<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 29, 1996
----------------
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 Wednesday, May 29, 1996,
at 10:00 A.M. (local time), for the following purposes:
1.To elect a Board of Directors.
2.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 April 1, 1996 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 60566-7089.
A copy of the Company's Annual Report for the fiscal year ended January 31,
1996 is enclosed herewith.
By Order of the Board of Directors,
VICKI L. CASMERE,
SECRETARY
Dated: April 17, 1996
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 29, 1996
----------------
April 17, 1996
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 Wednesday, May 29, 1996, 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 April 1, 1996, 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.
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 April 1, 1996, 5,306,466 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 17, 1996.
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 and Management" herein), are set forth below:
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY
OWNED AS OF
APRIL 1, 1996(1)
----------------------------
NAME, AGE AND DIRECTOR NUMBER PERCENT
POSITION WITH COMPANY SINCE OF SHARES OF CLASS
- ---------------------------------------------------------------------- -------- ----------------- --------
<S> <C> <C> <C>
Ernest H. Lorch, 63 .................................................. 1984 3,772shares(2) 0.1%
Chairman
Richard L. Wellek, 57 ................................................ 1983 113,378shares(3) 2.1%
President and Chief Executive Officer
Rudolph Grua, 67 ..................................................... 1993 990shares(4) *
L. William Miles, 62 ................................................. 1993 990shares(4) *
Greg A. Rosenbaum, 43 ................................................ 1985 5,788shares(4) 0.1%
Joseph J. Ross, 50 ................................................... 1994 1,760shares(4) *
Theodore A. Ruppert, 65 .............................................. 1971 476,928shares(5) 9.0%
</TABLE>
- --------------------------
* The number of shares of Common Stock beneficially owned is less than .1% of
class.
(1) As of April 1, 1996, all directors, nominees and officers of the Company as
a group (11 persons) owned beneficially 668,046 shares of the Company's
Common Stock (12.3% of class), 195,597 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 472,449 of which were held subject to shared
voting and dispositive power.
(2) Of such shares, 1,760 are held directly and 2,012 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, 44,518 are deemed to be beneficially owned by Mr. Wellek
because he is the sole trustee of a trust of which he is the sole
beneficiary and 68,860 shares are deemed to be beneficially owned solely
because of the existence of currently exercisable options to acquire such
shares.
2
<PAGE>
(4) Held directly.
(5) Of such shares, 4,479 are held directly and 472,449 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.
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. Mr. Lorch is also
a director of Tyler Corporation, a retail supplier of automotive parts that also
provides products for fundraising programs.
Mr. Wellek was elected President and Chief Executive Officer of the Company
in December 1983. From 1968 through 1983 he held various executive and
operational positions at the Company.
Mr. Grua has been Vice Chairman of General Binding Corporation, a
manufacturer of business machines and related supplies, since January 1995 and a
director since May 1984. Prior to January 1995, Mr. Grua was President and Chief
Executive Officer of General Binding Corporation, positions he had held since
May 1984.
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. Miles is also a director of Bouton Corporation, a
manufacturer of safety glasses.
Mr. Rosenbaum has been President of Palisades Associates, Inc., a merchant
banking and consulting company, since August 1989. Mr. Rosenbaum is also a
director of Richey Electronics, Inc., a distributor of electronic components, a
position he has held since April 1993.
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.
Mr. Ruppert is, and has been for more than the last five years, a general
partner in the Village Development Partnership, a real estate, manufacturing and
oil development holding company; Chairman, Chief Executive Officer and director
of Glaize Development Corporation, a real estate developer; and a director of
Pioneer Bank & Trust Company. (See "Security Ownership of Certain Beneficial
Owners and Management" herein.)
During the fiscal year ended January 31, 1996 ("1995"), the Board of
Directors held seven meetings. The Board does not have a nominating committee;
it does have an Audit Committee consisting of Messrs. Grua, Ross and Ruppert and
a Compensation Committee consisting of Messrs. Lorch, Miles and Rosenbaum. The
primary function of the Audit Committee, which during 1995 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 1995 held two meetings, 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 85% of the meetings of the Board of Directors and committees
on which he served during 1995.
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, which is composed entirely of outside
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 within the
control of the executive 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.
4
<PAGE>
STOCK OPTIONS -- rewards executives for long-term strategic management and
enhancement of stockholder value. Options also promote 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.
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.
Payments are made quarterly. 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 for the third year in a row. Net earnings
per share increased 27% to $2.67 per share on a fully diluted basis. This was up
from $2.11 per share on a fully diluted basis for 1994 and $1.73 per share for
1993. Sales rose 13% to a record of $386,987,000 from $341,521,000 in 1994.
Mr. Wellek's strategic direction played a key role in the achievement of
this record performance. Of his annual incentive, 65% was objectively determined
based upon Return on Invested Capital, which increased significantly in 1995 and
reached a record level of 13.8%. The balance, 35%, was based upon non-financial
goals. Non-financial achievements included the successful divestiture of a
non-strategic subsidiary, developing additional cost reduction plans and
productivity improvement programs for all operating units, and developing a
strategic acquisition and joint venture program. 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 preparing the Company for future
external growth. Compensation adjustments for Mr. Wellek were consistent with
this outstanding performance.
5
<PAGE>
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 annually review
its compensation plans in the context of the requirements for tax deductibility
under the 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
April 2, 1996
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 three executive officers who earned
compensation during fiscal 1995, based on salary and bonus earned during 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
SECURITIES LONG-
ANNUAL COMPENSATION UNDERLYING TERM
FISCAL ---------------------- STOCK INCENTIVE ALL OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) PAYOUTS COMP.
- -------------------- -------------------- ------ ----------- -------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Wellek President, CEO and 1995 $382,092 $288,751 8,250 $211,904(7) $101,515(3)
Director 1994 364,596 275,625 8,800(10) 181,333(7) 85,542(3)
1993 345,848 246,750 9,900(10) 83,336(7) 76,296(3)
Raymond A. Jean Exec. VP and COO 1995 247,506 158,000 7,150 113,115(8) 55,913(4)
1994 231,667 145,722 6,600(10) 94,043(8) 45,018(4)
1993 209,499 111,314 7,425(10) 42,882(8) 37,921(4)
George W. Hoffman Group Vice President 1995 178,615 78,480 3,850 26,510(9) 34,150(5)
1994 171,422 37,500 4,400(10) 26,510(9) 22,186(5)
1993 166,308 40,000 4,950(10) 15,464(9) 22,382(5)
Richard A. Nunemaker VP Finance, CFO 1995 169,083 98,890 3,850 77,403(9) 35,109(6)
1994 160,333 97,222 4,400(10) 66,788(9) 31,604(6)
1993 150,000 87,248 4,950(10) 31,039(9) 24,143(6)
</TABLE>
- --------------------------
(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) Number of shares of Common Stock subject to options granted in 1995, 1994
and 1993, respectively.
6
<PAGE>
(3) Consists of $14,310, $13,560 and $18,757 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $62,521, $48,266 and
$36,264 to the Company's Shadow 401(k) Plan; $12,000, $12,000 and $13,000
for services as a director of the Company and $12,684, $11,716 and $8,275 in
other miscellaneous non-cash benefits in 1995, 1994 and 1993, respectively.
(4) Consists of $14,310, $13,560 and $18,757 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $30,653, $21,586 and
$10,506 to the Company's Shadow 401(k) Plan and $10,950, $9,872 and $8,658
in other miscellaneous non-cash benefits in 1995, 1994 and 1993,
respectively.
(5) Consists of $14,310, $13,560 and $12,861 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $6,306, $1,828 and
$1,972 to the Company's Shadow 401(k) Plan and $13,534, $6,798 and $7,549 in
other miscellaneous non-cash benefits in 1995, 1994 and 1993, respectively.
(6) Consists of $14,310, $13,560 and $17,474 in Company contributions to the
Company's Profit Sharing and Retirement Savings Plan; $15,790, $12,711 and
$2,132 to the Company's Shadow 401(k) Plan and $5,009, $5,333 and $4,537 in
other miscellaneous non-cash benefits in 1995, 1994 and 1993, respectively.
(7) Includes $66,275, $66,275 and $38,661 in non-cash compensation earned under
the Deferred Incentive Stock Purchase Plan in 1995, 1994 and 1993,
respectively.
(8) Includes $39,765, $39,765 and $23,196 in non-cash compensation earned under
the Deferred Incentive Stock Purchase Plan in 1995, 1994 and 1993,
respectively.
(9) Includes $26,510, $26,510 and $15,464 in non-cash compensation earned under
the Deferred Incentive Stock Purchase Plan in 1995, 1994 and 1993,
respectively.
(10) Restated for a 10 percent stock dividend in 1995.
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 three executive
officers who earned compensation under long-term incentive plans during fiscal
1995.
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER PERIOD -------------------------------
OTHER UNTIL MATURATION DOLLAR VALUE
NAME RIGHTS(1) OR PAYOUT(2) OF ESTIMATED PAYOUT
- ---------------------------------------------------------------- ------------ ---------------- -------------------------------
<S> <C> <C> <C>
Richard L. Wellek
Deferred Incentive Stock Plan(3)(4).......................1995 41,250 April 30, 1998
Long-Term Consistency Bonus(7)............................1995 $145,629
Raymond A. Jean
Deferred Incentive Stock Plan(3)(5).......................1995 24,750 April 30, 1998
Long-Term Consistency Bonus(7)............................1995 73,350
George W. Hoffman
Deferred Incentive Stock Plan(3)(6).......................1995 16,500 April 30, 1998
Long-Term Consistency Bonus(7)............................1995 0
Richard A. Nunemaker
Deferred Incentive Stock Plan(3)(6).......................1995 16,500 April 30, 1998
Long-Term Consistency Bonus(7)............................1995 50,893
</TABLE>
7
<PAGE>
- ------------------------
(1) These are Deferred Incentive Stock Purchase Plan rights which were granted
in 1993. These amounts were restated for a 10 percent stock dividend in
1995.
(2) The final payment to acquire the Common Stock under the Deferred Incentive
Stock Purchase Plan is due April 30, 1998. Payments to acquire the shares
are made ratably over a five year period from the date of grant.
(3) This compensation represents the amortization of the difference between the
purchase 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.
(4) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$66,275 in 1995 and is included in Long-Term Compensation in the Summary
Compensation Table above.
(5) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$39,765 in 1995 and is included in Long-Term Compensation in the Summary
Compensation Table above.
(6) Compensation earned under the Deferred Incentive Stock Purchase Plan was
$26,510 in 1995 and is included in Long-Term Compensation in the Summary
Compensation Table above.
(7) Represents compensation under the Long-Term Consistency Bonus which was
earned in 1995 and paid in 1996 and is included in Long-Term Compensation in
the Summary Compensation Table above. See additional discussion in the
Executive Compensation section of this Proxy Statement.
DIRECTOR COMPENSATION
During 1995, directors were 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 330 shares of the Company's
Common Stock.
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
Manufacturing and Diversified Industry Group Index during the five fiscal years
ended January 31, 1996. The comparison assumes $100 was invested on January 31,
1991 in the Company's Common Stock and in each of the foregoing indices and
assumes reinvestment of dividends.
8
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL VALUE
(VARLEN CORPORATION, S&P 500, S&P MANUFACTURING AND DIVERSIFIED INDUSTRY GROUP)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VARLEN CORPORATION S&P MANUFACTURING AND DIVERSIFIED INDUSTRY GROUP INDEX S&P 500 INDEX
<S> <C> <C> <C>
01/31/91 $100.00 $100.00 $100.00
01/31/92 $141.63 $119.16 $122.39
01/31/93 $257.69 $127.93 $135.00
01/31/94 $351.26 $157.82 $151.98
01/31/95 $323.70 $157.39 $152.67
01/31/96 $361.79 $230.03 $211.02
</TABLE>
OPTION GRANTS DURING 1995
The following table provides information related to options granted to the
named executive officers during 1995:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
----------------------------------------------------------------------- STOCK PRICE APPRECIATION
NUMBER OF % OF TOTAL MARKET FOR
SECURITIES OPTIONS GRANTED PRICE OPTION TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES EXERCISE ON DATE EXPIRATION ---------------------------
NAME GRANTED(2) IN 1995 PRICE(3) OF GRANT DATE 0% 5% 10%
- ------------------------------ ------------------ --------------- -------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Wellek............. 8,250 14.4% $ 17.62 $ 20.69 04/03/05 $25,307 $132,642 $297,314
Raymond A. Jean............... 7,150 12.5 17.62 20.69 04/03/05 21,933 114,956 257,672
George W. Hoffman ............ 3,850 6.7 17.62 20.69 04/03/05 11,810 61,899 138,746
Richard A. Nunemaker.......... 3,850 6.7 17.62 20.69 04/03/05 11,810 61,899 138,746
</TABLE>
- ------------------------
(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.
(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, for certain options with the consent of the Compensation
Committee, by the optionee as a result of the exercise of the option.
9
<PAGE>
OPTION EXERCISES DURING 1995 AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during 1995 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......................... 0 $ 0 59,345 29,480 $810,021 $257,859
Raymond A. Jean........................... 0 0 23,925 21,835 318,486 182,277
George W. Hoffman......................... 7,200 114,526 12,545 14,630 161,953 128,841
Richard A. Nunemaker...................... 6,300 93,360 5,800 15,290 66,037 141,853
</TABLE>
- ------------------------
(1) The closing price for the Company's Common Stock as reported by the NASDAQ
National Market on January 31, 1996 was $24.25. Value is calculated on the
basis of the difference between the option exercise prices and $24.25
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.
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS
The Company has 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 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.
10
<PAGE>
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 $150,000 in
calendar 1995 and 1996. 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............................................................... $150,000 $841,156 $841,156 28 years
Raymond A. Jean................................................................. 150,000 489,806 489,806 8 years
George W. Hoffman............................................................... 150,000 264,521 264,521 16 years
Richard A. Nunemaker............................................................ 150,000 323,875 323,875 10 years
</TABLE>
The 401(k) Plan is maintained for the benefit of all eligible salaried and
certain 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
($9,240 in calendar 1994 and 1995 and $9,500 in calendar 1996). 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, based on the financial performance of the Company
and established guidelines.
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.
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 funded 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
11
<PAGE>
which are disallowed from the 401(k) Plan because of the limit on individual
contributions ($9,240 in calendar 1995), the limit on covered compensation
($150,000 in calendar 1995), or the limit on total contributions of $30,000 or
25% of compensation from all sources. Account balances are adjusted for
investment earnings or losses 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. At
age 62 with 15 years of service, the executive is entitled upon retirement to
full supplemental retirement benefits which, when added to the executives total
annual retirement benefit, equals 50% of the average of the five highest years
of the final ten years of covered compensation. Any such executive may retire at
age 55 or any age thereafter prior to age 62 with at least 15 years of service
with reduced benefits. Executives with less than 15 years of service can also
retire at age 62 or thereafter with reduced benefits. To compute the reduced
benefits, the 50% factor is reduced by 3.3% for each year of service less than
the required 15 years at age 62, and for each year of retirement prior to age
62.
The following table sets forth the annual retirement benefit payable under
the SERP Plan to participants retiring at age 62 in 1995. 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>
$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
750,000................................................................................ 375,000 375,000 375,000 375,000
800,000................................................................................ 400,000 400,000 400,000 400,000
850,000................................................................................ 425,000 425,000 425,000 425,000
</TABLE>
The SERP Plan also contains 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
Messrs. Lorch, Miles and Rosenbaum, all independent directors, comprise the
Company's Compensation Committee.
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 April 1, 1996, 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
BENEFICIAL OWNER OWNED OF CLASS
- -------------------------------------------------------------------------------------------------------- ----------- --------
<S> <C> <C>
The Guardian Life Insurance Company of America ......................................................... 478,429(1) 8.8%
201 Park Avenue South
New York, New York 10003
Berenice T. Ruppert, Richard W. Ruppert and Theodore A. Ruppert, as trustees ........................... 472,449(2) 8.9%
One Barclay Woods Drive
St. Louis, Missouri 63124
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT
NAME OF EXECUTIVE OFFICER OWNED OF CLASS
- -------------------------------------------------------------------------------------------------------- ----------- --------
<S> <C> <C>
Richard L. Wellek....................................................................................... 113,378(3) 2.1%
Raymond A. Jean......................................................................................... 31,435(4) 0.6%
George W. Hoffman....................................................................................... 20,390(5) 0.4%
Richard A. Nunemaker.................................................................................... 12,614(6) 0.2%
</TABLE>
- --------------------------
(1) Of such shares, 332,069 are held directly and 146,360 are deemed to be
beneficially owned solely because of its ownership of debentures convertible
into shares of the Company's Common Stock.
(2) 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 4,479 shares held directly by Theodore A. Ruppert.
(3) Of such shares, 44,518 are deemed to be beneficially owned by Mr. Wellek
because he is the sole trustee of a trust of which he is the sole
beneficiary and 68,860 shares are deemed to be beneficially owned solely
because of his ownership of currently exercisable options to acquire such
shares.
(4) Of such shares, 800 are held directly and 30,635 are deemed to be
beneficially owned solely because of his ownership of currently exercisable
options to acquire such shares.
(5) Of such shares, 3,060 are held directly and 17,330 are deemed to be
beneficially owned solely because of his ownership of currently exercisable
options to acquire such shares.
(6) Of such shares, 874 are held directly and 11,740 are deemed to be
beneficially owned solely because of his ownership of currently exercisable
options to acquire such shares.
INDEPENDENT AUDITORS
The Board of Directors of the Company intends to appoint, subject to final
proposal acceptance, the firm of Deloitte & Touche LLP as its independent
auditors for the fiscal year ending January 31, 1997. Deloitte & Touche LLP
served in such capacity for the Company's preceding fiscal year. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting of Stockholders and 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.
13
<PAGE>
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 1997 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 18, 1996 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, 1996, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE
OBTAINED WITHOUT CHARGE BY ANY STOCKHOLDER OF THE COMPANY OF RECORD AS OF APRIL
1, 1996 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 29, 1996
THE UNDERSIGNED hereby appoints RICHARD L. WELLEK, THEODORE A. RUPPERT 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 entitled to
vote at the Annual Meeting of Stockholders of Varlen Corporation to be held at
the Hyatt Lisle, 1400 Corporetum Drive, Lisle, Illinois 60532, on Wednesday, May
29, 1996, 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, as specified herein:
(Continued and to be DATED AND SIGNED on REVERSE SIDE)
<PAGE>
VARLEN CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
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.
For all
Withheld nominees
DIRECTORS For all from all except as
RECOMMEND nominees nominees noted below
FOR ALL
NOMINEES / / / / / /
* Withhold my vote for the following nominees: ______________________________
Comments:
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 17,
1996, and of its Annual Report for the fiscal year ended January 31, 1996.
2. In their discretion, upon any other matter which may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
THE PROXIES WILL VOTE AS INSTRUCTED HEREIN. IF NO CHOICE IS SPECIFIED,
PROXIES WILL VOTE FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR.
_______________________________________________________________________________
_______________________________________________________________________________
Signature(s)
Dated_____________________, 1996
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.
