<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
VARLEN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
VARLEN CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursu-
ant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
VARLEN CORPORATION
55 SHUMAN BOULEVARD
P.O. BOX 3089
NAPERVILLE, ILLINOIS 60566-7089
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 1994
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Varlen
Corporation, a Delaware corporation (the "Company"), will be held at the Hyatt
Lisle, 1400 Corporetum Drive, Lisle, Illinois 60532 on Tuesday, May 24, 1994, at
10:00 A.M. (local time), for the following purposes:
1. To elect a Board of Directors.
2. To ratify the appointment of Deloitte & Touche as the Company's
independent auditors for the current fiscal year.
3. To transact such other and further business as may properly come before
the meeting or any adjournment or adjournments thereof.
Common stockholders of record at the close of business on March 31, 1994 are
entitled to notice of and to vote at the meeting. A complete list of such
stockholders is open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company at 55 Shuman Boulevard, Naperville, Illinois 60566.
A copy of the Company's Annual Report for the fiscal year ended January 31,
1994 is enclosed herewith.
By Order of the Board of Directors,
STEPHEN A. MAGIDA,
SECRETARY
Dated: April 12, 1994
STOCKHOLDERS ARE URGED TO FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF
YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF MAILED
IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS REQUIRED. THE
PROMPT RETURN OF YOUR PROXY WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.
<PAGE>
VARLEN CORPORATION
55 SHUMAN BOULEVARD
P.O. BOX 3089
NAPERVILLE, ILLINOIS 60566-7089
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 1994
----------------
April 12, 1994
To the Stockholders:
This Proxy Statement is furnished to you in connection with the solicitation
by the Board of Directors of Varlen Corporation, a Delaware corporation (the
"Company"), of Proxies in the accompanying form to be used at the Annual Meeting
of Stockholders to be held at the Hyatt Lisle, 1400 Corporetum Drive, Lisle,
Illinois 60532 on Tuesday, May 24, 1994, at 10:00 A.M. (local time) and at any
subsequent time which may be necessary by the adjournment thereof.
If you were a holder of record of Common Stock of the Company at the close
of business on March 31, 1994, you are entitled to vote at the meeting and your
presence is desired. If, however, you cannot be present in person, a form of
Proxy is enclosed which the Board of Directors of the Company requests you to
execute and return as soon as possible. You can, of course, revoke your Proxy at
any time before it is voted, if you so desire, either in person at the meeting
or by delivery of a duly executed written statement to that effect to the
Secretary of the Company.
The Company is paying all costs of the solicitation of Proxies, including
the expenses of printing and mailing to its stockholders this Proxy Statement
and the accompanying Notice of Annual Meeting of Stockholders and form of Proxy.
No proxy solicitors have been specially engaged. Officers or employees of the
Company may solicit Proxies in person, or by mail, telegram or telephone, but
such persons will receive no compensation for such work, other than their normal
compensation as such officers or employees.
At the close of business on March 31, 1994, 4,851,157 shares of Common Stock
were outstanding and are entitled to vote at the Annual Meeting. Each
outstanding share is entitled to one vote. This Proxy Statement and the enclosed
Proxy are first being mailed to the stockholders of the Company on or about
April 12, 1994.
PROXIES AND VOTING
The persons named in the accompanying form of Proxy intend to vote Proxies
for the election of the nominees for director described herein unless authority
to vote for directors is withheld. In the event that any nominee at the time of
election shall be unable or unwilling to serve or is otherwise unavailable for
election (which contingency is not now contemplated or foreseen), and in
consequence other nominees shall be nominated, the persons named in the form of
Proxy shall have the discretion and authority to vote or to refrain from voting
in accordance with their judgment on such other nominations.
The presence in person or by proxy of a majority of the shares of Common
Stock outstanding and entitled to vote at the meeting is required for a quorum.
If a quorum is present, those nominees receiving a plurality of the
<PAGE>
votes cast will be elected. Accordingly, neither shares withheld in the election
of directors nor abstentions will count as negative votes. The other matters
being submitted to stockholders at the meeting require the affirmative vote of a
majority of the shares voted (including abstention votes) for approval.
Shares held by brokers and other stockholder nominees sometimes are voted on
certain matters but not others. This can occur, for example, when the broker
does not have the discretionary authority to vote shares of Common Stock and is
instructed by the beneficial owner thereof to vote on a particular matter but is
not instructed on one or more others. These are known as "non-voted" shares.
With respect to the matters as to which shares are "non-voted," they will not be
counted as a vote.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Directors are to be elected to hold office until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
qualified or until resignation, removal, disqualification or death as provided
in the By-laws of the Company. The nominees for director, together with certain
information furnished to the Company by each nominee (see also "Certain
Relationships and Related Transactions" and "Security Ownership of Certain
Beneficial Owners" herein), are set forth below:
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY
OWNED AS OF
MARCH 31, 1994(1)
-----------------------------------
NAME, AGE AND DIRECTOR NUMBER PERCENT OF
POSITION WITH COMPANY SINCE OF SHARES CLASS
- ----------------------------------------------------------------------------------- --------- -------------------- -------------
<S> <C> <C> <C>
Ernest H. Lorch, 61 ............................................................... 1984 2,967shares (2) 0.1%
Chairman
Richard L. Wellek, 55 ............................................................. 1983 76,271shares (3) 1.6%
President and Chief Executive Officer
Rudolph Grua, 65 .................................................................. 1993 300shares (4) *
L. William Miles, 60 .............................................................. 1993 300shares (4) *
Greg A. Rosenbaum, 41 ............................................................. 1985 2,662shares (4) 0.1%
Theodore A. Ruppert, 63 ........................................................... 1971 452,063shares (5) 9.3%
Joseph J. Ross, 48 ................................................................ -- 1,000shares (4) *
<FN>
- ----------
*The number of shares of Common Stock beneficially owned is less than .1% of
class.
(1) As of March 31, 1994, all directors, nominees and officers of the Company
as a group (11 persons) owned beneficially 568,824 shares of the Company's
Common Stock (11.6% of class), 120,233 of which were held directly
(including shares which are deemed to be beneficially owned solely because
of the existence of currently exercisable options to acquire such shares,
debentures convertible into shares of the Company's Common Stock and shares
held by a sole trustee) and 448,591 of which were held subject to shared
voting and dispositive power.
(2) Of such shares, 1,138 are held directly and 1,829 are deemed to be
beneficially owned because of the ownership of debentures convertible into
shares of the Company's Common Stock.
(3) Of such shares, 9,646 are held directly, 28,825 are deemed to be
beneficially owned by Mr. Wellek because he is the sole trustee of a trust
in which he is the sole beneficiary and 37,800 shares are deemed to be
beneficially owned solely because of the existence of currently exercisable
options to acquire such shares.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(4) Held directly.
(5) Of such shares, 3,472 are held directly and 448,591 are deemed to be
beneficially owned by Mr. Ruppert solely because he is one of three
trustees of each of two trusts in which he and members of his family have
an interest.
</TABLE>
Mr. Lorch is 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 the Company prior to the
Company's purchase of all of the Company's shares owned by DKM in January 1993.
Mr. Lorch was President of DKM from June 1984 to January 1992. He was also an
employee of Patterson Planning & Services, Inc. ("Patterson Planning"), a
management advisory company, until December 1992. Mr. Lorch is also a director
of EnviroSource, Inc., an environmental services company that supplies
industrial customers with long-term specialized services such as recycling,
handling, stabilization or landfilling of environmentally sensitive wastes or
by-products, and Tyler Corporation, a manufacturer of cast iron pipe and
fittings that also provides products for fundraising programs and is a retail
supplier of automotive parts. (See "Certain Relationships and Related
Transactions" herein.)
Mr. Wellek was elected President and Chief Executive Officer of the Company
in December 1983. From December 1980 to May 1984 he was President of National
Metalwares, Inc., a wholly owned subsidiary of the Company.
Mr. Grua is President, Chief Executive Officer and a director of General
Binding Corporation, a manufacturer of business machines and related supplies,
positions he has held since May 1984.
Mr. Miles is 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. Rosenbaum has been President of Palisades Associates, Inc., a merchant
banking and consulting company, since August 1989. He was an independent
consultant from January 1988 to August 1989. Mr. Rosenbaum is also a director of
Richey Electronics, Inc., a distributor of electronic components, a position he
has held since March 1993.
Mr. Ruppert is, and has been for more than the last five years, a general
partner in the Village Development Partnership, a real estate developer;
Chairman and Chief Executive Officer of Glaize Development Corporation, a real
estate holding company; and a Director of Pioneer Bank & Trust Company. (See
"Security Ownership of Certain Beneficial Owners" herein.)
Mr. Ross is 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.
During the fiscal year ended January 31, 1994 ("1993"), the Board of
Directors held ten meetings. The Board does not have a nominating committee; it
does have an Audit Committee consisting of Messrs. Grua, Rosenbaum and Ruppert
and a Compensation Committee consisting of Messrs. Lorch, Miles and Rosenbaum.
The primary function of the Audit Committee, which during 1993 held three
meetings, is to review the scope and results of each year's annual audit, as
well as the Company's internal control procedures. The primary functions of the
Compensation Committee, which during 1993 held two meetings in addition to
meeting informally, are to review and approve the compensation of the Company's
executive officers and operating unit Presidents and to administer the Company's
stock option and purchase plans. Each director attended more than 90% of the
meetings of the Board of Directors and committees on which he served during
1993.
3
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY
The Executive Compensation program is administered by the Compensation
Committee of the Board of Directors and is designed to attract, retain and
motivate executive personnel whose sustained performance will increase
stockholder value through successful achievement of short-term corporate goals
and long-term company objectives. The compensation program is directly
integrated with the achievement of the Company's strategic business plans. The
following program components have been designed to meet these objectives:
BASE SALARY
The base salary program is designed to pay for individual performance within
a structure that is internally equitable and externally competitive with
comparable companies. Base salaries are a function of:
(1) The relative value and potential impact of each position on the
performance of the Company. Value is measured by responsibilities,
complexity and scope of markets, sales volume, technological requirements,
business strategy, etc. The evaluation process results in the assignment of
a position grade;
(2) Salary ranges, assigned to each pay grade, which establish a
competitive position with median salary compensation levels at comparable
companies;
(3) Individual performance, within established base salary ranges.
The program is designed to provide executives who continue to meet
performance expectations with base compensation that is competitive with median
market rates at comparable companies. Each year the company compares base
salary, bonus, and salary ranges of its executives to those of similar positions
in comparable companies as reported in a salary survey conducted by an
independent consulting firm. Approximately 125 companies with sales of $50 -
$500 million participate in this survey. Additional independent surveys are used
to develop a merit increase budget. Within this budget, executives may or may
not receive a base salary increase dependent upon performance in the prior year
and their position in their respective salary ranges. The amount of increase
will vary with individual performance against established performance
objectives.
ANNUAL INCENTIVE -- a target bonus is paid when both financial performance
(E.G., consolidated return on invested capital/return on net assets employed)
and individual performance objectives are met. Financial goals are directly
related to the strategic business plan. Individual performance goals are value
added, representing achievements of annually agreed upon objectives beyond
normal position expectations.
If both objectives are not met, the bonus will be reduced. If performance is
below the minimum threshold for both objectives, there will be no bonus.
Similarly, if performance exceeds the objectives, a higher bonus will be paid,
subject to a cap.
LONG-TERM CONSISTENCY BONUS -- provides direct correlation of additional
compensation opportunity with consistent achievement of annual incentive goals
over a multi-year period. This bonus is contingent upon achievement of financial
and individual performance objectives for more than one year of a three-year
period. If minimum objectives are not met, no consistency bonus is paid.
STOCK OPTIONS -- rewards executives for long-term strategic management and
enhancement of stockholder value. Promotes recruitment and retention of key
executive personnel by providing meaningful incentives dependent upon successful
corporate performance. Stock options are awarded based upon an overall
evaluation of each executive. Outstanding options held are not considered in the
award of new options.
4
<PAGE>
1993 DEFERRED INCENTIVE STOCK PURCHASE PLAN
The Purchase Plan was adopted by the Board of Directors of the Company on
March 29, 1993, and became effective when it was approved by stockholders on May
25, 1993. The Purchase Plan provides for the offer to selected officers and
other key employees of rights to purchase Common Stock of the Company. Within
thirty days after receipt of an offer, each offeree seeking to participate in
the Purchase Plan must execute a deferred purchase right agreement evidencing
the offeree's commitment to purchase a specified number of shares of Common
Stock of the Company at a specified price at the expiration of five years. A
purchase right shall also entitle the offeree to receive a cash bonus equivalent
to the amount of dividends which would have been payable on the number of shares
the offeree committed to purchase under the purchase right, when and as
dividends are paid on the Common Stock.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER ("CEO") COMPENSATION
As discussed previously, the Company's executive compensation program,
including that of the CEO, is based on business performance, both short-term
(base salary and annual incentive bonus) and long-term (long-term consistency
bonus, stock purchase plan and stock options). The compensation of the CEO
serves as a model for this pay-for-performance program.
Sales and earnings for the fiscal year reached record levels. Net earnings
per share increased 40% to $1.90 per share on a fully diluted basis. This was up
from $1.15 per share for 1992, before a first quarter charge of $1,351,000 ($.20
per share) for a change in accounting principle. Sales rose 10% to a record of
$291,908,000.
Mr. Wellek's strategic direction played a key role in the achievement of
this record performance. His annual incentive was based upon the achievement of
financial (65%) and non-financial (35%) goals. Financial performance, as
measured by Return on Invested Capital, increased significantly in 1993.
Non-financial achievements included implementation of continuous improvement
programs that contributed to higher efficiency and cost reduction. Also, several
actions were successfully taken to strengthen the balance sheet and improve the
capitalization of the Company, supporting the strategic objective of growing
core businesses through internal expansion and complementary acquisitions.
Compensation adjustments for Mr. Wellek were consistent with this outstanding
performance.
OTHER MATTERS
The Revenue Reconciliation Act of 1993 limits the annual deduction a
publicly held corporation may take for certain types of compensation paid or
accrued with respect to certain executives to $1 million per year per executive
for taxable years beginning after December 31, 1993. The Company does not
believe that compensation currently paid to its executives is affected by the
limitation on tax deductibility. However, the Company intends to review its
compensation plans in the context of the requirements for tax deductibility
under the new rules, and to determine whether, and to what extent, revisions of
such plans are necessary or desirable.
Respectfully submitted,
Greg A. Rosenbaum (Chairman)
Ernest H. Lorch
L. William Miles
5
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's remaining three executive officers,
based on salary and bonus earned during 1993.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
SECURITIES LONG-
ANNUAL COMPENSATION UNDERLYING TERM
FISCAL ------------------------- STOCK INCENTIVE
NAME PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) PAYOUTS
- --------------------------- ------------------------- ----------- ------------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Wellek President, CEO and 1993 $ 374,623(4) $ 246,750 9,000 $ 83,336
Director 1992 337,508(4) 180,000 18,750(9) 20,000
1991 325,008(4) 64,000 15,000(9) 0
Raymond A. Jean Exec. VP and 1993 222,657 111,314 6,750 42,882
COO(10) 1992 180,000 73,365 11,250(9) 12,235
1991 168,334 30,600 7,500(9) 0
George W. Hoffman Group Vice President 1993 176,857 40,000 4,500 15,464
1992 161,350 55,120 9,750(9) 8,880
1991 143,458 21,000 7,500(9) 0
Richard A. Nunemaker VP Finance, CFO 1993 157,537 87,248 4,500 31,039
1992 137,500 59,800 7,500(9) 8,700
1991 118,167 27,000 10,500(9) 0
<CAPTION>
ALL OTHER
NAME COMP.(3)
- --------------------------- ------------
<S> <C>
Richard L. Wellek $ 48,427(5)
39,253(5)
--
Raymond A. Jean 22,726(6)
15,876(6)
--
George W. Hoffman 15,533(7)
13,751(7)
--
Richard A. Nunemaker 18,582(8)
12,291(8)
--
<FN>
- ----------
(1) Reflects bonus earned during the fiscal year. All bonuses were paid during
the following fiscal year, except for a portion of the 1993 bonus which was
paid in 1993.
(2) Options granted to acquire shares of common stock.
(3) Disclosure of All Other Compensation is not required for 1991.
(4) Includes fees of $13,000 paid to Richard L. Wellek in 1993 and $15,000 in
each of 1992 and 1991 for his service as a Director of the Company.
(5) Consists of $18,757 and $15,944 in Company contributions to the Company's
Profit Sharing and Retirement Savings Plan in 1993 and 1992, respectively,
and $29,670 and $23,309 to the Company's Shadow 401(k) Plan in 1993 and
1992, respectively.
(6) Consists of $18,757 and $14,758 in Company contributions to the Company's
Profit Sharing and Retirement Savings Plan in 1993 and 1992, respectively,
and $3,969 and $1,118 to the Company's Shadow 401(k) Plan in 1993 and 1992,
respectively.
(7) Consists of $12,861 and $12,476 in Company contributions to the Company's
Profit Sharing and Retirement Savings Plan in 1993 and 1992, respectively,
and $2,672 and $1,275 to the Company's Shadow 401(k) Plan in 1993 and 1992,
respectively.
(8) Consists of $17,474 and $11,977 in Company contributions to the Company's
Profit Sharing and Retirement Savings Plan in 1993 and 1992, respectively,
and $1,108 and $314 to the Company's Shadow 401(k) Plan in 1993 and 1992,
respectively.
(9) Restated for a 3 for 2 stock split in the form of a stock dividend in 1993.
(10) Raymond A. Jean was promoted to Executive Vice President and Chief
Operating Officer on February 1, 1993, prior to which he served as Group
Vice President.
</TABLE>
6
<PAGE>
SUMMARY OF LONG-TERM INCENTIVE PLANS
The following table presents information concerning compensation earned
under long-term incentive plans during the most recent fiscal year for the
Company's Chief Executive Officer and each of the Company's remaining three
executive officers.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, OTHER PERIOD ------------------------------
UNITS OR UNTIL MATURATION DOLLAR VALUE
NAME OTHER RIGHTS OR PAYOUT OF ESTIMATED PAYOUT
- ---------------------------------------- ------------ ---------------- ------------------------------
<S> <C> <C> <C>
Richard L. Wellek
Deferred Incentive Stock
Plan(1)(2)........................1993 37,500 April 30, 1998
Long Term Consistency Bonus(5)....1993 $ 44,675
Raymond A. Jean
Deferred Incentive Stock
Plan(1)(3)........................1993 22,500 April 30, 1998
Long Term Consistency Bonus(5)....1993 19,686
George W. Hoffman
Deferred Incentive Stock
Plan(1)(4)........................1993 15,000 April 30, 1998
Long Term Consistency Bonus(5)....1993 0
Richard A. Nunemaker
Deferred Incentive Stock
Plan(1)(4)........................1993 15,000 April 30, 1998
Long Term Consistency Bonus(5)....1993 15,575
<FN>
- ---------
(1) This compensation represents the amortization of the difference between the
option price and fair market value of stock at the date of grant which is
amortized over five years. See discussion of the 1993 Deferred Incentive
Stock Purchase Plan in the Executive Compensation section of this Proxy
Statement.
(2) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$38,661 in 1993.
(3) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$23,196 in 1993.
(4) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$15,464 in 1993.
(5) Represents compensation under the Long-Term Consistency Bonus which was
earned in 1993 and paid in 1994. See additional discussion in the Executive
Compensation section of this Proxy Statement.
</TABLE>
DIRECTOR COMPENSATION
During 1993, but prior to June 1993, directors received $15,000 per year for
services rendered as members of the Board of Directors (the "Services").
Beginning in June 1993, directors are paid $12,000 per year for their Services
with the Chairman of the Board receiving an additional $5,000 per year and each
committee chairman receiving an additional $2,500 per year for serving in such
capacity. In addition, directors who are not employees of the Company ("Outside
Directors") receive $750 per board of directors meeting attended ($250 per board
of directors meeting by telephone) and $750 per committee meeting attended ($500
if the committee meeting is in conjunction with a board of directors meeting).
Outside Directors also receive an annual award of 300 shares of the Company's
Common Stock.
7
<PAGE>
STOCK PERFORMANCE CHART
The following chart compares the change in the value of $100 invested in the
Company's Common Stock with $100 invested in the S&P 500 Index and the S&P
Diversified Industry Group Index during the five fiscal years ended January 31,
1994. The comparison assumes $100 was invested on January 31, 1989 in the
Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL VALUE
(VARLEN CORPORATION, S&P 500, S&P MANUFACTURING AND DIVERSIFIED INDUSTRY GROUP)
<TABLE>
<CAPTION>
1/31/89 1/31/90 1/31/91 1/31/92 1/31/93 1/31/94
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Varlen Corporation................. $ 100.00 $ 84.82 $ 64.11 $ 90.80 $ 165.21 $ 225.20
S&P 500............................ 100.00 101.61 110.00 128.49 135.28 164.17
S&P Manufacturing and Diversified
Industry Group.................... 100.00 114.55 124.05 151.79 169.29 188.89
</TABLE>
OPTION GRANTS DURING 1993
The following table provides information related to options granted to the
named executive officers during 1993:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED MARKET FOR
UNDERLYING TO PRICE OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE ON DATE EXPIRATION ---------------------------
NAME GRANTED(2) IN 1993 PRICE(3) OF GRANT DATE 0% 5% 10%
- ------------------------- --------- -------- -------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Wellek........ 9,000 15.4 % $ 18.63 $ 20.33 03/29/03 $15,300 $130,369 $306,907
Raymond A. Jean.......... 6,750 11.5 18.63 20.33 03/29/03 11,475 97,777 230,180
George W. Hoffman........ 4,500 7.7 18.63 20.33 03/29/03 7,650 65,184 153,454
Richard A. Nunemaker..... 4,500 7.7 18.63 20.33 03/29/03 7,650 65,184 153,454
<FN>
- ---------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions providing for termination
of the option following termination of employment, nontransferability or
vesting periods.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
(2) Options become exercisable 20% after each of the first four years since
their issuance with all options exercisable after 4 1/2 years.
(3) The option exercise price may be paid in cash or by delivery of shares of
Common Stock owned either by the optionee prior to the exercise of the
option or, with the consent of the Compensation Committee, by the optionee
as a result of the exercise of the option.
</TABLE>
OPTION EXERCISES DURING 1993 AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during 1993 and the number and value of options held at
fiscal year end. The Company does not have any stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Wellek............................ 15,748 $ 189,672 26,250 39,000 $ 403,478 $ 560,790
Raymond A. Jean.............................. 12,900 135,237 5,850 23,250 93,068 322,110
George W. Hoffman............................ 4,725 67,930 8,250 18,000 130,808 256,140
Richard A. Nunemaker......................... 6,150 92,432 6,000 18,000 96,810 262,332
<FN>
- ----------
(1) The closing price for the Company's Common Stock as reported by the NASDAQ
National Market on January 31, 1994 was $26.75. Value is calculated on the
basis of the difference between the option exercise prices and $26.75
multiplied by the number of shares of Common Stock underlying the option.
(2) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise multiplied by the number of related shares.
</TABLE>
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS
In April 1993, the Company entered into severance agreements with Messrs.
Wellek, Hoffman, Jean and Nunemaker, which provide for payments to such
executive officers in the event their employment by the Company is terminated
without cause (as defined) after a "Change in Control" of the Company. Subject
to the terms and conditions of these agreements, such payments are to be made at
the rate of the terminated executive officer's base salary (including the
average of annual cash bonuses for the prior three years), on a monthly basis
and for a period of three years in the case of Mr. Wellek, or two years in the
case of Messrs. Hoffman, Jean and Nunemaker, commencing on the date of
termination. For purposes of this agreement, "Change in Control" means a change
in control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or
any successor provision thereto, whether or not the Company is then subject to
such reporting requirement; provided, however, without limiting the generality
of the foregoing, a Change in Control shall be deemed to have occurred if: (i)
any Person or Group (as those terms are defined in Section 13(d) and 14(d) of
the Exchange Act) is or becomes the record or "Beneficial Owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of 20% or more of the
securities of the Company entitled to vote generally in the election of
directors of the Company; or (ii) a reorganization, merger, consolidation,
complete liquidation or dissolution of the Company or the sale or disposition of
all or substantially all of the assets of the Company or other similar
transaction (in each case, other than pursuant to any bankruptcy, insolvency or
similar law) occurs; or (iii) a change occurs in the composition of a majority
of the board of directors of the Company as constituted on January 1, 1993,
excluding any change where nomination of a successor director was approved by at
least a majority of those members who are members of the board on January 1,
1993, or their successors if so approved for nomination by a majority of the
board. In addition, if Mr. Wellek receives "Change in Control" payments in
excess of certain limitations set forth in the Internal
9
<PAGE>
Revenue Code of 1986, as amended (the "Code"), and is therefore subject to a 20%
excise tax on such payments, the Company will reimburse Mr. Wellek for such
excise tax plus the income and excise taxes thereon.
PENSION PLANS
Effective January 1, 1986, the Company instituted the Varlen Profit Sharing
& Retirement Savings Plan (the "401(k) Plan"), a defined contribution plan, in
which Mr. Wellek, Mr. Jean, Mr. Hoffman and Mr. Nunemaker are participants. The
Company also maintains the Supplemental Executive Retirement Plan of Varlen
Corporation and its Participating Subsidiaries (the "SERP Plan") and the Varlen
Corporation Excess Benefits Plan (the "Shadow 401(k) Plan") in which Mr. Wellek,
Mr. Jean, Mr. Hoffman and Mr. Nunemaker participate.
The following table sets forth, where applicable, the current covered
compensation under each plan and the total number of years of credited service
for benefit plan purposes for Mr. Wellek, Mr. Jean, Mr. Hoffman and Mr.
Nunemaker. Covered compensation under the plans consists of total cash
compensation, except that the 401(k) Plan is limited by law to $235,840 in
calendar 1993 ($150,000 in calendar 1994). Under the SERP Plan, bonuses are
attributed to the year they are earned instead of the year they are paid.
Amounts paid in lieu of dividends under the Deferred Incentive Stock Purchase
Plan are excluded from compensation under the SERP and Shadow 401(k) plans.
<TABLE>
<CAPTION>
COVERED COMPENSATION
------------------------------------- CREDITED
SERP SHADOW SERVICE
NAME 401(K) PLAN 401(K) TO DATE
- ------------------------------------------------------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Richard L. Wellek.................................................. $ 235,840 $ 658,548 $ 567,123 26years
Raymond A. Jean.................................................... 235,840 349,157 303,757 6years
George W. Hoffman.................................................. 235,840 213,857 237,857 14years
Richard A. Nunemaker............................................... 226,037 257,360 223,037 8years
</TABLE>
The 401(k) Plan is maintained for the benefit of all eligible salaried and
hourly employees of the Company and its participating subsidiaries, including
the officers mentioned above. The eligibility requirement of the 401(k) Plan is
six months of continuous service. The Employee Retirement Income Security Act of
1974 places certain limitations on amounts contributed under the 401(k) plan.
The 401(k) Plan provides for both employee and employer contributions.
Employees may contribute up to 14% of total cash compensation during the
calendar year, subject to certain limitations under Federal income tax law
($8,728 in calendar 1992, $8,994 in calendar 1993 and $9,240 in calendar 1994).
Amounts contributed by an employee are not subject to income tax until the funds
are withdrawn from the plan. Employer contributions are divided into two parts.
First, the Company pays 25% of the amount contributed by the employee, up to 6%
of total compensation. Second, there is a profit sharing contribution made to
the account of each participant regardless of whether any employee contributions
are made. The profit sharing contribution cannot be less than 2% of compensation
per year and may be higher, at the discretion of the employing company's board
of directors.
Participants are immediately 100% vested with respect to their own
contributions and any matching contributions. Profit sharing contributions are
subject to a vesting schedule under which the participant becomes 40% vested
after two years of service. An additional 20% vests after each additional year
of service thereafter until the participant becomes 100% vested after 5 years of
service. The vested portion of the participant's account balance becomes payable
in a lump sum or in installments upon the earliest to occur of retirement,
disability, death or termination of employment.
10
<PAGE>
Effective January 1, 1988, the Shadow 401(k) Plan was instituted to provide
additional benefits to certain executives, as determined by the Board of
Directors. In this unfunded plan, benefits are earned based on the application
of any or all three IRS limitations with respect to the 401(k) Plan.
Participants' Shadow 401(k) Plan accounts are credited with matching
contributions or discretionary profit sharing contributions which are disallowed
from the 401(k) Plan because of the limit on individual contributions ($8,994 in
calendar 1993), the limit on covered compensation ($235,840 in calendar 1993),
or the limit on total contributions of $30,000 or 25% of compensation from all
sources. Account balances are credited with interest quarterly and all benefits
earned are subject to the same vesting and payment schedule as is applied to the
401(k) Plan.
The SERP Plan is an unfunded plan designed to provide supplemental
retirement benefits to certain executives selected by the Board of Directors.
Any such executive is entitled upon retirement to a supplemental retirement
benefit, which, when added to the executive's total annual retirement benefit,
equals 50% of the average of the five highest years of the final ten years
covered compensation for those retiring at age 62 or after 15 years of service.
The 50% factor is reduced by 3.3% for each year of service less than the
required 15 years at age 62.
The following table sets forth the annual retirement benefit payable under
the SERP Plan to participants retiring at age 62 in 1993. These benefits will be
reduced by any profit sharing benefits from the 401(k) Plan or the Shadow 401(k)
Plan, company funded retirement benefits from prior pension plans and 50% of
primary Social Security benefits. Benefits are unreduced for retirement starting
at age 62, with 15 years of credited service.
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR GIVEN YEARS OF SERVICE
--------------------------------------------------
COVERED COMPENSATION 15 20 25 30
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 50,000.................................. $ 25,000 $ 25,000 $ 25,000 $ 25,000
150,000.................................. 75,000 75,000 75,000 75,000
200,000.................................. 100,000 100,000 100,000 100,000
250,000.................................. 125,000 125,000 125,000 125,000
300,000.................................. 150,000 150,000 150,000 150,000
350,000.................................. 175,000 175,000 175,000 175,000
400,000.................................. 200,000 200,000 200,000 200,000
450,000.................................. 225,000 225,000 225,000 225,000
500,000.................................. 250,000 250,000 250,000 250,000
550,000.................................. 275,000 275,000 275,000 275,000
600,000.................................. 300,000 300,000 300,000 300,000
650,000.................................. 325,000 325,000 325,000 325,000
700,000.................................. 350,000 350,000 350,000 350,000
</TABLE>
The SERP Plan also contains provisions for early retirement benefits,
optional methods of benefit payment, payments to the surviving beneficiary of an
employee and other qualifications to the foregoing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lorch, Chairman of the Company, serves on the Company's Compensation
Committee along with Messrs. Miles and Rosenbaum. See "Certain Relationships and
Related Transactions".
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company maintained an agreement with Patterson Planning, a management
advisory company, for the use of Patterson Planning's personnel in advising and
assisting management of the Company in corporate and financial planning, risk
management and casualty insurance placement during calendar 1993.
The Company used the specialized financial and business skills of the
personnel of Patterson Planning in order to supplement its executive personnel
in areas such as the investigation, development and negotiation of acquisitions
and financing arrangements along with risk management and casualty insurance
placement.
Under the agreement in effect during calendar 1993 between the Company and
Patterson Planning, the Company paid a fee of $350,000 to Patterson Planning.
The agreement was terminated by the Company at the end of calendar year 1993.
Mr. Ernest Lorch, an officer and director of the Company during fiscal 1993, was
a salaried employee of Patterson Planning until December 1992. The Company's
Board of Directors had approved the agreement by the affirmative vote of each of
the directors not affiliated with Patterson Planning and the management of the
Company believes that the agreement was in the best interests of the Company and
its stockholders.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
ownership of shares of the Company's Common Stock by (i) persons who were the
beneficial owners, as of March 31, 1994, of more than 5% of the outstanding
shares of the Company's Common Stock and (ii) the Company's four most highly
compensated executive officers.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME AND ADDRESS OF 5% BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
- ------------------------------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
The Prudential Insurance Company of America ........................................................... 646,457 13.0%
Prudential Plaza
Newark, New Jersey 07102
Berenice T. Ruppert, Richard W. Ruppert and Theodore A. Ruppert, as trustees .......................... 448,591(1) 9.2%
One Barclay Woods Drive
St. Louis, Missouri 63124
The Guardian Life Insurance Company of America ........................................................ 399,645 8.2%
201 Park Avenue South
New York, New York 10003
F M R Corporation ..................................................................................... 312,350 6.4%
82 Devonshire Street
Boston, Massachusetts 02109
Dimensional Fund Advisors, Inc ........................................................................ 306,087 6.3%
1299 Ocean Avenue
Santa Monica, California 90401
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT
NAME OF EXECUTIVE OFFICER OWNED OF CLASS
- ------------------------------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
Richard L. Wellek...................................................................................... 76,271(2) 1.6%
George W. Hoffman...................................................................................... 14,916(3) 0.3%
Raymond A. Jean........................................................................................ 12,450(4) 0.3%
Richard A. Nunemaker................................................................................... 5,895(5) 0.1%
<FN>
- ----------
(1) Such shares are held by two trusts, each of which has three trustees. The
trusts are for the benefit of Berenice T. Ruppert and members of her
family. Excludes 3,472 shares held directly by Theodore A. Ruppert.
(2) Of such shares, 9,646 are held directly, 28,825 are deemed to be
beneficially owned by Mr. Wellek because he is the sole trustee of a trust
in which he is the sole beneficiary and 37,800 shares are deemed to be
beneficially owned solely because of the existence of currently exercisable
options to acquire such shares.
(3) Of such shares, 1,716 are held directly and 13,200 are deemed to be
beneficially owned solely because of the existence of currently exercisable
options to acquire such shares.
(4) All of the shares are deemed to be beneficially owned solely because of the
existence of currently exercisable options to acquire such shares.
(5) Of such shares, 795 are held directly and 5,100 are deemed to be
beneficially owned solely because of the existence of currently exercisable
options to acquire such shares.
</TABLE>
13
<PAGE>
PROPOSAL NO. 2--RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed the firm of Deloitte &
Touche as its independent auditors for the fiscal year ending January 31, 1995.
Deloitte & Touche served in such capacity for the Company's preceding fiscal
year. The Company has been advised by Deloitte & Touche that neither it nor any
member thereof has any financial interest, direct or indirect, in the Company in
any capacity. A representative of Deloitte & Touche is expected to be present at
the Annual Meeting of Stockholders, will be given an opportunity to make a
statement if he desires to do so and is expected to be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. IT IS THE
INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY TO VOTE THE
SHARES REPRESENTED THEREBY IN FAVOR OF RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE CURRENT FISCAL
YEAR UNLESS OTHERWISE INSTRUCTED IN THE PROXY.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which are to
be brought before the meeting. If any other matters should be presented for
proper action, it is the intention of the persons named in the Proxy to vote in
accordance with their discretion pursuant to the terms of the Proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1995 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 16, 1994 for inclusion in the Company's Proxy Statement with
respect to such meeting.
VARLEN CORPORATION
BY RICHARD L. WELLEK
PRESIDENT AND
CHIEF
EXECUTIVE OFFICER
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO FILL IN, SIGN,
DATE AND RETURN THE ENCLOSED PROXY.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 31, 1994, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE
OBTAINED WITHOUT CHARGE BY ANY STOCKHOLDER OF THE COMPANY OF RECORD AS OF MARCH
31, 1994 BY WRITING TO: VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER,
VARLEN CORPORATION, 55 SHUMAN BOULEVARD, P.O. BOX 3089, NAPERVILLE, ILLINOIS
60566-7089.
14
<PAGE>
VARLEN CORPORATION
BOARD OF DIRECTORS PROXY--ANNUAL MEETING OF STOCKHOLDERS--MAY 24, 1994
THE UNDERSIGNED hereby appoints RICHARD L WELLEK, THEODORE A. RUPPERT and
and RICHARD A. NUNEMAKER, with full power of substitution and revocation, as
proxies to vote all the stock outstanding in the name of the undersigned at the
Annual Meeting of Stockholders of Varlen Corporation to be held at the Hyatt
Lisle, 1400 Corporetum Drive, Lisle, Illinois 60532, on Tuesday, May 24, 1994,
at 10:00 A.M. (local time) and at any adjournment or adjournments thereof, with
the same powers as the undersigned would possess if personally present:
(Continued and to be DATED AND SIGNED on REVERSE SIDE)
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
For all nominees
Withheld from all nominees
For all nominees except as noted below
1. Election of Directors for a One Year Term:
Nominees: Ernest H. Lorch, Richard L. Wellek, Greg A. Rosenbaum,
Theodore A. Ruppert, Rudolph Grua, L. William Miles and
Joseph J. Ross.
* Withhold my vote for the following nominees:
---------------------------------
For Against Abstain
2. To ratify the appointment of Deloitte & Touche as the Company's independent
auditors for the current fiscal year.
3. In their discretion, upon any other matter which may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
A majority of such proxies as shall be present at the meeting (or if only one
shall be present then that one) may exercise all the power of the proxies
hereunder. The undersigned hereby revokes all proxies heretofore given with
respect to the voting of such stock at such Annual Meeting. The undersigned
hereby acknowledges receipt of the Company's Proxy Statement dated April 12,
1994, and of its Annual Report for the fiscal year ended January 31, 1994.
THE PROXIES WILL VOTE AS INSTRUCTED HEREIN. IF NO CHOICE IS SPECIFIED, PROXIES
WILL VOTE FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND FOR THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE.
Comments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s)
Dated , 1994
--------------------------------------------------------------------
Signature of Stockholder should correspond exactly with name as stenciled
hereon. When signing as an agent, attorney, executor, administrator, trustee,
guardian or corporate official, please give your full title as such. Each joint
owner or trustee should sign the proxy.
Please date, sign and return this Proxy in the enclosed envelope.
