreement has terminated.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit (a)1 Letter to stockholders dated February 28, 1996.*
Exhibit (a)2 Written opinion of Brown, Gibbons dated February 27, 1996.*
Exhibit (a)3 Information Statement Pursuant to Section 14(f) of the Securities and Exchange
Act of 1934 dated February 28, 1996.*
Exhibit (a)4 Text of a joint press release dated February 27, 1996 issued by the Company
and Brady.
Exhibit (c)1 Plan and Agreement of Merger Among W.H. Brady Co., Brady USA, Inc., VSI
Acquisition Co. and Varitronic Systems, Inc. dated as of February 27, 1996.
Exhibit (c)2 Forms of Severance Pay Agreement.
Exhibit (c)3 Letter of Engagement between the Company and Brown, Gibbons dated January 5,
1996.
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* Included with the Schedule 14D-9 sent to shareholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: February 29, 1996.
/s/ Reid V. MacDonald
--------------------------------------
(Signature)
Reid V. MacDonald, Director
--------------------------------------
(Name and Title)
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EXHIBIT INDEX
EXHIBIT PAGE NO.
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(a)1 Letter to stockholders dated February 28, 1996.*
(a)2 Written opinion of Brown, Gibbons dated February 27, 1996.*
(a)3 Information Statement Pursuant to Section 14(f) of the Securities and
Exchange Act of 1934 dated February 28, 1996.*
(a)4 Text of a joint press release dated February 27, 1996 issued by the Company
and Brady.
(c)1 Plan and Agreement of Merger Among W.H. Brady Co., Brady USA, Inc., VSI
Acquisition Co. and Varitronic Systems, Inc. dated as of February 27, 1996.
(c)2 Forms of Severance Pay Agreement.
(c)3 Letter of Engagement between the Company and Brown, Gibbons dated January
5, 1996.
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* Included with the Schedule 14D-9 sent to shareholders.