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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 0-5374
VARLEN CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 13-2651100
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Shuman Boulevard
P. O. Box 3089
Naperville, Illinois 60566-7089
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 420-0400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of April 1, 1999, was $340,935,545.
The number of outstanding shares of the Registrant's Common Stock, par value
$.10 per share, as of the close of business on April 1, 1999, was 17,010,934
shares.
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DOCUMENTS INCORPORATED BY REFERENCE
1. The Registrant's 1998 Annual Report to Stockholders is incorporated herein
by reference to the following extent: Industry Segments and Officers into
Part I; and Quarterly Market and Dividend Information, Summary of
Operations, Summary of Financial Condition, Shares Listed, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Consolidated Balance Sheets, Consolidated Statements of Earnings,
Consolidated Statements of Stockholders' Equity and Consolidated Statements
of Cash Flows with related Notes and Independent Auditors' Report into Part
II.
2. The Registrant's Proxy Statement filed pursuant to Regulation 14A within
120 days after January 31, 1999, is incorporated herein by reference to the
following extent: The information set forth under the captions, Election of
Directors, Executive Compensation and Pension Plans, Compensation Committee
Interlocks and Insider Participation and Security Ownership of Certain
Beneficial Owners and Management into Part III.
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PART I
Item 1. BUSINESS
GENERAL
Varlen Corporation (the "Registrant") designs, manufactures, and markets
products used in the manufacturing of transportation equipment (railroad
products and vehicular products segments) and petroleum analyzers (petroleum
analyzers segment). Previously, the Registrant reported its railroad products
and vehicular products segments as a single segment named transportation
products. The companies in each segment have been aggregated based on the
similarity of the products manufactured, production processes, types of
customers, distribution methods and economic factors impacting the companies in
each segment.
The Registrant's principal business strategy is to employ its product
development capabilities, advanced manufacturing processes and marketing skills
in market niches where the Registrant can achieve a market leadership position.
The Registrant's operations are conducted primarily through subsidiaries that
are relatively autonomous, while its small corporate headquarters staff provides
strategic direction, oversees financial controls and arranges financing.
Management's philosophy emphasizes continuous improvements in quality, product
performance and delivery time, cost reductions and other value adding
activities. Because many markets for the Registrant's products are mature, the
Registrant seeks growth opportunities through the development of new products,
the improvement of existing products and the acquisition of products that can be
sold through its distribution networks. In addition, the Registrant's
development efforts increasingly focus on new products specifically designed for
international markets.
DEVELOPMENT OF THE COMPANY
The Registrant was founded in 1969 for the purpose of acquiring and managing
businesses which manufacture products for several industries. Over the years
the Registrant restructured its operations to serve the transportation and
petroleum analyzer industries. Significant acquisitions made within the last
five years include the purchase in late fiscal 1998 of Dynamic Corporation, a
manufacturer of dynamic braking components for locomotives; the late 1997
purchase of the railroad divisions of Ringfeder GmbH and Hanacke Zelzarny a
Perovny, a.s. suppliers to the Registrant's German railcar cushioning device
maker Karl Georg Bahntechnik GmbH which was purchased in late 1996; the late
1997 purchase of the Petrospec-Registered Trademark- product line of portable
laboratory and process petroleum analyzers for which it had been the
exclusive worldwide distributor of these products; Brenco, Incorporated,
purchased in mid 1996, a manufacturer and reconditioner of specialized
tapered roller bearings for railroad freight cars and locomotives; and Prime
Manufacturing Corporation, purchased in late 1994, a manufacturer of a wide
range of products for railroad locomotives including heating, ventilating,
air conditioning units and valves. The following provides basic information
with respect to the Registrant's current operations:
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PRODUCTS AND PRIMARY MARKETS
RAILROAD PRODUCTS
The companies in this segment manufacture components and sub-assemblies for
rolling stock for original equipment manufacturers and tightly related
aftermarkets in the railroad industry.
The Registrant manufactures products which it sells in global markets to
locomotive and railcar manufacturers, railroads and railcar maintenance
facilities, lessors, and track maintenance contractors. The primary products are
tapered roller bearings, hydraulic cushioning devices, draft gears, buffers,
ring springs and discharge gates for railcars; and roller bearings, HVAC
systems, dynamic braking components, draft gears and valves for locomotives.
Additional products include to a lesser extent railroad track fasteners, valves,
and remanufactured crankshafts.
VEHICULAR PRODUCTS
The companies in this segment manufacture components and sub-assemblies for
vehicles for original equipment manufacturers and tightly related aftermarkets
in the automotive and heavy-duty truck and trailer markets.
The Registrant manufactures products which are sold primarily to North American
Class 8 truck and over-the-road trailer manufacturers. The primary products sold
to this end market are aluminum permanent mold and die-cast products including
axle hubs, suspension components, transmission housings, spring brake
components, and structural molded plastic products including instrument panels,
sleeper cab accessories and door sill assemblies. In addition, the Registrant
manufactures products which it sells primarily in North American markets to
original equipment automotive manufacturers, tier one suppliers and aftermarket
transmission rebuilders for use on cars and light trucks. The primary products
sold to this end market are automatic transmission components including reaction
plates and one-way clutches, steering column components and other precision
stamped metal components and weldments.
PETROLEUM ANALYZERS
These products are sold worldwide to oil refineries, petro-chemical plants,
petroleum transporters and large users of distillate products. The primary
products are automated laboratory quality control instruments, on-line process
analyzers, manual and semi-automatic physical property analyzers, portable
opto-electronic analyzers, certification samples and petroleum testing services.
RAILROAD PRODUCTS
The companies in this segment manufacture components and sub-assemblies for
rolling stock primarily for a limited number of original equipment manufacturers
who collectively have significant market share and for selected tightly related
aftermarkets in the railroad industry. The products in this segment are
manufactured by forming metal through casting, molding, stamping, forging and
machining with limited secondary operations. The products are distributed mainly
through its direct/technical sales force. The following is a discussion of this
segment by the markets served.
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The Registrant is a leading manufacturer and reconditioner of tapered roller
bearings for freight cars and locomotives in both domestic and international
markets. The tapered roller bearing is an anti-friction bearing that contains
steel rollers that turn as the axle rotates. They are particularly adapted to
reducing friction where wheels are used. These products are sold to both
original equipment manufacturers ("OEM's") and the aftermarket.
The Registrant is also a leading manufacturer of energy absorption devices which
are sold in the domestic and international markets to OEM's and the aftermarket.
Their purpose is to minimize or prevent damage to locomotives, railcars and
their cargos. These products consist of hydraulic cushioning devices, draft gear
cushioning devices, draw gears, buffers and metal ring springs. Hydraulic
cushioning devices are used on locomotives and rail cars to protect
hi-value/easily damaged cargo (automobiles, equipment, etc.) from damage whereas
draft gears, draw gears, buffers and ring springs are used on locomotives and
passenger cars, and freight cars transporting less easily damaged goods (coal,
ore, grains, etc.) to protect the rail cars themselves from damage.
The Registrant also manufactures other engineered products for the domestic and
international market. The products include HVAC units, dynamic braking devices,
toilets, valves, and remanufactured crankshafts for locomotives, discharge gates
for railcars, and rail anchors. Rail anchors are forged steel devices which are
attached directly to the rail track and are designed to prevent the rail from
longitudinal movement or buckling as a result of traffic and temperature
conditions.
Through acquisitions and ongoing product development, the Registrant is
committed to expanding its market share in both the North American and European
railroad markets. The Registrant believes that its experience and technological
leadership in the North American railroad freight market can be successfully
transferred to the European markets. As the European community opens its
borders, European rail hauls are becoming longer and use heavier freight cars,
requiring more sophisticated cushioning and tapered roller bearing products.
Recent acquisitions made by the Registrant has further improved the Registrant's
access into the European rail market.
North American railroads have a large share of the freight transportation
market. In spite of recent industry consolidation, the Registrant believes that
the continuing increase in freight rail traffic should continue to create demand
for the Registrant's products as new locomotives and rail cars are built, old
locomotives and rail cars are refurbished and the railroads expend funds to
maintain and improve their tracks. As freight railroad systems are expanded and
updated throughout the world, the Registrant believes that its wide-range of
highly engineered products should be well positioned to meet the growing demand.
In the railroad market, the Registrant's products compete on engineering
features, quality, service and price. There are a small number of competitors in
each of the above described markets. New competitors in the Registrant's rail
products markets have been discouraged from entering these markets because of
the relatively large capital investment required, the time it takes to receive
railroad approval of particular designs and products and the relatively mature
status of these markets. However, the existing competitors in these markets
continue to compete intensely.
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OTHER INFORMATION
The primary materials used for the manufacture of products in this segment are
cold rolled and hot rolled steel, special alloy steel bar, castings, forgings
and tubing and rod. The Registrant has not experienced significant difficulties
in obtaining such materials, although long lead times exist for certain steel
products. The machinery and equipment used for the manufacturing of these
products, which management considers adequate for current operations consist
primarily of heavy-duty forging and heat-treating equipment, metal cutting
machine tools, grinding equipment, welding equipment, casting equipment, tools,
dies, furnaces, molds, painting and plating equipment.
Backlog for this segment was $91.3 million, $49.4 million and $23.9 million as
of January 31, 1999, 1998, and 1997, respectively. All of the current backlog is
expected to be filled during the current fiscal year.
The Registrant's sales of tapered roller bearings for railroad freight cars and
locomotive engines was 14%, 14% and 9% of the Registrant's sales in 1998, 1997,
1996, respectively. Sales of cushioning devices and related parts for railroad
freight cars and locomotive engines accounted for 12%, 9% and 9% of the
Registrant's total sales in 1998, 1997 and 1996, respectively.
VEHICULAR PRODUCTS
The companies in this segment manufacture components and sub-assemblies for
vehicles primarily for a limited number of original equipment manufacturers who
collectively have significant market share and for selected tightly related
aftermarkets in the automotive and heavy-duty truck and trailer markets. The
products in this segment are manufactured by forming metal or plastic through
casting, molding, stamping, and machining with limited secondary operations. The
products are distributed mainly through its direct/technical sales force. The
following is a discussion of this segment by the markets served.
The Registrant designs, manufactures and markets lightweight aluminum and
plastic components for heavy-duty over-the-road trucks and trailers in domestic
and international markets. The customer base for these products is original
truck and trailer manufacturers and tier 1 component manufacturers. Production
remains at strong levels in this industry due to continued general economic
strength.
The Registrant continues to benefit from two important market trends in new
trucks. Driver appeal and comfort is used as a strategy to increase retention
because of the shortage in over-the-road drivers. Manufacturers are looking for
ways to reduce truck weights, which helps trucking firms carry heavier payloads
and reduce fuel costs. The Registrant's high-quality products fit industry
trends. Its lightweight structural plastic truck components make truck interiors
more operator friendly and its cast aluminum truck hubs and components offer
cost advantages over forged aluminum and significant weight saving advantages
over steel and iron without sacrificing strength. In addition to pricing,
manufacturers make decisions about suppliers based on product engineering,
expertise, quality and service. The Registrant's commitment to these factors
enable it to build and maintain strong and stable customer relationships.
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The Registrant's truck component business has benefited from its new product
development, its customer base expansion and increased penetration with key
customers, such as industry leaders Freightliner, PACCAR, Volvo, Mack and
Navistar. Also benefiting the Registrant was the 1997 introduction of new trucks
by the aforementioned companies which have higher product content of the
Registrant than previous models. With certain of its larger customers, the
Registrant has been able to establish itself as a sole source supplier of
certain components.
The Registrant's heavy-duty truck products compete with similar products on
quality, engineering expertise, delivery and price. These products compete with
products that are functionally similar but are manufactured from different
materials or using different industrial processes. The Registrant believes that
its ability to offer products that are designed and engineered to solve customer
problems is a significant factor in establishing and maintaining these customer
relationships and enhancing its opportunities for expansion in export markets.
The Registrant also produces precision stamped metal components for use in
automobiles and light trucks predominantly in steering and automatic
transmission systems. The Registrant's ability to design and engineer tight
tolerance components that can be manufactured in high volume with high quality
ratings has enabled it to become a direct supplier to original equipment
manufacturers, principally divisions of General Motors Corporation ("GM"), Ford
Motor Company ("Ford") and Daimler/Chrysler Corporation ("Chrysler"). The
Registrant also sells automotive parts to both U.S. and foreign-owned
manufacturers that sell directly to GM, Ford and Chrysler. Its highest product
content is in the light truck segment which includes pickup trucks, vans and
sport utility vehicles.
Industry demand for passenger vehicles has been relatively level over the last
several years, although the light-truck market (including sports utility
vehicles, vans and pickups) has been increasing. The Registrant has a close
relationship with GM, and most of its models carry the Registrant's parts. Sales
are increasing to Ford due to new product introductions, however, the strike at
GM during 1998 left overall industry demand flat during the year.
Among the Registrant's principal automotive products are steel reaction
plates that are used in automatic transmissions. Its most significant new
automotive product is its patented Means-Registered Trademark- one-way clutch
for automatic transmissions. The first commercial shipment of this product
was to Ford in the second quarter of 1997. Other automakers are currently
reviewing this product for their use. The product has significant growth
potential because of its superior performance characteristic and competitive
price in comparison to other designs. Due to the potential of this product,
the Registrant acquired greatly expanded rights to this technology during
1997 which includes, but are not limited to, world-wide opportunities in the
automobile industry as well as applications for trucks, tractors and other
industrial equipment.
Competition for the sale of these products is intense, coming from numerous
companies, including divisions of automobile manufacturers, which have
comparable facilities and greater financial and other resources than the
Registrant. The Registrant competes for sale of these products on quality,
just-in-time delivery, price and particularly in regards to the
Means-Registered Trademark- one-way clutch, technological advances.
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OTHER INFORMATION
The primary materials used for the manufacture of products in this segment are
cold rolled and hot rolled steel, powdered metal components, aluminum ingots and
plastic resin. The Registrant has not experienced significant difficulties in
obtaining such materials. The machinery and equipment used for the manufacturing
of these products, which management considers adequate for current operations
consist primarily of heat-treating equipment, metal cutting machine tools,
heavy-duty metal stamping equipment, welding equipment, injection molding
presses, casting equipment, tools, dies, furnaces, molds and painting equipment.
Backlog for this industry segment was $86.5 million, $73.7 million and $51.2
million as of January 31, 1999, 1998 and 1997, respectively. All of the current
backlog is expected to be filled during the current fiscal year.
Sales of transportation products to Freightliner amounted to 19%, 15% and 15% of
the Registrant's total sales in each of 1998, 1997 and 1996, respectively. In
addition, the Registrant's sales of aluminum hubs and hub assemblies accounted
for 16%, 12% and 12% of the Registrant's total sales in 1998, 1997 and 1996,
respectively.
PETROLEUM ANALYZERS
The companies in this segment design, manufacture and market instruments which
analyze the physical properties of petroleum products, such as freeze point,
flash point, pour point, viscosity, vapor pressure and octane levels; engages in
the testing of petroleum products; and sells petroleum product reference
samples. The instruments, testing services and reference samples are used for
quality assurance purposes to test for compliance with industry standards and to
enhance refinery efficiency. These products and services are used in petroleum
refineries, and by transporters and end-users of petroleum products.
The Registrant's petroleum analysis instruments are sold world-wide to petroleum
refiners (of which there are over 600) and to transporters, governmental
agencies, pipeline companies and large users of petroleum products (airlines,
railroads and the U.S. military). Although the number of U.S. refineries is
declining, the Registrant's sales to overseas refiners and to existing
refineries in the process of upgrading and automating their production processes
along with new instruments brought to market by the Registrant are expected to
provide growth opportunities. The Registrant's ability to engineer on-line
analyzers for specific application and to provide timely service at their places
of installation is of competitive importance. With manufacturing facilities in
the United States and Germany, and service and distribution locations in key
strategic domestic and international markets, the Registrant believes it is well
positioned to maintain a leading position in this global market. The
Registrant's petroleum analysis instruments compete primarily on product
quality, engineering features, reliability and service. There are a limited
number of competitors in this narrow market, some of which use alternate
technologies.
OTHER INFORMATION
The primary materials used for the manufacture of the products in this segment
are stainless steel, cold rolled carbon steel and electronic components. The
Registrant has not experienced any difficulties in obtaining such materials.
Marketing of these products is done through company sales personnel, independent
sales representative and distributors throughout the U.S. and
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international markets. The machinery and equipment used for the manufacturing
of these products, which management considers adequate for current
operations, consist primarily of metal forming, fabrication, welding, and
painting equipment, together with a complement of tools, dies, jigs and
gauges.
Backlog for this industry segment was $4.5 million, $5.0 million and $3.4
million as of January 31, 1999, 1998 and 1997, respectively. All of the current
backlog is expected to be filled during the current fiscal year.
EXPORT SALES
Export sales from the Registrant's United States operations were 10%, 11% and
10%, respectively, of consolidated net sales in 1998, 1997 and 1996.
RESEARCH AND DEVELOPMENT
In 1998, 1997 and 1996, the Registrant spent $10.9 million, $8.0 million and
$9.5 million, respectively, on research and development activities, all of which
was Registrant sponsored. Of these amounts, research and development spending on
new products was $7.8 million, $5.7 million and $6.3 million for 1998, 1997 and
1996, respectively.
PATENTS, TRADE NAMES AND TRADEMARKS
The Registrant applies for and maintains patents, trade names and trademarks
where the Registrant believes that such patents, trade names and trademarks are
reasonably required to protect the Registrant's rights in its products. The
Registrant does not believe that any single patent, trade name or trademark or
related group of such rights, other than the "Brenco", "ConMet", "Precision
Scientific Petroleum Instruments", "Petrospec" and "Herzog" trade names and
related trademarks, and the "Means" one-way clutch patent license and related
patents are materially important to its businesses or their ability to compete.
In many instances the Registrant's technology is not patented but is maintained
by the Registrant as proprietary.
SEASONALITY
In non-recessionary times, the Registrant's first quarter has historically
been the strongest quarter of the year. During the second and fourth
quarters, the Registrant traditionally encounters scheduled vacation and
holiday shutdowns and slowdowns at customers' manufacturing plants.
EMPLOYEES
As of January 31, 1999, the Registrant employed a total of 3,758 persons, 1,784
of whom were employed in its railroad products segment, 1,702 of whom were
employed in its vehicular products segment, 249 of whom were employed in its
petroleum analyzers segment and 23 of whom were employed at the Registrant's
corporate headquarters. Of the employees employed by the railroad products,
vehicular products and petroleum analyzers segments, 165, 701 and 34,
respectively, are covered by collective bargaining agreements. The Registrant
believes it has a good working relationship with its employees.
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ENVIRONMENTAL MATTERS
The Registrant is subject to a variety of environmental laws and regulations
governing discharges to air and water and the handling, storage and disposal of
hazardous solid waste materials and the remediation of contamination associated
with releases of hazardous substances. The Registrant has established a
company-wide environmental compliance program that stresses periodic
environmental audits and management review of compliance procedures at the
operating company level. Although the Registrant believes that it is in material
compliance with all of the various regulations applicable to their businesses,
there can be no assurance that requirements will not change in the future or
that the Registrant will not incur significant cost to comply with such
requirements.
Compliance with these environmental laws and regulations has not had, nor is
expected to have, a material effect on the Company's earnings, competitive
position or capital expenditures through fiscal 2000. The amount of capital
expenditures expected to be spent on environmental compliance costs in fiscal
1999 and 2000 are approximately $364,000 and $578,000, respectively.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption "Officers" in
the Registrant's Annual Report to Stockholders, which information is
incorporated herein by reference.
Item 2. PROPERTIES
The following table sets forth certain information with respect to the principal
properties of the Registrant. The expiration date of each applicable lease is
given for leased properties; all other properties are owned. Unless otherwise
noted, all properties are manufacturing facilities. All of the Registrant's
listed plants are being utilized, are in good operating condition and are
suitable for its current needs. These facilities are expected to meet the
Registrant's manufacturing needs in the foreseeable future.
<TABLE>
<CAPTION>
Expiration Date Approximate
Approximate of Lease Capacity
Operation Square Feet (if applicable) Utilization(1)
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<S> <C> <C> <C>
Executive Office 12,000(2) 9/30/02 N/A
Naperville, IL
RAILROAD PRODUCTS
Atchison, KS 60,000 N/A 50%
Chicago, IL 32,000 N/A 40%
Camp Hill, PA 95,000 N/A 50%
Halberstadt, Germany 27,000 N/A 65%
Lafayette, IN (3) 20,000 N/A 30%
Little Rock, AR 52,000 N/A 30%
Louisville, KY 32,000 1/31/02 30%
McPherson, KS 94,000 N/A 50%
Montmorenci, IN (3) 23,000 N/A 50%
Neitersen, Germany 89,000 12/31/11 75%
Oak Creek, WI 72,000 N/A 25%
Ontario, Canada (4) 14,000 9/1/99 N/A
Petersburg, VA 412,000 N/A 60%
Ploermel, France 70,000 9/1/03 60%
Prostejov, Czech Republic 50,000 N/A 80%
Sparks, NV 36,000 9/30/00 30%
VEHICULAR PRODUCTS
Bryson City, NC 162,000 N/A 65%
Cashiers, NC 96,000 N/A 85%
Clackamas, OR 65,000 N/A 90%
Melvindale, MI 45,000 N/A 65%
Monroe, NC 195,000 N/A 90%
Portland, OR 166,000 N/A 80%
Saginaw, MI 77,000 N/A 70%
Vassar, MI 76,000 N/A 75%
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Expiration Date Approximate
Approximate of Lease Capacity
Operation Square Feet (if applicable) Utilization(1)
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PETROLEUM ANALYZERS
Bellwood, IL 42,000 5/31/01 35%
Lauda, Germany 24,000 N/A 25%
Marlborough, MA 10,000 11/30/00 25%
San Antonio, TX 28,000 4/30/99 35%
</TABLE>
(1) Full capacity being deemed a 24 hour day, 7 day week for this purpose.
(2) Office space.
(3) The related locations are from an acquisition in the
fourth quarter of fiscal 1998.
(4) This location was opened in the fourth quarter of fiscal 1998.
N/A - Not Applicable.
Item 3. LEGAL PROCEEDINGS
The Registrant is involved in litigation arising in the normal course of
business. The Registrant is not aware of any such matters that will materially
affect its financial position or results of operations.
In separate civil actions, several plaintiffs have sued one of the Registrant's
subsidiaries alleging violations of environmental laws or injuries from
environmental contamination. On January 19, 1999, a citizens group entitled
Communities for a Better Environment filed a lawsuit in Los Angeles County
Superior Court alleging that the subsidiary, Chrome Crankshaft Co., had violated
California's Proposition 65 (Health & Safety Code Section 25249.5 ET. SEQ.) by
discharging certain chemical contaminants where they could reach a source of
drinking water. In addition, Communities for a Better Environment alleges that
these activities constituted an unfair business practice. On December 22, 1998,
Joseph and Mary Perales and certain other individual plaintiffs filed an action
against Chrome Crankshaft Co. alleging negligence, dangerous condition of public
property, breach of mandatory duties, battery, strict liability, negligence per
se, fraudulent concealment, civil conspiracy and unfair practices arising from
the emission from the Chrome Crankshaft facility of certain air pollutants which
allegedly caused injury or death to members of the plaintiffs' families. Chrome
Crankshaft Co. intends to defend vigorously against these claims.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to the information set forth under the captions "Quarterly
Market and Dividend Information" and "Shares Listed" in the Registrant's 1998
Annual Report to Stockholders, which information is hereby incorporated herein
by reference. Note: The information contained under the caption "Quarterly
Market and Dividend Information" in the Registrant's Annual Report includes
over-the-counter market quotations which reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
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Item 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth under the captions "Summary of
Operations" and "Summary of Financial Condition" in the Registrant's 1998 Annual
Report to Stockholders, which information is hereby incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information set forth under the caption, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1998 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information set forth under the caption, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1998 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the information set forth under the captions "Consolidated
Balance Sheets", "Consolidated Statements of Earnings", "Consolidated Statements
of Stockholders' Equity", "Consolidated Statements of Cash Flows", "Notes to
Consolidated Financial Statements" and "Independent Auditors' Report" in the
Registrant's 1998 Annual Report to Stockholders, which information is hereby
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption "Election of
Directors" in the Registrant's Proxy Statement filed pursuant to Regulation 14A
within 120 days after January 31, 1999, which information is incorporated herein
by reference, and to the information set forth under the caption "Executive
Officers of the Registrant", which appears as a separate item immediately
preceding Item 2 included in PART I hereof, which information is incorporated
herein by reference.
None of the executive officers bear any family relationship to one another. The
executive officers of the Registrant are elected annually by the Board of
Directors.
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Item 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive
Compensation" in the Registrant's Proxy Statement filed pursuant to Regulation
14A within 120 days after January 31, 1999, which information is hereby
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the captions "Election of
Directors" and "Security Ownership of Certain Beneficial Owners and Management"
in the Registrant's Proxy Statement filed pursuant to Regulation 14A within 120
days after January 31, 1999, which information is hereby incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1),
(a)(2)
& (d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements, together with the related
notes and supporting schedule filed as part of this Form 10-K,
are listed in the accompanying Index to Consolidated Financial
Statements and Schedule.
(b) REPORTS ON FORM 8-K
None
(a)(3)
& (c) EXHIBITS
Set forth below is a list of the Exhibits to this Form 10-K in
accordance with the requirements of Items 14(a) (3) and (c) of
Form 10-K and Item 601 of Regulation S-K:
(3) (i) Registrant's Restated Certificate of Incorporation as amended
through October 1, 1996 (incorporated herein by reference to
Exhibit 4.2 of the Registrant's Form S-3 Registration Statement
as filed on August 19, 1997), as further amended on May 27, 1998
(incorporated to herein by reference to Exhibit(3)(i) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 1, 1998).
(ii) Registrant's By-laws, as amended through November 20, 1998
(incorporated herein by reference to Exhibit (3)(ii) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 31, 1998).
(4) (a) Rights Agreement dated as of June 17, 1996 (incorporated herein
by reference to Exhibit 4(a) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 3, 1996) as
amended on September 28, 1998 (incorporated herein by reference
to Exhibit (4)(a) to the Registrant's Quarterly Report on form
10-Q for the fiscal quarter ended October 31, 1998).
(b) Credit Agreement by and among the Registrant, the Borrowing
Subsidiaries and the Lenders Party Thereto and The First National
Bank of Chicago, as Agent, dated as of July 19, 1996
(incorporated herein by reference to Exhibit (4)(b) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 3, 1996), as amended on October 15, 1996
(incorporated herein by reference to Exhibit (4)(a) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 2, 1996), as further amended on January 17, 1997
(incorporated herein by reference to Exhibit (4)(d) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997), as further amended on December 30, 1997
(incorporated herein by reference to Exhibit (4)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998).
<PAGE>
(10) (a) Registrant's 1980 Incentive Stock Option Plan, as amended
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989) and as further amended on March 26, 1990
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(b) Varlen Corporation Profit Sharing and Retirement Savings Plan as
amended and restated generally effective May 1, 1999.
(c) Registrant's 1989 Incentive Stock Option Plan as amended through
November 20, 1998 (incorporated herein by reference to Exhibit
(10)(c) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998).
(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1990).
(e) Varlen Corporation Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990), as amended on January 30, 1999.
(f) Trust Agreement Between Varlen Corporation and Fidelity
Management Trust Company dated November 30, 1992 (incorporated
herein by reference to Exhibit (10)(g) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993).
(g) Form of letter agreement between the Registrant and each of
Richard A. Nunemaker, Raymond A. Jean and George W. Hoffman
(incorporated herein by reference to Exhibit (10)(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993).
(h) Registrant's 1993 Incentive Stock Option Plan as amended through
November 20, 1998 (incorporated herein by reference to Exhibit
(10)(i) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998).
(i) Registrant's 1993 Directors Incentive Stock Grant Plan adopted
May 25, 1993 (incorporated herein by reference to Exhibit (10)(l)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994), as amended May 29, 1997
(incorporated herein by reference to Exhibit (10)(l) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 3, 1997).
(j) Registrant's 1993 Deferred Incentive Stock purchase Plan adopted
May 25, 1993 (incorporated herein by reference to Exhibit (10)(m)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994) as amended on February 3, 1997
(incorporated herein by reference to Exhibit (10)(m) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997) as amended on February 2, 1998 (incorporated
herein by reference to Exhibit (10)(k) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 2,
1998).
<PAGE>
(k) Varlen Corporation Excess Benefit Plan Trust Agreement dated
December 1, 1994 (incorporated herein by reference to Exhibit
(10)(n) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
(l) Form of Indemnification Agreement Dated as of June 17, 1996
(incorporated herein by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 3, 1996).
(m) Varlen Corporation's 1998 Contingent Stock Award Plan dated as of
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(q) to the Registrant's quarterly report on Form 10-Q for the
fiscal quarter ended May 2, 1998).
(n) Deferred long-term incentive grant to Raymond A. Jean dated
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(o) to the Registrant's Annual Report on form 10-K for the
fiscal year ended January 31, 1998).
(o) Deferred long-term incentive grant to Richard A. Nunemaker dated
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(p) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998).
(p) Varlen Corporation's 1998 Long-Term Equity Incentive Plan, as
amended through November 20, 1998 (incorporated herein by
reference to Exhibit (10)(r) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1998).
(q) Consulting Agreement dated January 31, 1999 between Richard L.
Wellek and Varlen Corporation.
(13) 1998 Annual Report to Stockholders.
(21) List of Subsidiaries.
(23) Consent of Deloitte & Touche LLP.
(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1998 Annual Report on Form 10-K.
(27) Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VARLEN CORPORATION
(Registrant)
By: /s/ Richard A. Nunemaker
---------------------------------
Richard A. Nunemaker
Vice President, Finance and
Chief Financial Officer
Dated: April 21, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Raymond A. Jean President and Chief Executive April 21, 1999
- --------------------------- Officer
Raymond A. Jean (Principal Executive Officer)
/s/ Richard A. Nunemaker Vice President, Finance April 21, 1999
- --------------------------- and Chief Financial Officer
Richard A. Nunemaker (Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
SIGNATURE DATE
- --------- ----
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
Ernest H. Lorch, Director
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
L. William Miles, Director
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
Greg A. Rosenbaum, Director
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
Joseph J. Ross, Director
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
Theodore A. Ruppert, Director
/s/ Richard A. Nunemaker April 21, 1999
- ---------------------------
Richard A. Nunemaker
as attorney-in-fact for
Richard L. Wellek, Director
<PAGE>
VARLEN CORPORATION
AND SUBSIDIARIES
Annual Report (Form 10-K)
Consolidated Financial Statements and
Schedule
Submitted in Response to Item 14
Years ended January 31, 1999, 1998 and 1997
<PAGE>
VARLEN CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Schedule
Consolidated financial statements
incorporated by reference
- ---------------------------------
The consolidated balance sheets of the Registrant and subsidiaries as of January
31, 1999 and 1998, and the related consolidated statements of earnings,
consolidated statements of stockholders' equity and consolidated statements of
cash flows for each of the years in the three-year period ended January 31,
1999, together with the related notes and the report of Deloitte & Touche LLP,
independent auditors, all contained in the Registrant's 1998 Annual Report to
Stockholders, are incorporated herein by reference thereto. The following
additional consolidated financial information should be read in conjunction with
the consolidated financial statements in such Annual Report. All other schedules
are omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes.
ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION
- Schedule:
- II - Valuation and Qualifying Accounts
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Varlen Corporation
Naperville, Illinois
We have audited the consolidated financial statements of Varlen Corporation and
subsidiaries as of January 31, 1999 and 1998, and for each of the three years in
the period ended January 31, 1999, and have issued our report thereon dated
March 8, 1999; such consolidated financial statements and report are included in
your 1998 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of Varlen Corporation and subsidiaries, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based upon
our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statement taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 8, 1999
<PAGE>
Schedule II
VARLEN CORPORATION
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three years ended January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts (deducted from
accounts receivable):
Year ended 1/31/99 $1,808 $ 465(a) $ 327(b) $1,946
Year ended 1/31/98 1,455 556 203(b) 1,808
Year ended 1/31/97 1,318 384(a) 247(b) 1,455
Allowance related to
deferred tax assets:
Year ended 1/31/99 $1,871 $ 615 - $2,486
Year ended 1/31/98 1,237 634 - 1,871
Year ended 1/31/97 1,570 626 $ 959(c)(d) 1,237
</TABLE>
(a) Includes additions from companies acquired during the period.
(b) Write-offs, net of recoveries, foreign currency translation adjustments
and reserves related to certain companies disposed of during the
period.
(c) Current and projected utilization and current expiration of acquired
operating losses.
(d) The amounts were offset against goodwill and not net earnings.
<PAGE>
INDEX TO EXHIBITS
(3) (i) Registrant's Restated Certificate of Incorporation as amended
through October 1, 1996 (incorporated herein by reference to
Exhibit 4.2 of the Registrant's Form S-3 Registration Statement
as filed on August 19, 1997), as further amended on May 27, 1998
(incorporated to herein by reference to Exhibit(3)(i) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 1, 1998).
(ii) Registrant's By-laws, as amended through November 20, 1998
(incorporated herein by reference to Exhibit (3)(ii) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 31, 1998).
(4) (a) Rights Agreement dated as of June 17, 1996 (incorporated herein
by reference to Exhibit 4(a) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 3, 1996) as
amended on September 28, 1998 (incorporated herein by reference
to Exhibit (4)(a) to the Registrant's Quarterly Report on form
10-Q for the fiscal quarter ended October 31, 1998).
(b) Credit Agreement by and among the Registrant, the Borrowing
Subsidiaries and the Lenders Party Thereto and The First National
Bank of Chicago, as Agent, dated as of July 19, 1996
(incorporated herein by reference to Exhibit (4)(b) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 3, 1996), as amended on October 15, 1996
(incorporated herein by reference to Exhibit (4)(a) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 2, 1996), as further amended on January 17, 1997
(incorporated herein by reference to Exhibit (4)(d) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997), as further amended on December 30, 1997
(incorporated herein by reference to Exhibit (4)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998).
(10) (a) Registrant's 1980 Incentive Stock Option Plan, as amended
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989) and as further amended on March 26, 1990
(incorporated herein by reference to Exhibit (10)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990).
(b) Varlen Corporation Profit Sharing and Retirement Savings Plan as
amended and restated generally effective May 1, 1999.
(c) Registrant's 1989 Incentive Stock Option Plan as amended through
November 20, 1998 (incorporated herein by reference to Exhibit
(10)(c) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998).
(d) Varlen Corporation Excess Benefits Plan (incorporated herein by
reference to Exhibit (10)(i) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1990).
<PAGE>
(e) Varlen Corporation Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit (10)(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990), as amended on January 30, 1999.
(f) Trust Agreement Between Varlen Corporation and Fidelity
Management Trust Company dated November 30, 1992 (incorporated
herein by reference to Exhibit (10)(g) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993).
(g) Form of letter agreement between the Registrant and each of
Richard A. Nunemaker, Raymond A. Jean and George W. Hoffman
(incorporated herein by reference to Exhibit (10)(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993).
(h) Registrant's 1993 Incentive Stock Option Plan as amended through
November 20, 1998 (incorporated herein by reference to Exhibit
(10)(i) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998).
(i) Registrant's 1993 Directors Incentive Stock Grant Plan adopted
May 25, 1993 (incorporated herein by reference to Exhibit (10)(l)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994), as amended May 29, 1997
(incorporated herein by reference to Exhibit (10)(l) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 3, 1997).
(j) Registrant's 1993 Deferred Incentive Stock purchase Plan adopted
May 25, 1993 (incorporated herein by reference to Exhibit (10)(m)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994) as amended on February 3, 1997
(incorporated herein by reference to Exhibit (10)(m) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997) as amended on February 2, 1998 (incorporated
herein by reference to Exhibit (10)(k) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 2,
1998).
(k) Varlen Corporation Excess Benefit Plan Trust Agreement dated
December 1, 1994 (incorporated herein by reference to Exhibit
(10)(n) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
(l) Form of Indemnification Agreement Dated as of June 17, 1996
(incorporated herein by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 3, 1996).
(m) Varlen Corporation's 1998 Contingent Stock Award Plan dated as of
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(q) to the Registrant's quarterly report on Form 10-Q for the
fiscal quarter ended May 2, 1998).
(n) Deferred long-term incentive grant to Raymond A. Jean dated
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(o) to the Registrant's Annual Report on form 10-K for the
fiscal year ended January 31, 1998).
<PAGE>
(o) Deferred long-term incentive grant to Richard A. Nunemaker dated
February 2, 1998 (incorporated herein by reference to Exhibit
(10)(p) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998).
(p) Varlen Corporation's 1998 Long-Term Equity Incentive Plan, as
amended through November 20, 1998 (incorporated herein by
reference to Exhibit (10)(r) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1998).
(q) Consulting Agreement dated January 31, 1999 between Richard L.
Wellek and Varlen Corporation.
(13) 1998 Annual Report to Stockholders.
(21) List of Subsidiaries.
(23) Consent of Deloitte & Touche LLP.
(24) Board of Directors' power of attorney for the signing of Varlen
Corporation's 1998 Annual Report on Form 10-K.
(27) Financial Data Schedule.
<PAGE>
VARLEN CORPORATION
----------------
VARLEN CORPORATION
PROFIT SHARING AND
RETIREMENT SAVINGS PLAN
----------------
AS AMENDED AND RESTATED GENERALLY EFFECTIVE
MAY 1, 1999
<PAGE>
VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN
- ------------------------------------------------------------------------------
VARLEN CORPORATION established the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN (the "Plan") for the benefit of eligible employees of
the Company and its participating affiliates. The Plan is intended to
constitute a qualified profit sharing plan, as described in Code Section
401(a), which includes a qualified cash or deferred arrangement, as described
in Code Section 401(k).
VARLEN CORPORATION originally established the Varlen Corporation Retirement
Security and Savings Plan and Trust effective as of January 1, 1986.
Effective December 1, 1992, the Varlen Corporation Retirement Security and
Savings Plan and Trust, the National Metalwares Profit Sharing Plan and
Trust, the Precision Scientific 401(k) Tax Deferred Savings Plan, the
Precision Scientific Profit Sharing Plan and the Consolidated Metco Profit
Sharing and Retirement Savings Plan were amended and restated into the VARLEN
CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN and the VARLEN
CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS TRUST. The Plan was
subsequently amended and restated effective August 1, 1993 and July 1, 1994.
Effective May 1, 1999, the BRENCO SUPPLEMENTAL PENSION PLAN was merged into
the Plan.
The VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN, as set
forth in this document, is hereby generally effective as amended and restated
as of May 1, 1999, except to the extent provided herein or to the extent that
failure to retroactively make any provision effective prior to May 1, 1999
would result in the VARLEN CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS
PLAN (as it existed prior to May 1, 1999) containing a disqualifying
provision, as defined in Treas. Reg. Section 1.401(b)-1(b)(2) (as modified by
Rev. Proc. 89-65, Notice 90-73 and any other subsequent publication modifying
the term "disqualifying provision"), in which case such provision (and any
definitions pertinent to the application of such provision) shall be
retroactively effective to a date which will result in no such disqualifying
provision in the Plan prior to May 1, 1999.
- -C-Katten Muchin & Zavis 1999
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "ACCOUNTING PERIOD". . . . . . . . . . . . . . . . . . . . . . 1
1.2 "ACCOUNTS" . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "ACCRUED BENEFIT". . . . . . . . . . . . . . . . . . . . . . . 3
1.4 "APPENDIX" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 "AUTHORIZED LEAVE OF ABSENCE". . . . . . . . . . . . . . . . . 3
1.6 "BENEFICIARY". . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 "BOARD OF DIRECTORS" OR "BOARD". . . . . . . . . . . . . . . . 4
1.8 "BREAK IN SERVICE" . . . . . . . . . . . . . . . . . . . . . . 4
1.9 "CHANGE DATE". . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 "COMMITTEE". . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 "COMMONLY CONTROLLED ENTITY" . . . . . . . . . . . . . . . . . 4
1.12 "COMPANY". . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.13 "COMPANY STOCK". . . . . . . . . . . . . . . . . . . . . . . . 5
1.14 "COMPENSATION" . . . . . . . . . . . . . . . . . . . . . . . . 5
1.15 "COMPUTATION PERIOD" . . . . . . . . . . . . . . . . . . . . . 6
1.16 "CONTINUOUS SERVICE" . . . . . . . . . . . . . . . . . . . . . 6
1.17 "CONTRIBUTIONS". . . . . . . . . . . . . . . . . . . . . . . . 6
1.18 "CONTRIBUTION DOLLAR LIMIT". . . . . . . . . . . . . . . . . . 6
1.19 "CONTRIBUTION ELECTION" OR "ELECTION". . . . . . . . . . . . . 6
1.20 "CONTRIBUTION PERCENTAGE". . . . . . . . . . . . . . . . . . . 7
1.21 "CONVERSION ELECTION". . . . . . . . . . . . . . . . . . . . . 7
1.22 "CUSTODIAL AGREEMENT". . . . . . . . . . . . . . . . . . . . . 7
1.23 "CUSTODIAN". . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.24 "DIRECT ROLLOVER". . . . . . . . . . . . . . . . . . . . . . . 7
1.25 "DISABILITY" OR "DISABLED" . . . . . . . . . . . . . . . . . . 7
1.26 "DISTRIBUTEE". . . . . . . . . . . . . . . . . . . . . . . . . 7
1.27 "EFFECTIVE DATE" . . . . . . . . . . . . . . . . . . . . . . . 7
1.28 "ELECTIVE DEFERRAL". . . . . . . . . . . . . . . . . . . . . . 7
1.29 "ELIGIBLE EMPLOYEE". . . . . . . . . . . . . . . . . . . . . . 7
1.30 "ELIGIBLE RETIREMENT PLAN" . . . . . . . . . . . . . . . . . . 8
1.31 "ELIGIBLE ROLLOVER DISTRIBUTION" . . . . . . . . . . . . . . . 8
1.32 "EMPLOYEE" . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.33 "EMPLOYER" . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.34 "EMPLOYMENT DATE". . . . . . . . . . . . . . . . . . . . . . . 8
1.35 "ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.36 "FAIR MARKET VALUE". . . . . . . . . . . . . . . . . . . . . . 9
1.37 "FORFEITURE" . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.38 "FORFEITURE ACCOUNT" . . . . . . . . . . . . . . . . . . . . . 9
1.39 "HIGHLY COMPENSATED ELIGIBLE EMPLOYEE" OR "HCE". . . . . . . . 9
</TABLE>
- i -
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
1.40 "HOUR OF SERVICE". . . . . . . . . . . . . . . . . . . . . . . 10
1.41 "INTERNAL REVENUE CODE" OR "CODE". . . . . . . . . . . . . . . 10
1.42 "INVESTMENT ELECTION". . . . . . . . . . . . . . . . . . . . . 10
1.43 "INVESTMENT FUND" OR "FUND". . . . . . . . . . . . . . . . . . 11
1.44 "LIMITED DEFERRALS". . . . . . . . . . . . . . . . . . . . . . 11
1.45 "MATERNITY/PATERNITY ABSENCE". . . . . . . . . . . . . . . . . 11
1.46 "NAMED FIDUCIARY". . . . . . . . . . . . . . . . . . . . . . . 11
1.47 "NON-HIGHLY COMPENSATED EMPLOYEE" OR "NHCE". . . . . . . . . . 11
1.48 "NORMAL RETIREMENT DATE" . . . . . . . . . . . . . . . . . . . 11
1.49 "NOTICE DATE". . . . . . . . . . . . . . . . . . . . . . . . . 11
1.50 "PARTICIPANT". . . . . . . . . . . . . . . . . . . . . . . . . 12
1.51 "PAYMENT DATE" . . . . . . . . . . . . . . . . . . . . . . . . 12
1.52 "PERIOD OF SEVERANCE". . . . . . . . . . . . . . . . . . . . . 12
1.53 "PLAN" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.54 "PLAN YEAR". . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.55 "QDRO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.56 "QUALIFIED MATCHING CONTRIBUTION". . . . . . . . . . . . . . . 12
1.57 "RELATED PLAN" . . . . . . . . . . . . . . . . . . . . . . . . 13
1.58 "ROLLOVER CONTRIBUTION". . . . . . . . . . . . . . . . . . . . 13
1.59 "SETTLEMENT DATE". . . . . . . . . . . . . . . . . . . . . . . 13
1.60 "SPOUSAL CONSENT". . . . . . . . . . . . . . . . . . . . . . . 13
1.61 "SPOUSE" . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.62 "SWEEP DATE" . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.63 "TERMINATION OF EMPLOYMENT". . . . . . . . . . . . . . . . . . 14
1.64 "TRADE DATE" . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.65 "TRUST". . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.66 "TRUST AGREEMENT". . . . . . . . . . . . . . . . . . . . . . . 14
1.67 "TRUST FUND" . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.68 "TRUSTEE". . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.69 "TRUSTEE TRANSFER" . . . . . . . . . . . . . . . . . . . . . . 15
1.70 "VALUATION DATE" . . . . . . . . . . . . . . . . . . . . . . . 15
1.71 "VESTING SERVICE". . . . . . . . . . . . . . . . . . . . . . . 15
1.72 "YEAR OF SERVICE". . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 REEMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 PARTICIPATION UPON CHANGE OF JOB STATUS. . . . . . . . . . . . 17
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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PARTICIPANT CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 18
3.1 PRE-TAX CONTRIBUTION ELECTION. . . . . . . . . . . . . . . . . 18
3.2 ELECTION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . 18
3.3 LIMITATION OF ELECTIVE DEFERRALS FOR ALL PARTICIPANTS. . . . . 19
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EMPLOYER CONTRIBUTIONS AND ALLOCATIONS. . . . . . . . . . . . . . . . 21
4.1 PRE-TAX CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . 21
4.2 MATCHING CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 21
4.3 SPECIAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . 22
4.4 PROFIT SHARING CONTRIBUTIONS . . . . . . . . . . . . . . . . . 22
4.5 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ROLLOVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1 ROLLOVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ACCOUNTING FOR PARTICIPANTS' ACCOUNTS AND
FOR INVESTMENT FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 INDIVIDUAL PARTICIPANT ACCOUNTING. . . . . . . . . . . . . . . 26
6.2 ACCOUNTING FOR INVESTMENT FUNDS. . . . . . . . . . . . . . . . 27
6.3 ACCOUNTS FOR QDRO BENEFICIARIES. . . . . . . . . . . . . . . . 28
6.4 SPECIAL ACCOUNTING DURING CONVERSION PERIOD. . . . . . . . . . 29
6.5 ACCOUNTING FOR MERGING BRENCO SUPPLEMENTAL PENSION PLAN
ACCOUNT BALANCES . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
INVESTMENT FUNDS AND ELECTIONS. . . . . . . . . . . . . . . . . . . . 30
7.1 INVESTMENT FUNDS . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 INVESTMENT OF CONTRIBUTIONS. . . . . . . . . . . . . . . . . . 30
7.3 INVESTMENT OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . 31
7.4 ESTABLISHMENT OF INVESTMENT FUNDS. . . . . . . . . . . . . . . 31
7.5 TRANSITION RULES . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 INVESTMENT OF BRENCO SUPPLEMENTAL PENSION PLAN ACCOUNT
BALANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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VESTING AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 FULLY VESTED CONTRIBUTION ACCOUNTS . . . . . . . . . . . . . . 33
8.2 VESTING; PAYMENT OF ACCRUED BENEFIT ON OR AFTER RETIREMENT OR
DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 VESTING SCHEDULE AND FORFEITURES . . . . . . . . . . . . . . . 33
8.4 FORFEITURES. . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 FORFEITURE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PARTICIPANT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 PARTICIPANT LOANS PERMITTED. . . . . . . . . . . . . . . . . . 36
9.2 LOAN FUNDING LIMITS. . . . . . . . . . . . . . . . . . . . . . 36
9.3 MAXIMUM NUMBER OF LOANS. . . . . . . . . . . . . . . . . . . . 37
9.4 SOURCE OF LOAN FUNDING . . . . . . . . . . . . . . . . . . . . 37
9.5 INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 REPAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 REPAYMENT HIERARCHY. . . . . . . . . . . . . . . . . . . . . . 37
9.8 LOAN APPLICATION, NOTE AND SECURITY. . . . . . . . . . . . . . 37
9.9 DEFAULT, SUSPENSION AND ACCELERATION . . . . . . . . . . . . . 38
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 WITHDRAWALS FOR 401(k) HARDSHIP. . . . . . . . . . . . . . . . 39
10.2 ROLLOVER ACCOUNT WITHDRAWALS . . . . . . . . . . . . . . . . . 41
10.3 WITHDRAWALS FOR PARTICIPANTS OVER AGE 59-1/2 . . . . . . . . . 41
10.4 WITHDRAWAL PROCESSING. . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
DISTRIBUTIONS ON AND AFTER TERMINATION OF EMPLOYMENT. . . . . . . . . 43
11.1 REQUEST FOR DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . 43
11.2 DEADLINE FOR DISTRIBUTION. . . . . . . . . . . . . . . . . . . 43
11.3 PAYMENT FORM AND MEDIUM. . . . . . . . . . . . . . . . . . . . 44
11.4 SMALL AMOUNTS PAID IMMEDIATELY . . . . . . . . . . . . . . . . 44
11.5 PAYMENT WITHIN LIFE EXPECTANCY . . . . . . . . . . . . . . . . 44
11.6 INCIDENTAL BENEFIT RULE. . . . . . . . . . . . . . . . . . . . 44
11.7 QJSA AND QPSA INFORMATION AND ELECTIONS. . . . . . . . . . . . 45
11.8 CONTINUED PAYMENT OF AMOUNTS IN PAYMENT STATUS ON JANUARY 1,
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.9 TEFRA TRANSITIONAL RULE. . . . . . . . . . . . . . . . . . . . 47
11.10 DIRECT ROLLOVER. . . . . . . . . . . . . . . . . . . . . . . . 48
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ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
DISTRIBUTION OF ACCRUED BENEFITS ON DEATH . . . . . . . . . . . . . . 49
12.1 PAYMENT TO BENEFICIARY . . . . . . . . . . . . . . . . . . . . 49
12.2 BENEFICIARY DESIGNATION. . . . . . . . . . . . . . . . . . . . 49
12.3 BENEFIT ELECTION . . . . . . . . . . . . . . . . . . . . . . . 49
12.4 PAYMENT FORM . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.5 TIME LIMIT FOR PAYMENT TO BENEFICIARY. . . . . . . . . . . . . 50
12.6 DIRECT ROLLOVER. . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 QPSA INFORMATION AND ELECTION. . . . . . . . . . . . . . . . . 51
12.8 SMALL AMOUNTS PAID IMMEDIATELY . . . . . . . . . . . . . . . . 51
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
MAXIMUM CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 52
13.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.2 AVOIDING AN ANNUAL EXCESS. . . . . . . . . . . . . . . . . . . 53
13.3 CORRECTING AN ANNUAL EXCESS. . . . . . . . . . . . . . . . . . 53
13.4 CORRECTING A MULTIPLE PLAN EXCESS. . . . . . . . . . . . . . . 54
13.5 TWO-PLAN LIMIT . . . . . . . . . . . . . . . . . . . . . . . . 54
13.6 SHORT PLAN YEAR. . . . . . . . . . . . . . . . . . . . . . . . 55
13.7 GRANDFATHERING OF APPLICABLE LIMITATIONS . . . . . . . . . . . 55
ARTICLE XIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ADP AND ACP TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.1 CONTRIBUTION LIMITATION DEFINITIONS. . . . . . . . . . . . . . 56
14.2 ADP AND ACP TESTS. . . . . . . . . . . . . . . . . . . . . . . 57
14.3 CORRECTION OF ADP AND ACP TESTS. . . . . . . . . . . . . . . . 58
14.4 METHOD OF CALCULATION. . . . . . . . . . . . . . . . . . . . . 58
14.5 MULTIPLE USE TEST. . . . . . . . . . . . . . . . . . . . . . . 59
14.6 ADJUSTMENT FOR INVESTMENT GAIN OR LOSS . . . . . . . . . . . . 59
14.7 REQUIRED RECORDS . . . . . . . . . . . . . . . . . . . . . . . 60
14.8 INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . 60
14.9 COLLECTIVELY BARGAINED EMPLOYEES . . . . . . . . . . . . . . . 60
14.10 QSLOB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
CUSTODIAL ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 61
15.1 CUSTODIAL AGREEMENT. . . . . . . . . . . . . . . . . . . . . . 61
15.2 SELECTION OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . 61
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15.3 CUSTODIAN'S DUTIES . . . . . . . . . . . . . . . . . . . . . . 61
15.4 SEPARATE ENTITY. . . . . . . . . . . . . . . . . . . . . . . . 61
15.5 PLAN ASSET VALUATION . . . . . . . . . . . . . . . . . . . . . 62
15.6 RIGHT OF EMPLOYERS TO PLAN ASSETS. . . . . . . . . . . . . . . 62
ARTICLE XVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ADMINISTRATION AND INVESTMENT MANAGEMENT. . . . . . . . . . . . . . . 63
16.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS . . . . 63
16.2 COMMITTEE MEMBERSHIP . . . . . . . . . . . . . . . . . . . . . 63
16.3 COMMITTEE STRUCTURE. . . . . . . . . . . . . . . . . . . . . . 63
16.4 COMMITTEE ACTIONS. . . . . . . . . . . . . . . . . . . . . . . 63
16.5 COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . 64
16.6 RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE REGARDING
ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . 64
16.7 ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY. . . . . . . . . 65
16.8 COMMITTEE BONDING. . . . . . . . . . . . . . . . . . . . . . . 65
16.9 INFORMATION TO BE SUPPLIED BY EMPLOYER . . . . . . . . . . . . 65
16.10 RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
16.11 PLAN EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 66
16.12 FIDUCIARY CAPACITY . . . . . . . . . . . . . . . . . . . . . . 66
16.13 EMPLOYER'S AGENT . . . . . . . . . . . . . . . . . . . . . . . 66
16.14 PLAN ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . 66
16.15 APPOINTMENT OF RECORD-KEEPER . . . . . . . . . . . . . . . . . 66
16.16 PLAN ADMINISTRATOR DUTIES AND AUTHORITY. . . . . . . . . . . . 67
16.17 COMMITTEE DECISIONS FINAL. . . . . . . . . . . . . . . . . . . 68
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CLAIMS PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
17.1 INITIAL CLAIM FOR BENEFITS . . . . . . . . . . . . . . . . . . 69
17.2 REVIEW OF CLAIM DENIAL . . . . . . . . . . . . . . . . . . . . 69
ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ADOPTION AND WITHDRAWAL FROM PLAN . . . . . . . . . . . . . . . . . . 71
18.1 PROCEDURE FOR ADOPTION . . . . . . . . . . . . . . . . . . . . 71
18.2 PROCEDURE FOR WITHDRAWAL . . . . . . . . . . . . . . . . . . . 71
ARTICLE XIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
AMENDMENT, TERMINATION AND MERGER . . . . . . . . . . . . . . . . . . 72
19.1 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 72
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19.2 PLAN TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 73
19.3 PLAN MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SPECIAL TOP-HEAVY RULES . . . . . . . . . . . . . . . . . . . . . . . 75
20.1 APPLICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 75
20.2 SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . 75
20.3 MINIMUM CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . 79
20.4 MAXIMUM BENEFIT ACCRUAL. . . . . . . . . . . . . . . . . . . . 79
ARTICLE XXI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 80
21.1 ASSIGNMENT AND ALIENATION. . . . . . . . . . . . . . . . . . . 80
21.2 PROTECTED BENEFITS . . . . . . . . . . . . . . . . . . . . . . 80
21.3 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS . . . . . . . . . . . . 80
21.4 DEDUCTION OF TAXES FROM AMOUNTS PAYABLE. . . . . . . . . . . . 80
21.5 FACILITY OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . 80
21.6 SOURCE OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . 81
21.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 81
21.8 REDUCTION FOR OVERPAYMENT. . . . . . . . . . . . . . . . . . . 81
21.9 LIMITATION ON LIABILITY. . . . . . . . . . . . . . . . . . . . 81
21.10 COMPANY MERGER . . . . . . . . . . . . . . . . . . . . . . . . 81
21.11 EMPLOYEES' TRUST . . . . . . . . . . . . . . . . . . . . . . . 82
21.12 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . 82
21.13 INVALIDITY OF CERTAIN PROVISIONS . . . . . . . . . . . . . . . 82
21.14 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.15 UNIFORM AND NONDISCRIMINATORY TREATMENT. . . . . . . . . . . . 82
21.16 LAW GOVERNING. . . . . . . . . . . . . . . . . . . . . . . . . 82
21.17 NOTICE AND INFORMATION REQUIREMENTS. . . . . . . . . . . . . . 82
21.18 QUALIFIED MILITARY SERVICE . . . . . . . . . . . . . . . . . . 82
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ARTICLE I
DEFINITIONS
The following sections of this Article I provide basic definitions of
terms used throughout the Plan, and whenever used herein in a capitalized
form, except as otherwise expressly provided, the terms shall be deemed to
have the following meanings:
I.1 "ACCOUNTING PERIOD" means the periods designated by the
Committee with respect to each Investment Fund not to exceed one year in
duration.
I.2 "ACCOUNTS" means the record of a Participant's interest in the
Plan's assets represented by his or her:
(a) "MATCHING ACCOUNT" which means a Participant's interest
in the Plan's assets composed of Matching Contributions allocated on
or after May 1, 1999 to the Participant under the Plan, the amount
allocated under former provisions of the VARLEN CORPORATION PROFIT
SHARING AND RETIREMENT SAVINGS PLAN or former provisions of the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT
PLAN, THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS
PLAN OR THE BRENCO SUPPLEMENTAL PENSION PLAN prior to May 1, 1999, if
any (as identified by the Committee), which continue to be accounted
for under the Plan, plus all income and gains credited to, and minus
all losses, expenses, withdrawals and distributions charged to, such
Account.
(b) "EMPLOYER ACCOUNT" which means a Participant's interest
in the Plan's assets composed of Profit Sharing Contributions
allocated on or after May 1, 1999 to the Participant under the Plan,
the amount allocated under the former provisions of the VARLEN
CORPORATION PROFIT SHARING AND RETIREMENT SAVINGS PLAN or the former
provisions of the NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST,
THE PRECISION SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE
PRECISION SCIENTIFIC PROFIT SHARING PLAN, THE MEANS STAMPING
INDUSTRIES, INC. RETIREMENT PLAN, THE CONSOLIDATED METCO PROFIT
SHARING AND RETIREMENT SAVINGS PLAN prior to May 1, 1999 or, with
respect to the BRENCO SUPPLEMENTAL PENSION PLAN, profit sharing
contributions made for plan years beginning on or after January 1,
1999 but prior to May 1, 1999, if any (as identified by the
Committee), which continue to be accounted for under the Plan, plus
all income and gains credited to, and minus all losses, expenses,
withdrawals and distributions charged to, such Account.
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(c) "POST-TAX ACCOUNT" which means a Participant's interest
in the Plan's assets composed of post-tax contributions allocated
under the former provisions of the VARLEN CORPORATION PROFIT SHARING
AND RETIREMENT SAVINGS PLAN or under the former provisions of the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT
PLAN, THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS
PLAN OR THE BRENCO SUPPLEMENTAL PENSION PLAN prior to May 1, 1999, if
any (as identified by the Committee), which continue to be accounted
for under the Plan, plus all income and gains credited to, and minus
all losses, expenses, withdrawals and distributions charged to, such
Account.
(d) "PRE-TAX ACCOUNT" which means a Participant's interest
in the Plan's assets composed of Pre-Tax Contributions allocated on or
after May 1, 1999 to the Participant under the Plan, the amount
allocated under the former provisions of the VARLEN CORPORATION PROFIT
SHARING AND RETIREMENT SAVINGS PLAN or the former provisions of the
NATIONAL METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION
SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC
PROFIT SHARING PLAN, THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT
PLAN, THE CONSOLIDATED METCO PROFIT SHARING AND RETIREMENT SAVINGS
PLAN OR THE BRENCO SUPPLEMENTAL PENSION PLAN prior to May 1, 1999, if
any (as identified by the Committee), which continue to be accounted
for under the Plan, plus all income and gains credited to, and minus
all losses, expenses, withdrawals and distributions charged to, such
Account.
(e) "ROLLOVER ACCOUNT" which means a Participant's interest in
the Plan's assets composed of Rollover Contributions allocated on or
after May 1, 1999 to the Participant under the Plan, the amount allocated
under the former provisions of the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN or the former provisions of the NATIONAL
METALWARES PROFIT SHARING PLAN AND TRUST, THE PRECISION SCIENTIFIC 401(k)
TAX DEFERRED SAVINGS PLAN, THE PRECISION SCIENTIFIC PROFIT SHARING PLAN,
THE MEANS STAMPING INDUSTRIES, INC. RETIREMENT PLAN, THE CONSOLIDATED
METCO PROFIT SHARING AND RETIREMENT SAVINGS PLAN OR THE BRENCO
SUPPLEMENTAL PENSION PLAN prior to May 1, 1999, if any (as identified by
the Committee), which continue to be accounted for under the Plan, plus
all income and gains credited to, and minus all losses, expenses,
withdrawals and distributions charged to, such Account.
(f) "SPECIAL ACCOUNT" which means a Participant's interest in
the Plan's assets composed of Special Contributions allocated on or after
May 1, 1999 to the Participant under the Plan, the amount allocated under
the former provisions of the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN or the former provisions of the NATIONAL
METALWARES PROFIT SHARING PLAN
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AND TRUST, THE PRECISION SCIENTIFIC 401(k) TAX DEFERRED SAVINGS PLAN,
THE PRECISION SCIENTIFIC PROFIT SHARING PLAN, THE MEANS STAMPING
INDUSTRIES, INC. RETIREMENT PLAN, THE CONSOLIDATED METCO PROFIT
SHARING AND RETIREMENT SAVINGS PLAN OR THE BRENCO SUPPLEMENTAL PENSION
PLAN prior to May 1, 1999, if any (as identified by the Committee),
which continue to be accounted for under the Plan, plus all income and
gains credited to, and minus all losses, expenses, withdrawals and
distributions charged to, such Account.
(g) "BRENCO MONEY PURCHASE PENSION ACCOUNT" which means a
Participant's interest in the Plan's assets composed of an amount
previously contributed and allocated on a pay based formula under former
money purchase plan provisions which were accounted for under the BRENCO
SUPPLEMENTAL PENSION PLAN, if any (as identified by the Committee), which
continue to be accounted for under the Plan, plus all income and gains
credited to, and minus all losses, expenses, withdrawals and
distributions charged to, such Account. Amounts in the Pension Account
shall be restricted such that no withdrawals shall be permitted prior to
the Participant's Termination of Employment.
(h) "BRENCO EMPLOYER ACCOUNT" which means a Participant's
interest in the Plan's assets composed of pay-based employer
contributions made under the BRENCO SUPPLEMENTAL PENSION PLAN prior to
January 1, 1999, if any (as identified by the Committee), which continue
to be accounted for under the Plan, plus all income and gains credited
to, and minus all losses, expenses, withdrawals and distributions charged
to, such Account.
(i) "BRENCO RETIREMENT ACCOUNT" which means a Participant's
interest in the Plan's assets composed of amounts previously transferred
from the BRENCO RETIREMENT PLAN NO. 2 to the BRENCO SUPPLEMENTAL PENSION
PLAN, if any (as identified by the Committee), which continue to be
accounted for under the Plan, plus all income and gains credited to, and
minus all losses, expenses, withdrawals and distributions charged to,
such Account.
I.3 "ACCRUED BENEFIT" means the shares held in or posted to
Accounts on the Settlement Date.
I.4 "APPENDIX" means a written supplement attached to this Plan and
made a part hereof which has been added in accordance with the provisions of
the Plan.
I.5 "AUTHORIZED LEAVE OF ABSENCE" means an absence, with or without
Compensation, authorized on a nondiscriminatory basis by a Commonly
Controlled
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Entity under its standard personnel practices applicable to the Employee,
including any period of time during which such person is covered by a
short-term disability plan of his or her Employer. An Employee who leaves
the service of a Commonly Controlled Entity to enter the Armed Forces of the
United States of America and who reenters the service of the Commonly
Controlled Entity with reemployment rights under any statute granting
reemployment rights to persons in the Armed Forces shall be deemed to have
been on an Authorized Leave of Absence. The date that an Employee's
Authorized Leave of Absence ends shall be determined in accordance with the
personnel policies of such Commonly Controlled Entity, which ending date
shall be no earlier than the date that the Authorized Leave of Absence is
scheduled to end, unless the Employee communicates to such Commonly
Controlled Entity that he or she is to have a Termination of Employment as of
an earlier date.
I.6 "BENEFICIARY" means any person designated by a Participant to
receive any benefits which shall be payable with respect to the death of a
Participant under the Plan or as a result of a QDRO.
I.7 "BOARD OF DIRECTORS" OR "BOARD" means the board of directors of
the Company.
I.8 "BREAK IN SERVICE" means:
(a) with respect to Continuous Service, the fifth anniversary (or
sixth anniversary if absence from employment was due to a Maternity/Paternity
Absence) of the date of the Participant's termination of employment; and
(b) with respect to Computation Periods, the end of 5 consecutive
Computation Periods (or 6 consecutive Computation Periods if absence from
employment was due to a Maternity/Paternity Absence) for which a Participant
is credited with less than 501 Hours of Service.
I.9 "CHANGE DATE" means the one or more dates during the Plan Year
designated by the Committee as the dates available for implementing or
changing a Participant's Contribution Election.
I.10 "COMMITTEE" means the committee appointed pursuant to the terms
of the Plan to manage and control the operation and administration of the
Plan.
I.11 "COMMONLY CONTROLLED ENTITY" means (1) an Employer and any
corporation, trade or business, but only for so long as it and the Employer
are members of a controlled group of corporations as defined in Section
414(b) of the Code or under common control as defined in Section 414(c) of
the Code; provided, however, that solely for purposes of the limitations of
Code Section 415, the
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standard of control under Sections 414(b) and 414(c) of the Code shall be
deemed to be "more than 50%" rather than "at least 80%," (2) an Employer and
an organization, but only for so long as it and the Employer are, on and
after the Effective Date, members of an affiliated service group as defined
in Section 414(m) of the Code, (3) an Employer and an organization, but only
for so long as the employees of it and the Employer are required to be
aggregated, on and after the Effective Date, under Section 414(o) of the
Code, or (4) any other organization designated as such by the Committee.
I.12 "COMPANY" means VARLEN CORPORATION or any successor corporation
by merger, consolidation, purchase, or otherwise, which elects to adopt the
Plan and the Trust.
I.13 "COMPANY STOCK" means common stock issued by VARLEN CORPORATION.
I.14 "COMPENSATION" means an Eligible Employee's:
(a) wages, salaries and all other amounts required to be
reported on an Eligible Employee's Form W-2 under Sections 6041(d),
6051(a)(3) and 6052 of the Code and which are received by an Eligible
Employee from the Employer for services rendered in the course of
employment with the Employer (including but not limited to overtime,
shift differential, commissions and bonuses), but specifically excluding
reimbursements or other expense allowances, fringe benefits (cash and
non-cash), moving expenses, deferred compensation and welfare benefits;
and
(b) elective amounts excludeable from gross income under Code
Sections 125 and 402(e)(3)).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of living
in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve (12) months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the
denominator of which is 12.
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For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the
first day of the first Plan Year beginning on or after January 1, 1994, the
OBRA '93 annual compensation limit is $150,000.
I.15 "COMPUTATION PERIOD" means with respect to Vesting Service and
any Break in Service with respect to Vesting Service, the twelve (12)
consecutive month period commencing with the Employee's Employment Date and
anniversaries of his Employment Date (or if Vesting Service is disregarded
due to the occurrence of a Break in Service, the Employment Date thereafter).
I.16 "CONTINUOUS SERVICE" means the sum of the years (and fractions
of years) measured from an Employee's Employment Date to his or her date of
Termination of Employment first to occur after his or her Employment Date;
provided, that if an Employee has a Period of Severance of less than twelve
(12) consecutive months after a Termination of Employment, such Termination
of Employment shall be disregarded and such Employee's Continuous Service
shall include such period when he or she is not employed by a Commonly
Controlled Entity.
I.17 "CONTRIBUTIONS" means amounts contributed to the Plan by the
Employer on behalf of a Participant. Specific types of contributions include:
(a) "Matching". An amount contributed by the Employer based
upon the amount contributed by the eligible Participant.
(b) "Pre-Tax". An amount contributed on a pre-tax basis in
conjunction with a Participant's Code Section 401(k) salary
deferral agreement.
(c) "Profit Sharing". An amount contributed by the Employer as
a discretionary profit sharing contribution.
(d) "Special". An amount contributed by the Employer to avoid
prohibited discrimination under Section 401(a)(4) of the
Code.
I.18 "CONTRIBUTION DOLLAR LIMIT" means the annual limit imposed on each
Participant pursuant to Section 402(g) of the Code, which shall be seven
thousand
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dollars ($7,000) per calendar year (as indexed for cost of living adjustments
pursuant to Code Section 402(g)(5) and 415(d)).
I.19 "CONTRIBUTION ELECTION" OR "ELECTION" means the election made
by a Participant to reduce his or her Compensation by an amount equal to the
product of his or her Contribution Percentage and such Compensation subject
to the Contribution Election.
I.20 "CONTRIBUTION PERCENTAGE" means the percentage of a
Participant's Compensation which is to be contributed to the Plan by his or
her Employer as a Contribution.
I.21 "CONVERSION ELECTION" means an election by a Participant to
change the investment of all or some specified portion of such Participant's
Accounts by voice response to the telephone number provided by the Named
Fiduciary to whom it is spoken, or on such form that may be required by the
Named Fiduciary to whom it is delivered. No Conversion Election shall be
deemed to have been given to the Named Fiduciary unless it is complete and
delivered in accordance with the procedures established by such Named
Fiduciary for this purpose.
I.22 "CUSTODIAL AGREEMENT" means the Trust Agreement or an insurance
contract to provide for the holding of the assets of the Plan.
I.23 "CUSTODIAN" means the Trustee or an insurance company if the
contract issued by such company is not held by the Trustee.
I.24 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
I.25 "DISABILITY" OR "DISABLED" means permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
I.26 "DISTRIBUTEE" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the alternate
payee under a QDRO are Distributees with regard to the interest of the Spouse
or former Spouse.
I.27 "EFFECTIVE DATE" means May 1, 1999, the date upon which the
provisions of this document become effective. In general, the provisions of
this document only apply to Participants who are Employees on or after the
Effective Date. However, investment and distribution provisions apply to all
Participants with Account balances to be invested or distributed after the
Effective Date.
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I.28 "ELECTIVE DEFERRAL" means amounts subject to the Contribution
Dollar Limit.
I.29 "ELIGIBLE EMPLOYEE" means any Employee (including an Employee
on an Authorized Leave of Absence) of an Employer on and after the Effective
Date of the adoption of this Plan by the Employer, excluding any Employee:
(a) who is a member of a group of Employees represented by a
collective bargaining representative, unless a currently effective
collective bargaining agreement between his or her Employer and the
collective bargaining representative of the group of Employees of which
he or she is a member provides for coverage by the Plan or is included in
Appendix B; and
(b) who is considered an Employee solely because of the
application of Section 414(n) of the Code.
I.30 "ELIGIBLE RETIREMENT PLAN" means an individual retirement
account described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section 401(a)
of the Code, that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the surviving
Spouse, an Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
I.31 "ELIGIBLE ROLLOVER DISTRIBUTION" means any distribution of all
or any portion of the balance to the credit of the Distributee, except that
an eligible rollover distribution does not include any distribution that is
one of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the Distributee or
the joint lives (or joint life expectancies) of the Distributee and the
Distributee's designated Beneficiary, or for a specified period of ten years
or more; any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; the portion any distribution that is not
includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities); and, on and
after January 1, 1999, any distribution made pursuant to Section 10.1.
I.32 "EMPLOYEE" means any person who rendered services as a common
law employee to a Commonly Controlled Entity or is on an Authorized Leave of
Absence, including the period of time before which the trade or business
became a Commonly Controlled Entity, but excluding the period of time after
which it ceases to be a Commonly Controlled Entity. Any individual
considered an Employee of a Commonly Controlled Entity under Section 414(n)
of the Code shall be deemed employed by the Commonly Controlled Entity for
which the individual performed
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services.
I.33 "EMPLOYER" means the Company and any Commonly Controlled Entity
which has adopted the Plan; provided, that an entity will cease to be an
Employer when it ceases to be a Commonly Controlled Entity.
I.34 "EMPLOYMENT DATE" means the day an Employee first earns an Hour
of Service; provided, however, with respect to an Employee who incurs a
Period of Severance on or after December 1, 1992 of twelve (12) consecutive
months or more, the Employment Date for such Employee shall be adjusted
forward in time by a period of days equal to the number of days in the Period
of Severance.
I.35 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended. Reference to any specific section shall include such
section, any valid regulation promulgated thereunder, and any comparable
provision of any future legislation amending, supplementing or superseding
such section.
I.36 "FAIR MARKET VALUE" means:
(a) with respect to a security for which there is a generally
recognized market, the price of the security prevailing on a national
securities exchange which is registered under Section 6 of the Securities
Act of 1934;
(b) unless determined otherwise by the Committee, with respect
to any guaranteed income contract, the value reported by the issuing
company or bank;
(c) with respect to a Participant loan, the unpaid principal
and accrued interest; and
(d) for any other asset, the fair market value of the asset, as
determined in good faith by the Trustee or the Committee in accordance
with regulations promulgated under Section 3(18) of ERISA.
I.37 "FORFEITURE" means the portion of the Participant's Accrued
Benefit which is forfeited pursuant to the terms of the Plan.
I.38 "FORFEITURE ACCOUNT" means an account holding amounts forfeited
by Participants.
I.39 "HIGHLY COMPENSATED ELIGIBLE EMPLOYEE" OR "HCE" means,
effective January 1, 1997, a highly compensated active employee or highly
compensated former employee.
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A highly compensated employee means each Employee who received
Compensation from the Employer in excess of $80,000 (as adjusted annually by
the Commissioner of the Internal Revenue Service for increases in the
cost-of-living in accordance with Section 414(q) of the Code) during the
look-back year and, if the Employer so elects, was among the top-paid group
of Employees during the look-back year. The term highly compensated employee
also includes Employees who are five percent (5%) owners (as defined in
Section 414(a)(2) of the Code) at any time during the look-back year or
determination year.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year.
An Employee is in the top-paid group of Employees for a year if such
Employee is in the group consisting of the top-paid twenty percent (20%) of
the Employees when ranked on the basis of Compensation paid during such year.
The determination of who is a Highly Compensated Employee, including
the determination of the number and identity of Employees in the top-paid
group and the Compensation considered, will be made in accordance with
Section 414(q) of the Code and the regulations thereunder.
I.40 "HOUR OF SERVICE" means each hour for which an Employee is
directly or indirectly paid or entitled to payment by a Commonly Controlled
Entity for the performance of duties each hour for which an Employee is
entitled to:
(a) payment for the performance of duties for any Commonly
Controlled Entity;
(b) payment from any Commonly Controlled Entity for any period
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
sickness, incapacity (including disability), layoff, leave of absence,
jury duty or military service;
(c) back pay, irrespective of mitigation of damages, by award
or agreement with any Commonly Controlled Company (and these hours shall
be credited to the period to which the agreement pertains); or
(d) no payment, but is on an Authorized Leave of Absence (and
these hours shall be based upon his or her normally scheduled hours per
week or a 40 hour week if there is no regular schedule).
The crediting of hours shall be made in accordance with Department of Labor
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regulation section 2530.200b-2 and 3. Actual hours shall be used whenever an
accurate record of hours are maintained for an Employee.
I.41 "INTERNAL REVENUE CODE" OR "CODE" means the Internal Revenue
Code of 1986, as amended, any subsequent Internal Revenue Code and final
Treasury Regulations. If there is a subsequent Internal Revenue Code, any
references herein to Internal Revenue Code sections shall be deemed to refer
to comparable sections of any subsequent Internal Revenue Code.
I.42 "INVESTMENT ELECTION" means an election by which a Participant
directs the investment of his or her Contributions by voice response to the
telephone number provided by the Named Fiduciary to whom it is spoken, or on
such form that may be required by the Named Fiduciary to whom it is
delivered. No Investment Election shall be deemed to have been given to the
Named Fiduciary unless it is complete and delivered in accordance with the
procedures established by such Named Fiduciary for this purpose.
I.43 "INVESTMENT FUND" OR "FUND" means one or more collective
investment funds, a pool of assets, or deposits with the Custodian, a mutual
fund, insurance contract, or managed pool of assets. The Investment Funds
authorized by the Committee are listed in Appendix A.
I.44 "LIMITED DEFERRALS" means Elective Deferrals subject to the
limits of Code Section 401(a)(30).
I.45 "MATERNITY/PATERNITY ABSENCE" means a paid or unpaid and
unapproved absence from employment with a Commonly Controlled Entity (1) by
reason of the pregnancy of the Employee; (2) by reason of the birth of a
child of the Employee; (3) by reason of the placement of a child under age
eighteen (18) in connection with the adoption of such child by the Employee
(including a trial period prior to adoption); and (4) for the purpose of
caring for a child of the Employee immediately following the birth or
adoption of such child. The Employee must prove to the satisfaction of the
Committee or its agent that the absence meets the above requirements and must
supply information concerning the length of the absence unless the Committee
has access to relevant information without the Employee submitting it.
I.46 "NAMED FIDUCIARY" means:
(a) with respect to the management and control of the Plan's
administration and operation over which each has discretionary authority,
the Committee;
(b) with respect to the implementation of a Participant's or
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Beneficiary's Investment Election or Conversion Election, the Committee
or other such person appointed under the terms of the Trust Agreement.
I.47 "NON-HIGHLY COMPENSATED EMPLOYEE" OR "NHCE" means an Employee
who is not an HCE.
I.48 "NORMAL RETIREMENT DATE" means the date a Participant attains
sixty-five (65) years of age; provided that, with respect to a Participant
who was a participant in the Brenco Supplemental Pension Plan prior to May 1,
1999, Normal Retirement Date shall mean the date the Participant attains age
sixty-two (62) years of age.
I.49 "NOTICE DATE" means the date established by the Committee as
the deadline for it to receive notification with respect to an administrative
matter in order to be processed as of a Change Date designated by the
Committee.
I.50 "PARTICIPANT" means an Eligible Employee who begins to
participate in the Plan after completing the eligibility requirements. A
Participant's participation continues until his or her Termination of
Employment and his or her Accrued Benefit is distributed or forfeited.
I.51 "PAYMENT DATE" means the date on or after the Settlement Date
on which a Participant's Accrued Benefit is distributed or commences to be
distributed, which date shall be at least the minimum number of days required
by law, if any, after the date the Participant has received any notice
required by law, if any.
If a distribution is one to which Sections 401(a)(11) and 417
of the Internal Revenue Code do not apply, such distribution may commence
less than 30 days after the notice required under Section 1.41(a)-11(c) of
the Income Tax Regulations is given, provided that:
(a) the plan administrator clearly informs the Participant that
the Participant has a right to a period of at least thirty (30) days
after receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
I.52 "PERIOD OF SEVERANCE" means the period of time measured from
the later of (a) an Employee's Termination of Employment, and (b) the
conclusion of a Maternity/Paternity Absence of no longer than twelve (12)
consecutive months, to the date thereafter he or she first earns an Hour of
Service.
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I.53 "PLAN" means the VARLEN CORPORATION PROFIT SHARING AND
RETIREMENT SAVINGS PLAN, as set forth herein and as hereafter may be amended
from time to time.
I.54 "PLAN YEAR" means the annual accounting period of the Plan and
Trust which ends on each December 31.
I.55 "QDRO" means a domestic relations order which the Committee has
determined to be a qualified domestic relations order within the meaning of
Section 414(p) of the Code.
I.56 "QUALIFIED MATCHING CONTRIBUTION" means a Matching Contribution
that is treated as a Pre-Tax Contribution and posted to the Pre-Tax Account.
I.57 "RELATED PLAN" means:
(a) with respect to Section 401(k) and 401(m) of the Code, any
plan or plans maintained by a Commonly Controlled Entity which is treated
with this Plan as a single plan for purposes of Sections 401(a)(4) or
410(b) of the Code; and
(b) with respect to Section 415 of the Code, any other defined
contribution plan or a defined benefit plan (as defined in Section 415(k)
of the Code) maintained by a Commonly Controlled Entity, respectively
called a "Related Defined Contribution Plan" and a "Related Defined
Benefit Plan".
I.58 "ROLLOVER CONTRIBUTION" means:
(a) a rollover contribution as described in Section 402(c) of
the Code (or its predecessor); or
(b) a Trustee Transfer (1) to the Custodian of an amount by the
custodian of a retirement plan qualified for tax-favored treatment under
Code Section 401(a), which plan provides for such transfer; (2) with
respect to which the benefits otherwise protected by Code Section 411 in
such transferor plan are no longer required by Code Section 411 to be
protected in this Plan; and (3) which does not include amounts subject to
Code Section 401(k).
I.59 "SETTLEMENT DATE" means the date on which the transactions from
the most recent Trade Date are settled.
I.60 "SPOUSAL CONSENT" means the irrevocable written consent given by a
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Spouse to a Participant's election (or waiver) of a specified form of benefit
or Beneficiary designation. The Spouse's consent must acknowledge the effect
on the Spouse of the Participant's election, waiver or designation and be
duly witnessed by a Plan representative or notary public. Spousal Consent
shall be valid only with respect to the spouse who signs the Spousal Consent
and only for the particular choice made by the Participant which requires
Spousal Consent. A Participant may revoke (without Spousal Consent) a prior
election, waiver or designation that required Spousal Consent at any time
before the Sweep Date associated with the Settlement Date upon which payments
will begin. Spousal Consent also means a determination by the Administrator
that there is no Spouse, the Spouse cannot be located or such other
circumstances as may be established by applicable law.
I.61 "SPOUSE" means a person who, as of the earlier of a
Participant's Payment Date and death, is alive and married to the Participant
within the meaning of the laws of the State of the Participant's residence as
evidenced by a valid marriage certificate or other proof acceptable to the
Committee. A spouse who was the Spouse on the Payment Date but who is
divorced from the Participant at the Participant's death shall still be the
Spouse at the date of the Participant's death, except as otherwise provided
in a QDRO.
I.62 "SWEEP DATE" means the date established by the Committee as the
cutoff date and time for the responsible Named Fiduciary to receive
notification with respect to a financial transaction for an Accounting Period
in order to be processed with respect to a Trade Date designated by the
Committee.
I.63 "TERMINATION OF EMPLOYMENT" occurs when a person ceases to be
an Employee or if earlier, the first anniversary of the date his or her
Authorized Leave of Absence commenced, as determined by the personnel
policies of the Commonly Controlled Entity to whom he or she rendered
services; provided, however, where a Commonly Controlled Entity ceases to be
such with respect to an Employee as a result of either an asset sale or stock
sale an Employee of the Commonly Controlled Entity shall be deemed not to
have incurred a Termination of Employment: (a) unless the Committee shall
make a determination that the transaction satisfies Section 401(k) of the
Code, or if no such determination is made, until such Employee ceases to be
employed by the successor to the Commonly Controlled Entity; or (b) if the
Committee shall make a Trustee Transfer of his or her Accrued Benefit.
Transfer of employment from one Commonly Controlled Entity to another
Commonly Controlled Entity shall not constitute a Termination of Employment
for purposes of the Plan.
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I.64 "TRADE DATE" means the date as of which a financial transaction
occurs, however with respect to a transaction involving Investment Funds
maintained on a share accounting methodology, the transaction shall be
executed based upon the average of the proceeds or purchase price of sales
and purchases, respectively, of a share each day a transaction occurs with
respect to an Accounting Period.
I.65 "TRUST" means the legal entity resulting from the agreement
between the Company and the Trustee and all amendments thereto, in which some
or all of the assets of this Plan will be received, held, invested and
distributed to or for the benefit of Participants and Beneficiaries.
I.66 "TRUST AGREEMENT" means the agreement between the Company and
the Trustee establishing the Trust, and any amendments thereto.
I.67 "TRUST FUND" means any property, real or personal, received by
and held by the Trustee, plus all income and gains and minus all losses,
expenses, withdrawals and distributions chargeable thereto.
I.68 "TRUSTEE" means any corporation, individual or individuals
designated in the Trust Agreement who shall accept the appointment as Trustee
to execute the duties of the Trustee as set forth in the Trust Agreement.
I.69 "TRUSTEE TRANSFER" means a transfer from the Custodian of an
amount, elected by and for the benefit of a Participant, to the custodian of
an eligible retirement plan, within the meaning of Section 402(c)(8)(B) of
the Code; provided that with respect to any withdrawal or distribution from
the Plan, a Participant may elect a transfer to only one eligible retirement
plan, except as may otherwise be determined by the Committee, in a uniform
and nondiscriminatory manner.
I.70 "VALUATION DATE" means the close of business each Accounting
Period, and such other dates as may be determined by the Committee.
I.71 "VESTING SERVICE" means the sum of an Employee's Years of
Service; provided however, Years of Service shall be disregarded if such
Years of Service were earned prior to the date the Employee's Employer became
a Commonly Controlled Entity, unless the Committee makes a determination not
to apply this exclusion with respect to each such Employee in a uniform and
nondiscriminatory manner.
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I.72 "YEAR OF SERVICE" means:
(a) for service from January 1, 1992, each twelve (12) month
period of Continuous Service;
(b) a period of Continuous Service from January 2, 1991 through
January 1, 1992; and
(c) for Computation Periods ending before January 2, 1991, a
Computation Period in which an Employee is credited with at least 1,000
Hours of Service.
Notwithstanding the foregoing, Years of Service will be calculated as follows
if (and only if) it would be of benefit to the Employee:
(d) for service from January 1, 1992, each twelve (12) month
period of Continuous Service;
(e) the Computation Period from January 2, 1991 through January
1, 1992, but only if an Employee is credited with at least 1,000 Hours of
Service in such period; and
(f) for Computation Periods ending before January 2, 1991 a
Computation Period in which an Employee is credited with at least 1,000
Hours of Service.
An Employee's service with a company, the assets of which are
acquired by a Commonly Controlled Entity, shall only be counted as employment
with such Commonly Controlled Entity in the determination of his or her Years
of Service if (1) the Committee directs that credit for such service be
granted, or (2) a qualified plan of the acquired company is subsequently
maintained by any Employer or Commonly Controlled Entity.
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ARTICLE II
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PARTICIPATION
II.1 ELIGIBILITY. On or after the Effective Date as to each Employer:
(a) PARTICIPANT ON MAY 1, 1999. Each person who has an Accrued
Benefit on May 1, 1999 shall become a Participant as of May 1, 1999.
(b) OTHER ELIGIBLE EMPLOYEE. Each other Eligible Employee
shall become a Participant on the first day of each Plan Year quarter on
or after the date he or she completes six months of Continuous Service.
II.2 REEMPLOYMENT.
(a) ELIGIBLE EMPLOYEE WAS PREVIOUSLY A PARTICIPANT. An
Eligible Employee who previously was a Participant prior to his or her
Termination of Employment shall become a Participant on the first day of
the next payroll period.
(b) ELIGIBLE EMPLOYEE HAD A TERMINATION PRIOR TO NEXT CHANGE
DATE. An Eligible Employee who previously completed six months of
Continuous Service and who had a Termination of Employment before he or
she became a Participant shall be eligible to become a Participant on the
later of (1) the date he or she would have become a Participant but for
his or her Termination of Employment, or (2) the date he or she again
performs an Hour of Service.
II.3 PARTICIPATION UPON CHANGE OF JOB STATUS. An Employee who is not
an Eligible Employee shall become a Participant on the later of (1) the date he
or she would have become a Participant had he or she always been an Eligible
Employee, and (2) the date he becomes an Eligible Employee.
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ARTICLE III
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PARTICIPANT CONTRIBUTIONS
III.1 PRE-TAX CONTRIBUTION ELECTION.
(a) A Participant who is an Eligible Employee and who desires
to have Pre-Tax Contributions made on his or her behalf by his or her
Employer shall file a Contribution Election, pursuant to procedures
specified by the Committee, specifying his or her Contribution Percentage
of not less than one percent (1%) nor more than fourteen percent (14%)
(stated as a whole integer percentage) and authorizing the Compensation
otherwise payable to him or her to be reduced.
(b) Notwithstanding Subsection (a) hereof, for any Plan Year
the Committee may determine that the maximum Contribution Percentage
shall be greater or lesser than the percentages set forth in Subsection
(a) hereof. Otherwise, the maximum Contribution Percentage as provided
in Subsection (a) hereof shall apply.
(c) A Participant's Contribution Election shall be effective
only with respect to Compensation not yet paid as of the date the
Contribution Election is effective. A Contribution Election received on
or before a Notice Date shall become initially effective with respect to
payroll cycles ended after the applicable Change Date. However, the
Committee, in its sole discretion, may declare an additional window
period to Participants. Any Contribution Election which has not been
properly and fully executed will be deemed not to have been received and
be void.
III.2 ELECTION PROCEDURES. A Participant's Contribution Election shall
continue in effect (with automatic adjustment for any change in his or her
Compensation) until the earliest of the date (1) his or her Contribution
Election is changed in accordance with paragraph (a) hereof; (2) he or she
ceases to be paid as an Eligible Employee; or (3) his or her Contribution
Election is canceled in accordance with paragraph (b) hereof.
(a) CHANGING THE ELECTION. A Participant may increase or
decrease his or her Contribution Percentage (subject to the percentage
limits stated above) only once each Change Date by making a new
Contribution Election, pursuant to procedures specified by the Committee,
on which is specified the amount of the Contribution Percentage.
(1) If such Contribution Election is received by the
Notice
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Date, the change shall be effective with respect
to the first payroll cycle ended after the Change
Date.
(2) However, if the Committee deems it necessary, the
Committee may specify an additional window period to
Participants.
(3) The amount of increase or decrease of such
Contribution Percentage shall be effective only with
respect to Compensation not yet paid.
(4) Any Contribution Election which has not been
properly and fully executed will be deemed not to
have been received and be void.
(b) CANCELING THE ELECTION. A Participant desiring to cancel
his or her existing Contribution Election and reduce his or her
Contribution Percentage to zero must make a new Contribution Election,
pursuant to procedures specified by the Committee. The Committee will
establish procedures, to be administered in a uniform and
nondiscriminatory manner, for allowing a Participant to cancel his or her
Contribution Election. Any Contribution Election received on or before a
Notice Date shall become effective with respect to the payroll cycle
ended after the next Change Date. A Participant who is an Eligible
Employee and who has canceled his or her Election may again make a
Contribution Election at any time. If such Contribution Election is
received by the Notice Date, it shall become effective with respect to
the first payroll cycle ended after the next Change Date. Any
Participant who has improperly or not fully executed a Contribution
Election will be deemed not to have made an Election.
(c) CONTINUATION OF ELECTIONS UNDER BRENCO SUPPLEMENTAL PENSION
PLAN. A Participant's Contribution election under the Brenco
Supplemental Pension Plan immediately prior to that plan's merger into
the Plan shall continue in effect notwithstanding such merger, until such
time as is otherwise provided under this Section 3.2.
III.3 LIMITATION OF ELECTIVE DEFERRALS FOR ALL PARTICIPANTS. A
Participant's Limited Deferrals for any calendar year shall not exceed the
Contribution Dollar Limit. If a Participant advises the Committee that he or
she has Elective Deferrals (reduced by Elective Deferrals previously distributed
or which are characterized as a result of the application of Code Section
401(k)(3) to such Participant) in excess of the Contribution Dollar Limit
("Excess Deferral"), the Committee shall return such Excess Deferrals for the
taxable year to the Participant. To the extent the Participant's
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Limited Deferrals exceed the Contribution Dollar Limit, the Employer may
notify the Plan on behalf of the Participant (and "Excess Deferral" shall be
calculated by taking into account only Limited Deferrals). If such advice
was received by the Committee during the taxable year, the Plan shall
distribute the Excess Deferral as soon as administratively feasible. If such
advice was received by the Committee after the taxable year but no later than
March 1 (or as late as April 14, if allowed by the Committee) following the
close of the taxable year, the Committee shall cause the Plan to return such
Excess Deferral no later than April 15 immediately following the end of such
taxable year, adjusted by income allocable to that amount.
The net investment gain or loss associated with the Excess Deferral is
calculated as follows:
G
E x-------- x (1+(10% x M))
(AB-G)
where:
E = the Excess Deferral amount,
G = the net gain or loss for the Plan Year in the Participant's
Pre-Tax Account,
AB = the total value of the Participant's Pre-Tax Account,
determined as of the end of the calendar year being
corrected,
M = the number of full months from the calendar year end to the
date the excess amount is paid, plus one for the month
during which payment is to be made if payment will occur
after the 15th of that month.
If the application of the limitations in this Section results in a reduction
of previously contributed Pre-Tax Contributions on behalf of a Participant,
Matching Contributions allocable with respect thereto (prior to such
reduction) which are not distributed under the ACP Test shall be forfeited.
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ARTICLE IV
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EMPLOYER CONTRIBUTIONS AND ALLOCATIONS
IV.1 PRE-TAX CONTRIBUTIONS.
(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the
Plan and to the Committee's authority to limit Contributions under the
terms of this Plan, for each period for which a Contribution Election is
in effect, the Employer shall contribute to the Plan on behalf of each
Participant an amount equal to the amount designated by the Participant
as a Pre-Tax Contribution on his or her Contribution Election.
(b) ALLOCATION. The Pre-Tax Contribution shall be allocated to
the Pre-Tax Account of the Participant with respect to whom the amount is
paid.
(c) TIMING, MEDIUM AND POSTING. Pre-Tax Contributions shall be
paid to the Custodian in cash and posted to each Participant's Pre-Tax
Account by the Committee as soon as such amounts can reasonably be
balanced against the specific amount made on behalf of each Participant.
Pre-Tax Contributions shall be paid to the Custodian not more than ninety
(90) days after the date amounts are deducted from the Participant's
Compensation.
IV.2 MATCHING CONTRIBUTIONS.
(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the
Plan and to the Committee's authority to limit Contributions under the
Plan, for each period for which Participants' Contributions are made, the
Employer shall make Matching Contributions as described in the following
Allocation Method paragraph on behalf of each Participant who contributed
during the period.
(b) ALLOCATION METHOD. The Matching Contributions for each
period shall total twenty-five percent (25%) of the sum of each eligible
Participant's Pre-Tax Contributions for the period, provided that no
Matching Contributions shall be made based upon a Participant's
Contributions in excess of six percent (6%) of his or her Compensation.
The Employer may change the twenty-five percent (25%) matching rate or
the six percent (6%) of considered Compensation to any other percentages,
including zero (0%). Notwithstanding the foregoing, for any Participant
who is an Eligible Employee included in Appendix B, the Matching
Contributions, if any, made by the Employer on behalf of such Participant
shall be as is provided in Appendix B.
(c) TIMING, MEDIUM AND POSTING. The Employer shall make each
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period's Matching Contribution in cash as soon as is feasible, and not
later than the Employer's federal tax filing date, including extensions,
for deducting such Contribution. The Committee shall post such amount to
each Participant's Matching Account once the total Contribution received
by the Custodian has been balanced against the specific amount to be
credited to each Participant's Matching Account.
(d) COMPENSATION. Compensation shall be measured by the period
(not to exceed the Plan Year) for which the Contribution is being made
provided the Eligible Employee is a Participant during such period.
IV.3 SPECIAL CONTRIBUTIONS.
(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the
Plan and to the Committee's authority to limit Contributions under the
Plan, for each Plan Year, the Employer may make a Special Contribution in
an amount determined by the Board on behalf of each Non-Highly
Compensated Employee Participant.
(b) ALLOCATION METHOD. The Special Contribution, together with
any available Forfeiture Account amount to be applied as a Special
Contribution, for each period shall be allocated among eligible
Participants as determined by the Board, subject to a maximum dollar
amount which may be contributed on behalf of any Participant as
determined by the Committee.
(c) TIMING, MEDIUM AND POSTING. The Employer shall make each
period's Special Contribution in cash as soon as is feasible, but no
later than twelve (12) months after the end of the Plan Year to which it
is allocated. The Committee shall post such amount to each Participant's
Special Account once the total Contribution received by the Custodian has
been balanced against the specific amount to be credited to each
Participant's Special Account.
(d) COMPENSATION. Compensation shall be measured by the period
(not to exceed the Plan Year) for which the Contribution is being made,
provided the Eligible Employee is a Participant during such period.
IV.4 PROFIT SHARING CONTRIBUTIONS.
(a) FREQUENCY AND ELIGIBILITY. Subject to the limits of the
Plan and to the Committee's authority to limit Contributions under the
Plan, for each Plan Year, the Employer may make a Profit Sharing
Contribution in an amount determined by the Board with respect to the
Varlen Corporate Office and by the Company's Chief Executive Officer with
respect to each Participant who was an Eligible Employee on the last day
of the period, subject to Appendix B,
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<PAGE>
provided, however, that consistent with the foregoing, such Profit
Sharing Contribution may vary among the various subsidiaries,
divisions or other business units of the Company, pursuant to criteria
established by the Committee and applied on a uniform basis. In
addition, and consistent with the foregoing, such Contribution shall
be made on behalf of each Participant who ceased being an Employee
during the period after having attained his or her Normal Retirement
Date, having attained fifty-five (55) years of age and completing five
(5) years of Continuous Service, or by reason of his or her Disability
or death; subject to Appendix B.
(b) ALLOCATION METHOD. The Profit Sharing Contribution for
each period shall be allocated, pursuant to criteria established by the
Committee and applied on a uniform basis, within each subsidiary,
division or business unit of the Company, among eligible Participants in
direct proportion to their Compensation. Any available Forfeiture
Account amount to be applied as a Profit Sharing Contribution for each
period shall be allocated among eligible Participants pro rata, on a per
Participant basis.
(c) TIMING, MEDIUM AND POSTING. The Employer shall make each
Plan Year Profit Sharing Contribution in cash as soon as is feasible, and
not later than the Employer's federal tax filing date, including
extensions, for deducting such Contribution. The Committee shall post
such amount to each Participant's Employer Account once the total Profit
Sharing Contribution received has been balanced against the specific
amount to be credited to each Participant's Employer Account.
(d) COMPENSATION. Compensation shall be measured by the period
(not to exceed the Plan Year) for which the Contribution is being made
provided the Eligible Employee is a Participant during such period.
IV.5 MISCELLANEOUS.
(a) DEDUCTION LIMITS. In no event shall the Employer
Contributions for a Plan Year exceed the maximum the Company estimates
will be deductible (or which would be deductible if the Employers had
taxable income) by any Employer or Commonly Controlled Entity under
Section 404 of the Code ("Deductible Amount"). Any amount in excess of
the Deductible Amount shall not be contributed in the following order of
Contribution type, to the extent needed to eliminate the excess:
(1) Each Participant's allocable share of Pre-Tax
Contributions for the Plan Year will be reduced by
an amount equal to the excess of the Participant's
Pre-Tax Contributions over
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<PAGE>
an amount which bears the same ratio to the
amount of Pre-Tax Contributions made to the Plan
on behalf of such Participant during the Plan
Year as the Deductible Amount available for the
Plan Year (reduced by the total amount of other
types of Employer Contributions for the Plan
Year) bears to the aggregate Pre-Tax
Contributions made to the Plan on behalf of all
Participants subject to such Deductible Amount
during the Plan Year (before the application of
this provision).
(2) If the application of Section (a)(1) would result in
a reduction of a Participant's Pre-Tax Contributions
which are matched by Matching Contributions, the
rate at which Pre-Tax Contributions are reduced
shall be offset by a reduction for each Matching
Contribution not made as a result.
(3) Profit Sharing Contributions.
(b) PROFIT SHARING PLAN. Notwithstanding anything herein to
the contrary, the Plan shall constitute a profit sharing plan for all
purposes of the Code.
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<PAGE>
ARTICLE V
- -------------------------------------------------------------------------------
ROLLOVERS
V.1 ROLLOVERS. The Committee may authorize the Custodian to accept a
Rollover Contribution in cash from an Eligible Employee, but only if he or she
is a Participant. The Employee shall furnish satisfactory evidence to the
Committee that the amount is eligible for rollover treatment. Such amount shall
be posted to the Employee's Rollover Account by the Committee as of the date
received by the Custodian.
If it is later determined that an amount transferred pursuant to the
above paragraph did not in fact qualify as a Rollover Contribution, the balance
credited to the Employee's Rollover Account shall immediately be (1) segregated
from all other Plan assets, (2) treated as a non-qualified trust established by
and for the benefit of the Employee, and (3) distributed to the Employee. Any
such nonqualifying rollover shall be deemed never to have been a part of the
Plan.
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<PAGE>
ARTICLE VI
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ACCOUNTING FOR PARTICIPANTS'
ACCOUNTS AND FOR INVESTMENT FUNDS
VI.1 INDIVIDUAL PARTICIPANT ACCOUNTING.
(a) ACCOUNT MAINTENANCE. The Committee shall cause the
Accounts for each Participant to reflect transactions involving assets of
the Accounts in accordance with this Article. Financial transactions
during or with respect to an Accounting Period shall be accounted for at
the individual Account level by "posting" each transaction to the
appropriate Account of each affected Participant. Participant Account
values shall be maintained in dollars or shares depending on the
Investment Fund. At any point in time, the Participant's Accrued Benefit
shall be equal to the net Fair Market Value of his or her Account
determined by using the most recent Trade Date values provided by the
Custodian.
(b) TRADE DATE ACCOUNTING AND INVESTMENT CYCLE. For any
transaction to be processed as of a Trade Date, the Committee must
receive instructions by the Sweep Date and such instructions shall apply
only to amounts held in or posted to the Accounts as of the Trade Date.
Financial transactions in an Investment Fund shall be posted to a
Participant's Account as of the Trade Date and based upon the Trade Date
values provided by the Custodian. All transactions shall be effected on
the Settlement Date relating to the Trade Date (or as soon as is
administratively feasible).
(c) SUSPENSION OF TRANSACTIONS. Whenever the Committee
considers such action to be in the best interest of the Participants, the
Committee in its discretion may suspend from time to time the Trade Date.
(d) TEMPORARY INVESTMENT. To the extent practicable, the
Committee shall direct the Custodian to make temporary investments in a
short term interest fund of assets in an Account held pending a Trade
Date.
(e) HOW FEES AND EXPENSES ARE CHARGED TO PARTICIPANTS. Account
maintenance fees to the extent not paid by the Employer shall be charged
pro rata to each Participant's Account on the basis of each Participant's
Accrued Benefit, provided that no fee shall reduce a Participant's
Account balance below zero. Transaction type fees (such as special asset
fees, investment election change fees, etc.) shall be charged to the
Accounts involved in the transaction. Fees and expenses incurred for the
management and maintenance of Investment Funds shall be charged at the
Investment Fund level and
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<PAGE>
reflected in the net gain or loss of each Fund to the extent not paid
by the Employer. Notwithstanding the foregoing, for any Accounting
Period beginning as soon as administratively possibly after a
favorable determination on this issue is received from the Internal
Revenue Service, (and after a Participant's Termination of
Employment), the Employer shall not pay the fees and expenses
chargeable to the Account of a Participant or to an Investment Fund
with respect to the Account of a Participant who incurred such
Termination of Employment. Such fees and expenses shall be charged
directly against the Participant's Account or used to reimburse the
Employer for its payment of such fee or expense.
(f) ERROR CORRECTION. The Committee may correct any errors or
omissions in the administration of the Plan by restoring or charging any
Participant's Accrued Benefit with the amount that would be credited or
charged to the Account had no error or omission been made. Funds
necessary for any such restoration shall be provided through payment made
by the Employer.
(g) ACCOUNTING FOR PARTICIPANT LOANS. Participant loans shall
be held in a separate Fund for investment only by such Participant and
accounted for in dollars as an earmarked asset of the borrowing
Participant's Account.
VI.2 ACCOUNTING FOR INVESTMENT FUNDS.
(a) SHARE ACCOUNTING. The investments in each Investment Fund
designated in Appendix A shall be maintained in full and fractional
shares. The Committee is responsible for determining the number of full
and fractional shares of each such Investment Fund. To the extent an
Investment Fund is comprised of a collective investment fund of the
Custodian, the net asset and unit values shall be determined in
accordance with the rules governing such collective investment funds,
which are incorporated herein by reference. Fees and expenses incurred
for the management and maintenance of Investment Funds shall be charged
at the Investment Fund level and reflected in the net gain or loss of
each Fund to the extent not paid by the Employer.
(b) ACCOUNTING FOR COMPANY STOCK. The following additional
rules shall apply to the Company Stock Fund:
(1) SHAREHOLDER RIGHTS. Shareholder Rights with respect
to all Company Stock in an Account shall be
exercised by the Trustee in accordance with
directions from the Participant pursuant to the
procedures of the Trust Agreement.
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<PAGE>
(2) TENDER OFFER. If a tender offer is commenced for
Company Stock, the provisions of the Trust Agreement
regarding the response to such tender offer, the
holding and investment of proceeds derived from such
tender offer and the substitution of new securities
for such proceeds shall be followed.
(3) DIVIDENDS AND INCOME. Dividends (whether in cash or
in property) and other income received by the
Custodian in respect of Company Stock shall be
reinvested in Company Stock and shall constitute
income and be recognized on an accrual basis for the
Accounting Period in which occurs the record date
with respect to such dividend; provided that, with
respect to any dividend which is reflected in the
market price of the underlying stock, the Committee
shall direct the Custodian during such trading
period to trade such stock the regular way to
reflect the value of the dividend, and all Fund
transfers and cash distributions shall be transacted
accordingly with no accrual of such dividend, other
than as reflected in such market price.
(4) TRANSACTION COSTS. Any brokerage commissions,
transfer taxes, transaction charges, and other
charges and expenses in connection with the purchase
or sale of Company Stock shall be added to the cost
thereof in the case of a purchase or deducted from
the proceeds thereof in the case of a sale, to the
extent not paid by an Employer; provided, however,
where the purchase or sale of Company Stock is with
a "disqualified person" as defined in Section
4975(e)(2) of the Code or a "party in interest" as
defined in Section 3(14) of ERISA, no commissions
may be charged with respect thereto.
VI.3 ACCOUNTS FOR QDRO BENEFICIARIES. A separate Account shall be
established for a Beneficiary entitled to any portion of a Participant's Account
under a QDRO as of the date and in accordance with the directions specified in
the QDRO. Such Account shall be valued and accounted for in the same manner as
any other Account.
(a) INVESTMENT DIRECTION. A QDRO Beneficiary may direct the
investment of such Account in the same manner as any other Participant;
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<PAGE>
provided, however, a QDRO Beneficiary may not acquire Company Stock.
(b) DISTRIBUTIONS. A QDRO Beneficiary shall be entitled to
payment as provided in the QDRO and permissible under the otherwise
applicable terms of this Plan, regardless of whether the Participant is
an Employee, and to name a Beneficiary as specified in the QDRO.
(c) PARTICIPANT LOANS. A QDRO Beneficiary shall not be
entitled to borrow from his or her Account. If a QDRO specifies that the
QDRO Beneficiary is entitled to any portion of the Account of a
Participant who has an outstanding loan balance, all outstanding loans
shall continue to be held in the Participant's Account and shall not be
divided between the Participant's and QDRO Beneficiary's Accounts.
VI.4 SPECIAL ACCOUNTING DURING CONVERSION PERIOD. The Committee and
Custodian may use any reasonable accounting methods in performing their
respective duties during the period of converting the prior accounting system of
the Plan and Trust to conform to the individual Participant accounting system
described in this Section. This includes, but is not limited to, the method for
allocating net investment gains or losses and the extent, if any, to which
contributions received by and distributions paid from the Trust during this
period share in such allocation. All or a portion of the Trust assets may be
held, if necessary, in a short term interest bearing vehicle, which may include
deposits of the Trustee, during the conversion period for establishing such
individual Participant Accounts.
VI.5 ACCOUNTING FOR MERGING BRENCO SUPPLEMENTAL PENSION PLAN ACCOUNT
BALANCES. As of the Effective Date, the Brenco Supplemental Pension Plan shall
be merged into the Plan pursuant to Section 414(l) of the Internal Revenue Code
and the Account balances of each affected Participant shall be redesignated
by the Committee consistent with Section 1.2, so that Plan Contributions and
other Plan transactions can thereafter be accounted for consistent with this
Article VI.
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ARTICLE VII
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INVESTMENT FUNDS AND ELECTIONS
VII.1 INVESTMENT FUNDS. Except for a Participant's loan Account, the
Trust shall be maintained in various Investment Funds. The Committee may
change the number or composition of the Investment Funds, subject to the
terms and conditions agreed to with the Custodian.
VII.2 INVESTMENT OF CONTRIBUTIONS.
(a) INVESTMENT ELECTION. Each Participant may direct the
Trustee, pursuant to procedures specified for that purpose by the
responsible Named Fiduciary, to invest Contributions posted to his or her
Accounts in one or more Investment Funds. If the Committee directs, for
any Accounting Period, Contributions with respect to which the
Participant has investment control may be invested separately in the
Investment Funds. If the Participant elects to have any such
Contributions made on his or her behalf invested in more than one
Investment Fund, he or she must designate in whole multiples of five
percent (5%) what percentage of the Contribution is to be invested in
each such Investment Fund. If the Committee directs, for any Accounting
Period, Contributions with respect to which the Participant has
investment control may be invested separately in Funds.
(b) EFFECTIVE DATE OF INVESTMENT ELECTION; CHANGE OF INVESTMENT
ELECTION. A Participant's initial Investment Election will be effective
with respect to a Fund on the Trade Date which relates to the Sweep Date
on which or prior to which the Investment Election is received pursuant
to procedures specified by the Committee. A Participant's Investment
Election shall continue in effect, notwithstanding any change in his
Compensation or his Contribution Percentage, until the earliest of
(1) the effective date of a new Investment Election, and (2) the date he
ceases to be paid as an Eligible Employee. A change in Investment
Election shall be effective with respect to a Fund on the Trade Date
which relates to the Sweep Date on which or prior to which the
Participant's new Investment Election is received pursuant to procedures
specified by the Committee. Any Investment Election which has not been
properly or fully executed will be deemed not to have been received.
(c) SWITCHING FEES. A reasonable processing fee may be charged
directly to a Participant's Account for Investment Election changes in
excess of a specified number per Plan Year as determined by the
Committee.
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VII.3 INVESTMENT OF ACCOUNTS.
(a) CONVERSION ELECTION. Notwithstanding a Participant's
Investment Election, a Participant or Beneficiary may direct the Trustee,
pursuant to procedures specified for that purpose by the responsible
Named Fiduciary, to change the interest his or her Accrued Benefit has in
one or more Investment Funds. If the Participant or Beneficiary elects
to invest his or her Accrued Benefit in more than one (1) Investment
Fund, he or she must designate in whole multiples of five percent (5%) or
in whole dollar amounts that portion of his Accounts which is to be
invested in such Investment Fund. If the Committee directs, for any
Accounting Period, Accounts may be invested separately in Funds.
(b) EFFECTIVE DATE OF CONVERSION ELECTION. A Conversion
Election to change a Participant's or Beneficiary's investment of his or
her Accrued Benefit in one Investment Fund to another Fund shall be
effective with respect to such Funds on the Trade Date(s) which relates
to the Sweep Date on which or prior to which the Election is received
pursuant to procedures specified by the Committee. Notwithstanding the
foregoing, to the extent required by any provisions of an Investment
Fund, the effective date of any Conversion Election may be delayed or the
amount of any permissible Conversion Election may be reduced. Any
Conversion Election which has not been properly or fully executed will be
deemed not to have been received.
(c) SWITCHING FEES. A reasonable processing fee may be charged
directly to a Participant's Account for Conversion Election changes in
excess of a specified number per Plan Year as determined by the
Committee.
VII.4 ESTABLISHMENT OF INVESTMENT FUNDS. The Committee shall cause to
be established one or more Investment Funds set forth in Appendix A. In
addition, the Committee may, from time to time, in its discretion:
(a) limit investments in or transfers from an Investment Fund;
(b) add funding vehicles thereunder;
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(c) liquidate, consolidate or otherwise reorganize an existing
Investment Fund; or
(d) add a new Investment Fund to Appendix A.
VII.5 TRANSITION RULES. Effective as of the date any Investment Fund
is added or deleted, each Participant and Beneficiary shall have the
opportunity to submit new Investment Elections and Conversion Elections to
the responsible Named Fiduciary no later than the applicable Sweep Date. The
Committee and Custodian may use any reasonable accounting methods in
performing their respective duties during the period of transition from one
Investment Fund to another, including, but not limited to:
(a) designating into which Investment Fund a Participant's
Accrued Benefit will be invested if the Participant fails to submit a
proper Conversion Election form;
(b) the method for allocating net investment gains or losses
and the extent, if any, to which amounts received by and distributions
paid from the Trust during this period share in such allocation; and
(c) investing all or a portion of the Trust's assets in a
short-term, interest-bearing Fund during such transition period.
VII.6 INVESTMENT OF BRENCO SUPPLEMENTAL PENSION PLAN ACCOUNT
BALANCES. In connection with the merger of the Brenco Supplemental Pension
Plan with and into the Plan, effective as of the Effective Date, the
Committee and Custodian shall designate into which Investment Fund a
Participant's Brenco Supplemental Pension Plan Accounts shall be mapped, on a
uniform basis; provided that each affected Participant shall be provided the
opportunity to submit a Conversion Election (pursuant to Section 7.3 but
subject to such additional procedures as the Committee shall adopt to
facilitate the merger) to direct a change in the interest his or her Accrued
Benefit has in one or more Investment Funds. Each affected Participant will
also be required to submit a new Investment Election (pursuant to Section 7.2
but subject to such additional procedures as the Committee shall adopt to
facilitate the merger).
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ARTICLE VIII
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VESTING AND FORFEITURES
VIII.1 FULLY VESTED CONTRIBUTION ACCOUNTS.
A Participant shall be fully vested and have a nonforfeitable
right to his or her Accrued Benefit in these Accounts at all times:
Brenco Employer Account
Brenco Money Purchase Pension Account
Pre-Tax Account
Post-Tax Account
Brenco Retirement Account
Rollover Account
Matching Account
Special Account.
VIII.2 VESTING; PAYMENT OF ACCRUED BENEFIT ON OR AFTER RETIREMENT OR
DISABILITY. A Participant's Accrued Benefit shall be fully vested and
nonforfeitable upon the occurrence of any one or more of the following events:
(a) completion of at least the minimum number of years of
Vesting Service in the Vesting Schedule for a 100% nonforfeitable
percentage;
(b) attainment of Normal Retirement Date;
(c) his or her Termination of Employment for reason of a
Disability; or
(d) he or she dies while an Employee.
VIII.3 VESTING SCHEDULE AND FORFEITURES.
(a) VESTING. If a Participant has a Termination of Employment,
the Participant shall be vested and have a nonforfeitable right to his or
her Accrued Benefit in his Employer Account, determined in accordance
with the following vesting schedules:
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE NONFORFEITABLE PERCENTAGE
<S> <C>
Less than 1 year 0%
1 year but less than 2 years 0%
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<PAGE>
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
</TABLE>
Notwithstanding the preceding sentence, with respect to that portion of a
Participant's Accounts that is attributable to amounts transferred from
the National Metalwares Profit Sharing Plan and Trust, the Precision
Scientific 401(k) Tax Deferred Savings Plan, the Precision Scientific
Profit Sharing Plan, the Means Stamping Industries, Inc. Retirement Plan,
the Consolidated Metco Profit Sharing and Retirement Savings Plan or the
Brenco Supplemental Pension Plan, the vested percentage of such amounts
shall be no less than their vested percentage under such plan as of the
transfer's effective date.
VIII.4 FORFEITURES.
(a) FORFEITURE WHERE PAYMENT COMMENCES PRIOR TO A BREAK IN
SERVICE. As of the Payment Date of a Participant's nonforfeitable
percentage of his or her Accrued Benefit, that portion of his or her
Accrued Benefit which is forfeitable shall be forfeited as of the Payment
Date. Thereafter, if such person is rehired as an Employee prior to
incurring a Break in Service, he or she shall be entitled to make
repayment to the Plan of the full amount distributed to him or her on or
after the Payment Date no later than the earlier of (1) the date he or
she incurs a Break in Service, and (2) the last day of the 5-year period
commencing on or after his or her date of reemployment. Upon making
repayment in a single payment of the amount distributed to him or her,
the amount repaid shall be credited to the Participant's Account from
which paid and the Forfeiture shall be reinstated to his or her Accounts
and invested in the same manner as the Account to which it is posted.
The amount required to restore such Participant's Accounts shall be
charged against the Plan's Forfeitures, and if insufficient, be made up
from additional Employer Contributions.
If the Employee makes the above-described repayment, such
repayment shall be considered to be the "investment in the contract" for
purposes of Sections 72(c)(1)(A), 72(f) and 402(e)(4)(D)(i) of the Code
in relation to the amount reinstated in his or her Account on account of
the repayment.
(b) FORFEITURE WHERE PAYMENT COMMENCES AFTER A BREAK IN
SERVICE. If no Payment Date of a Participant's nonforfeitable Accrued
Benefit occurs before having incurred a Break in Service, that portion of
the Participant's Accrued Benefit (which is Employer-derived) which is
forfeitable as of his or her
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Termination of Employment shall be forfeited as of the completion of
a Break in Service. If the Participant is reemployed as an Employee
prior to having incurred a Break in Service, the Forfeiture shall not
occur. If the Participant is reemployed as an Employee after incurring
a Break in Service, the Participant shall be fully vested and have a
nonforfeitable interest in that portion of his or her Accounts accrued
prior to the Break in Service and not forfeited as a result of such
Break in Service. A Participant who incurs a Termination of Employment
with a zero vested interest in his or her Accrued Benefit (which is
Employer-derived) shall be deemed to have a Payment Date and a
Forfeiture of his or her Accrued Benefit as of such Termination of
Employment.
VIII.5 FORFEITURE ACCOUNT.
A Forfeiture will be posted, no later than as of the last day of the Plan
Year in which the Forfeiture arises, to the Forfeiture Account on the Settlement
Date for the Trade Date on which the Custodian, at the direction of the
Committee, has converted the Forfeiture to cash. No later than the end of such
Plan Year, the Forfeiture Account shall be used (in the following order) to
reinstate Accrued Benefits and supplement Contributions, to the extent provided
in Article IV.
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ARTICLE IX
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PARTICIPANT LOANS
IX.1 PARTICIPANT LOANS PERMITTED. The Committee is authorized to
establish and administer a loan program for a Participant who is an Eligible
Employee or a former Eligible Employee who is a "party in interest" under
ERISA pursuant to the terms and conditions set forth in this Article. All
loan limits are determined as of the Trade Date the Trustee reserves funds
for the loan. The funds will be disbursed to the Participant as soon as is
administratively feasible after the next following Settlement Date.
IX.2 LOAN FUNDING LIMITS.
The loan amount must meet the following limits:
(a) PLAN MINIMUM LIMIT. The minimum amount for any loan is
$1,000.00.
(b) PLAN MAXIMUM LIMIT. Subject to the legal limit described
in (c) below, the maximum a Participant may borrow, including the
outstanding balance of existing Plan loans, is fifty percent (50%) of the
following Accounts which are fully vested:
Post-Tax Account
Brenco Money Purchase Pension Account
Employer Account attributable to amounts received
from a merged plan
Pre-Tax Account attributable to amounts received
from amerged plan
Brenco Retirement Account
Rollover Account
Matching Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions
Special Account
Brenco Employer Account
Employer Account.
(c) LEGAL MAXIMUM LIMIT. The maximum a Participant may borrow,
including the outstanding balance of existing loans, is based upon the
value of
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his or her vested interest in this Plan and all other qualified plans
maintained by a Commonly Controlled Entity (the "Vested Interest").
The maximum amount is equal to 50% of his or her Vested Interest, not to
exceed $50,000. However, the $50,000 amount is reduced by the
Participant's highest outstanding balance of all loans from any Commonly
Controlled Entity's qualified plans during the twelve (12) month period
ending on the day before the Trade Date on which the loan is made.
IX.3 MAXIMUM NUMBER OF LOANS. A Participant may have only one loan
outstanding at any given time.
IX.4 SOURCE OF LOAN FUNDING. A loan to a Participant shall be made
solely from the assets of his or her own Accounts. The available assets
shall be determined first by Contribution Account and then by investment type
within each type of Contribution Account. The hierarchy for loan funding by
type of Contribution Account shall be the order listed in the preceding Plan
Maximum Limit paragraph. Within each Account used for funding, amounts shall
first be taken from the available cash in the Account and then taken by type
of investment in direct proportion to the market value of the Participant's
interest in each Investment Fund as of the Sweep Date on which the loan is
made.
IX.5 INTEREST RATE. The interest rate charged on Participant loans
shall be fixed and equal to the prime rate, plus 1%, of a bank designated by
the Committee.
IX.6 REPAYMENT. Substantially level amortization shall be required
of each loan with payments made at least monthly, through payroll deduction,
provided that payment can be made by check for prepayments in full, or when a
Participant is on an Authorized Leave of Absence, Disabled or transferred to
the employ of a Commonly Controlled Entity which is not participating in the
Plan. Loans may be prepaid in full at any time. The loan repayment period
shall be as mutually agreed upon by the Participant and Committee, not to
exceed five (5) years. However, the term may be for any period not to exceed
ten (10) years if the purpose of the loan is to acquire the Participant's
principal residence.
IX.7 REPAYMENT HIERARCHY. Loan principal repayments shall be
credited to the Participant's Contribution Accounts in the inverse of the
order used to fund the loan. Loan interest shall be credited to the
Contribution Account in direct proportion to the principal repayment. Loan
payments are credited by investment type based upon the Participant's current
Conversion Election for that Account.
IX.8 LOAN APPLICATION, NOTE AND SECURITY. A Participant shall apply
for any loan in accordance with a procedure established by the Committee.
The Committee shall administer Participant loans and shall specify the time
frame for approving loan
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applications. All loans shall be evidenced by a promissory note and security
agreement, and secured only by a Participant's vested Account balance. The
Plan shall have lien on a Participant's Account to the extent of any
outstanding loan balance.
IX.9 DEFAULT, SUSPENSION AND ACCELERATION.
(a) DEFAULT. A loan is treated as a default on the earlier of
(i) the date any scheduled loan payment is more than ninety (90) days
late, provided that the Committee may agree to a suspension of loan
payments for up to twelve (12) months for a Participant who is on an
Authorized Leave of Absence or Disabled. or (ii) 30 days from the time
the Participant receives written notice of the note being due and payable
and a demand for past due amounts.
(b) ACTIONS UPON DEFAULT. In the event of default, the
Committee may direct the Trustee to execute upon its security interest in
the Participant's Account by segregating the unpaid loan balance from the
Account, including interest to the date of default and report the default
as a taxable distribution. As soon as a Plan withdrawal or distribution
to such Participant would otherwise be permitted, the Committee shall
instruct the Trustee to distribute the note to the Participant.
(c) ACCELERATION. A loan shall become due and payable in full
once the Participant incurs a Termination of Employment unless he or she
is Disabled in which case the note will not be due and payable until the
Participant ceases to be Disabled, dies or the note is otherwise due.
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ARTICLE X
- -------------------------------------------------------------------------------
IN-SERVICE WITHDRAWALS
X.1 WITHDRAWALS FOR 401(k) HARDSHIP.
(a) REQUIREMENTS. A Participant may request the withdrawal of
any amount from the vested portion of his or her Accounts needed to
satisfy a financial need by making a withdrawal request in accordance
with a procedure established by the Committee. The Committee shall only
approve those requests for withdrawals (1) on account of a Participant's
"Deemed Financial Need", and (2) which are "Deemed Necessary" to satisfy
the financial need.
(b) "DEEMED FINANCIAL NEED". Financial commitments relating
to:
(1) costs directly related to the purchase or
construction (excluding mortgage payments or balloon
payments) of a Participant's principal residence;
(2) the payment of expenses for medical care described
in Section 213(d) of the Code previously incurred by
the Participant, the Participant's Spouse, or any
dependents of the Participant (as defined in Section
152 of the Code) or necessary for those persons to
obtain medical care described in Section 213(d) of
the Code;
(3) payment of tuition and related educational fees for
the next twelve (12) months of post-secondary
education for the Participant, his or her Spouse,
children or dependents (as defined in Section 152 of
the Code); or
(4) necessary payments to prevent the eviction of the
Participant from his or her principal residence or
the foreclosure on the mortgage of the Participant's
principal residence.
(c) "DEEMED NECESSARY". A withdrawal is "deemed necessary" to
satisfy the financial need only if all of these conditions are met:
(1) the withdrawal may not exceed the dollar amount
needed to satisfy the Participant's documented
Financial Hardship, plus an amount necessary to pay
federal, state, or local income taxes or penalties
reasonably anticipated
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<PAGE>
to result from such withdrawal;
(2) the Participant must have obtained all
distributions, other than Financial Hardship
distributions, and all nontaxable loans under all
plans maintained by the Company or any Commonly
Controlled Entity;
(3) the Participant will be suspended from making
Pre-Tax Contributions, after-tax contributions, or
elective contributions subject to a cash or deferred
arrangement under the Plan (or under any other
qualified or nonqualified plan of deferred
compensation maintained by a Commonly Controlled
Entity) for at least twelve (12) months from the
date the withdrawal is received; and
(4) the Dollar Limit for the taxable year immediately
following the taxable year in which the Financial
Hardship withdrawal is received shall be reduced by
the Elective Deferrals for the taxable year in which
the Financial Hardship withdrawal is received.
(d) CONTRIBUTION ACCOUNT SOURCES FOR WITHDRAWAL. All available
amounts must first be withdrawn from a Participant's Post-Tax Account.
The remaining withdrawal amount shall come only from his or her Accounts
in the following priority order:
Pre-Tax Account attributable to amounts received
from a merged plan
Rollover Account
Brenco Retirement Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions.
The amount that may be withdrawn from a Participant's Account shall not
include any of the following amounts posted to his Account after the end
of the Plan Year which ends before July 1, 1989:
Special Contributions
Qualified Matching Contributions
Earnings on the Pre-Tax Account
Earnings on a Special Account.
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X.2 ROLLOVER ACCOUNT WITHDRAWALS.
(a) AMOUNT PERMITTED. A Participant may withdraw up to the
entire balance from his or her Rollover Account for any reason. There is
no hardship requirement.
(b) PERMITTED FREQUENCY. There is no restriction on the number
of times a Participant may withdraw from this Account.
X.3 WITHDRAWALS FOR PARTICIPANTS OVER AGE 59-1/2.
(a) REQUIREMENTS. A Participant who is over age 59-1/2 may
withdraw from the vested portion of his or her Contribution Accounts
listed in paragraph (b) below.
(b) CONTRIBUTION ACCOUNT SOURCES FOR WITHDRAWAL. When
requesting a withdrawal, a Participant shall first choose whether or not
to have amounts taken from his or her Post-Tax Account. Any remaining
withdrawal amount shall come only from his or her Accounts, in the
following priority order of Contribution Accounts:
Employer Account attributable to amounts received
from a merged plan
Pre-Tax Account attributable to amounts received
from a merged plan
Brenco Money Purchase Pension Account (but only on
or after age 62)
Brenco Retirement Account
Rollover Account
Matching Account
Pre-Tax Account attributable to unmatched Pre-Tax
Contributions
Pre-Tax Account attributable to matched Pre-Tax
Contributions
Special Account
Brenco Employer Account
Employer Account.
(c) PERMITTED FREQUENCY. The maximum number of withdrawals
permitted from these Accounts after age 59-1/2 is one (1).
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X.4 WITHDRAWAL PROCESSING.
(a) MINIMUM AMOUNT. The minimum amount for any type of
withdrawal is $100.
(b) APPLICATION BY PARTICIPANT. A Participant must apply for a
withdrawal pursuant to procedures specified by the Committee for any type
of withdrawal. Only a Participant who is an Employee may make a
withdrawal request.
(c) APPROVAL BY COMMITTEE. The Committee is responsible for
determining that a withdrawal request conforms to the requirements
described in this Section and notifying the Custodian of any payments to
be made in a timely manner.
(d) TIME OF PROCESSING. The Custodian shall process all
withdrawal requests which it receives by a Sweep Date, based on the value
as of the Trade Date to which it relates, and fund them on the next
Settlement Date. The Custodian shall then make payment to the
Participant as soon thereafter as is administratively feasible.
(e) MEDIUM AND FORM OF PAYMENT. The medium of payment for
withdrawals is cash or Direct Rollover. The form of payment for
withdrawals shall be a single installment (except to the extent of an
Account which includes a transfer from the National Metalwares Profit
Sharing Plan and Trust, the Precision Scientific 401(k) Tax Deferred
Savings Plan, the Precision Scientific Profit Sharing Plan, the
Consolidated Metco Profit Sharing and Retirement Savings Plan or the
Brenco Supplemental Pension Plan, in which case Section 11.7 shall
apply).
(f) INVESTMENT FUND SOURCES. Within each Account used for
funding a withdrawal, amounts shall be taken by type of investment in
direct proportion to the market value of the Participant's interest in
each Investment Fund at the time the withdrawal is made.
(g) DIRECT ROLLOVER. With respect to any payment hereunder
which constitutes an Eligible Rollover Distribution, a Distributee may
direct the Committee to have all or some portion of such payment (other
than from a Post-Tax Account) paid in the form of a Trustee Transfer, in
accordance with procedures established by the Committee, provided the
Committee receives written notice of such direction with specific
instructions as to the Eligible Retirement Plan on or prior to the
applicable Sweep Date for payment.
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ARTICLE XI
- -------------------------------------------------------------------------------
DISTRIBUTIONS ON AND AFTER
TERMINATION OF EMPLOYMENT
XI.1 REQUEST FOR DISTRIBUTION OF BENEFITS.
(a) REQUEST FOR DISTRIBUTION. Subject to the other
requirements of this Article, a Participant may elect to have his or her
vested Accrued Benefit paid to him or her beginning upon any Settlement
Date following his or her Termination of Employment pursuant to
procedures specified by the Committee. Such election form shall include
or be accompanied by a notice which provides the Participant with
information regarding all optional times and forms of payment available.
The election must be submitted to the Committee by the Sweep Date that
relates to the Payment Date.
(b) FAILURE TO REQUEST DISTRIBUTION. If a Participant has a
Termination of Employment and fails to make a request for distribution by
the last Payment Date permitted under this Article, his or her vested
Accrued Benefit shall be valued as of the Valuation Date which
immediately precedes such latest date of distribution (called the
"Default Valuation Date") and a notice of such deemed distribution shall
be issued to his or her last known address as soon as administratively
possible. If the Participant does not respond to the notice or cannot be
located, his or her vested Accrued Benefit determined on the Default
Valuation Date shall be treated as a Forfeiture. If the Participant
subsequently files a claim, the amount forfeited (unadjusted for gains
and losses) shall be reinstated to his or her Accounts and distributed as
soon as administratively feasible, and such payment shall be accounted
for by charging it against the Forfeiture Account or by a contribution
from the Employer of the affected Participant.
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XI.2 DEADLINE FOR DISTRIBUTION. In addition to any other Plan
requirements and unless the Participant elects otherwise, or cannot be
located, the Payment Date of a Participant's vested Accrued Benefit shall be
not later than sixty (60) days after the latest of the close of the Plan Year
in which (i) the Participant attains the earlier of age sixty-five (65) or
his or her Normal Retirement Date, (ii) occurs the tenth (10th) anniversary
of the Plan Year in which the Participant commenced participation, or (iii)
the Participant had a Termination of Employment. However, if the amount of
the payment or the location of the Participant (after a reasonable search)
cannot be ascertained by that deadline, payment shall be made no later than
60 days after the earliest date on which such amount or location is
ascertained. In any case, the Payment Date of the vested Accrued Benefit for
a Participant who has had a Termination of Employment shall begin no later
than the later of: (i) the Participant's attainment of age sixty-five (65)
and (ii) the Participant's Termination of Employment. A Participant that has
not had a Termination of Employment may elect to have his or her Payment Date
begin as early as the April 1 following the calendar year in which the
Participant attains age 70-1/2. Any payment made pursuant to the preceding
sentence shall be made in single annual payments in such amounts as may be
chosen by the Participant. Notwithstanding anything in the Plan to the
contrary, the initial Payment Date of any Participant who is a five percent
(5%) owner (within the meaning of Section 416 of the Code) during the Plan
Year in which the Participant turns age 70-1/2, shall not be later than the
April 1 following the close of said Plan Year, regardless of whether the
Participant has had a Termination of Employment. Payments made pursuant to
the preceding sentence while the Participant is still an Employee may be
limited to the minimum amount required under Section 401(a)(9) or such
greater amount as shall be elected by the Participant. All distributions
under this Section 11.2 shall comply with the requirements of Section
401(a)(9) of the Code and the Treasury Regulations promulgated thereunder.
XI.3 PAYMENT FORM AND MEDIUM. A Participant's vested Accrued
Benefit shall be paid in the form of a lump sum or periodic installments as
selected by the Participant. As to Participants whose Accounts include a
transfer from the National Metalwares Profit Sharing Plan and Trust, the
Precision Scientific Profit Sharing Plan or the Freightliner portion of the
Consolidated Metco Profit Sharing and Retirement Savings Plan, available
forms of payment with respect to such amounts shall also include a single or
joint life annuity, as selected by the Participant. For Participants who
were participants in the Brenco Supplemental Pension Plan prior to August 1,
1994, such amounts shall also include a single or joint life annuity. All
payments will be made in cash (generally by check) and shall be subject to
Section 11.7.
XI.4 SMALL AMOUNTS PAID IMMEDIATELY. If a Participant has a
Termination of Employment and the Participant's vested Accrued Benefit is
$5,000 or less, the Participant's Accrued Benefit shall be paid as a single
lump sum as soon as
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administratively feasible after his Termination of Employment.
XI.5 PAYMENT WITHIN LIFE EXPECTANCY. The Participant's payment
election must be consistent with the requirement of Code Section 401(a)(9)
that all payments are to be completed within a period not to exceed the lives
or the joint and last survivor life expectancy of the Participant and his or
her Beneficiary. The life expectancies of a Participant and his or her
spouse may not be recomputed annually.
XI.6 INCIDENTAL BENEFIT RULE. The Participant's payment election
must be consistent with the requirement that, if the Participant's Spouse is
not his or her sole primary Beneficiary, the minimum annual distribution for
each calendar year, beginning with the year in which he or she attains age
seventy and one-half (70-1/2), shall not be less than the quotient obtained by
dividing (a) the Participant's vested Accrued Benefit as of the last Trade
Date of the preceding year by (b) the applicable divisor as determined under
the incidental benefit requirements of Code Section 401(a)(9).
XI.7 QJSA AND QPSA INFORMATION AND ELECTIONS. The following
information and election rules shall apply to a Participant's Brenco Money
Purchase Pension Account and to any Participant who elects an annuity option,
but only to the extent such Participant's Accounts include a transfer from
the National Metalwares Profit Sharing Plan and Trust, the Precision
Scientific Profit Sharing Plan or the Freightliner portion of the
Consolidated Metco Profit Sharing and Retirement Savings Plan or to the
extent the Participant was a participant in the Brenco Supplemental Pension
Plan prior to August 1, 1994:
(a) "QJSA". A qualified joint and fifty percent (50%) survivor
annuity, meaning a form of benefit payment which is the actuarial
equivalent of the applicable portion of the Participant's vested Accrued
Benefit at the Payment Date, payable to the Participant in monthly
payments for life and providing that, if the Participant's Spouse
survives him or her, monthly payments equal to fifty percent (50%) of the
amount payable to the Participant during his lifetime will be paid to the
Spouse for the remainder of such person's lifetime.
(b) "QPSA". A qualified pre-retirement survivor annuity,
meaning that upon the death of a Participant before the Payment Date of
the applicable portion of his vested Accrued Benefit, such benefit will
become payable to the surviving Spouse as a life annuity, unless Spousal
Consent has been given to a different Beneficiary or the surviving Spouse
chooses a different form of payment.
(c) QJSA INFORMATION TO A PARTICIPANT. No more than ninety
(90)
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nor less than thirty (30) days before the Payment Date, each
Participant who has a Spouse and requests an annuity form of payment
shall be given a written explanation of (1) the terms and conditions of
the QJSA which apply to his annuity; (2) the right to make an election to
waive this form of payment and choose an optional form of payment and the
effect of this election; (3) the right to revoke this election and the
effect of this revocation; and (4) the need for Spousal Consent.
(d) QJSA ELECTION. A Participant may elect (and such election
shall include Spousal Consent if married), at any time within the ninety
(90) day period ending on the Payment Date, and for at least thirty (30)
days after the Participant receives the information described in Section
11.7(c) above, (or at such other times determined under uniform and
nondiscriminatory rules as the Committee shall permit and in accordance
with applicable regulations and rulings of the Secretary of the
Treasury), to (1) waive the right to receive the QJSA and elect an
optional form of payment; or (2) revoke or change any such election;
however, the Participant (and Participant's Spouse, if applicable) may
waive the thirty (30) day waiting period described in this Section
11.7(d) provided that, if such waiting period is waived, distributions
under the Plan shall commence more than seven (7) days after the
information is provided to the Participant.
(e) QJSA SPOUSAL CONSENT TO PARTICIPANT LOANS. Spousal Consent
must be obtained for any Participant loan which is funded from any amount
to which the election in paragraph (d) above applies within the ninety
(90) day period ending on the date such loan is secured.
(f) QJSA SPOUSAL CONSENT TO PARTICIPANT IN-SERVICE WITHDRAWALS.
Spousal Consent must be obtained for any Participant in-service
withdrawal which is funded from any amount to which the election in
paragraph (d) above applies within the ninety (90) day period ending on
the date of such in-service withdrawal.
(g) QPSA BENEFICIARY INFORMATION TO PARTICIPANT. Each married
Participant who has requested a life annuity form of payment shall be
given written information stating that (1) his death benefit is payable
to his surviving Spouse; (2) his ability to choose that the benefit be
paid to a different Beneficiary; (3) the right to revoke or change a
prior designation and the effects of such revocation or change; and
(4) the need for Spousal Consent. Such information shall be provided
during whichever of the following periods ends later:
(1) the period that begins one year before the date on
which
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the Participant requests a life annuity form
of payment and that ends one year after such date;
and
(2) the period that begins with the first day of the
Plan Year in which the Participant attains age
thirty-two (32) and that ends with the close of the
Plan Year in which the Participant attains age
thirty-five (35).
Notwithstanding the foregoing, if the Participant incurs a Termination of
Employment after requesting a life annuity form of payment, but before
attaining age thirty-five (35), the information described in the first
sentence of this Subsection shall be provided during the period that
begins one year before the date of the Participant's Termination of
Employment and that ends one year after such date.
(h) QPSA BENEFICIARY DESIGNATION BY PARTICIPANT. A married
Participant may designate (with Spousal Consent) a non-spouse Beneficiary
at any time after the Participant has been given the information in the
QPSA Beneficiary Information to Participant paragraph above and upon the
earlier of (1) the date the Participant incurs a Termination of
Employment, or (2) the beginning of the Plan Year in which that
Participant attains age 35.
XI.8 CONTINUED PAYMENT OF AMOUNTS IN PAYMENT STATUS ON JANUARY 1,
1992. Any person who became a Participant prior to January 1, 1992 only
because he had an Accrued Benefit and who had commenced to receive payments
prior to January 1, 1992 shall continue to receive such payments in the same
form and payment schedule under this Plan.
XI.9 TEFRA TRANSITIONAL RULE. Notwithstanding any other provisions
of this Plan, distribution on behalf of any Participant may be made in
accordance with the following requirements (regardless of when such
distribution commences):
(a) The distribution must have been one provided for in the
National Metalwares Profit Sharing Plan and Trust, the Precision
Scientific 401(k) Tax Deferred Savings Plan, the Precision Scientific
Profit Sharing Plan, the Means Stamping Industries, Inc. Retirement Plan
or the Consolidated Metco Profit Sharing and Retirement Savings Plan.
(b) The distribution by the National Metalwares Profit Sharing
Plan and Trust, the Precision Scientific 401(k) Tax Deferred Savings
Plan, the Precision Scientific Profit Sharing Plan, the Means Stamping
Industries, Inc. Retirement Plan or the Consolidated Metco Profit Sharing
and Retirement Savings Plan is one which would not have disqualified the
National Metalwares
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Profit Sharing Plan and Trust, the Precision Scientific 401(k) Tax
Deferred Savings Plan, the Precision Scientific Profit Sharing Plan,
the Means Stamping Industries, Inc. Retirement Plan or the Consolidated
Metco Profit Sharing and Retirement Savings Plan under Code Section
401(a)(9) as in effect prior to amendment by TEFRA.
(c) The distribution is in accordance with a method of
distribution designated by the Participant whose interest is being
distributed or, if the Participant is deceased, by a Beneficiary of such
Participant.
(d) Such designation was in writing, was signed by the
Participant or the Beneficiary, and was made before January 1, 1984.
(e) The Participant had accrued a benefit under the National
Metalwares Profit Sharing Plan and Trust, the Precision Scientific 401(k)
Tax Deferred Savings Plan, the Precision Scientific Profit Sharing Plan,
the Means Stamping Industries, Inc. Retirement Plan or the Consolidated
Metco Profit Sharing and Retirement Savings Plan as of December 31, 1983.
(f) The method of distribution designated by the Participant or
the Beneficiary specifies the time at which distribution will commence,
the period over which distribution will be made, and in the case of any
distribution upon the Participant's death, the Beneficiaries of the
Participant listed in order of priority.
XI.10 DIRECT ROLLOVER. With respect to any payment hereunder which
constitutes an Eligible Rollover Distribution, a Participant may direct the
Committee to have such payment (other than from a Post-Tax Account) paid in the
form of a Trustee Transfer, in accordance with procedures established by the
Committee, provided the Committee receives written notice of such direction with
specific instructions as to the Eligible Retirement Plan on or prior to the
applicable Sweep Date for payment.
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ARTICLE XII
- ------------------------------------------------------------------------------
DISTRIBUTION OF ACCRUED BENEFITS ON DEATH
XII.1 PAYMENT TO BENEFICIARY. On the death of a Participant prior to
his or Payment Date, his or her vested Accrued Benefit shall be paid to the
Beneficiary or Beneficiaries designated by the Participant in a beneficiary
designation form provided by the Committee. Death of a Participant on or after
his or her Payment Date shall result in payment to his or her Beneficiary of
whatever death benefit is provided by the form of payment in effect on his or
her Payment Date.
XII.2 BENEFICIARY DESIGNATION. Each Participant shall complete a
beneficiary designation form indicating the Beneficiary who is to receive the
Participant's remaining Plan interest at the time of his or her death. The
Participant may change such designation of Beneficiary from time to time by
filing a new beneficiary designation form with the Committee. No designation of
Beneficiary or change of Beneficiary shall be effective until properly filed
with the Committee. Notwithstanding any designation to the contrary, the
Participant's Beneficiary shall be the Participant's Spouse to whom the
Participant is legally married under the laws of the State of the Participant's
residence on the date of the Participant's death and surviving him or her on
such date, unless such designation includes Spousal Consent. If the Participant
dies leaving no Spouse and either (1) the Participant shall have failed to file
a valid beneficiary designation form, or (2) all persons designated on the
beneficiary designation form shall have predeceased the Participant, the
Committee shall have the Custodian distribute such Participant's Accrued Benefit
in a single sum to his or her estate.
XII.3 BENEFIT ELECTION.
(a) REQUEST FOR DISTRIBUTION.
In the event of a Participant's death prior to his or her Payment
Date, a Beneficiary may elect to have the vested Accrued Benefit of a
deceased Participant paid to him or her beginning upon any Settlement
Date following the Participant's date of death by submitting a completed
distribution election form to the Committee. The election must be
submitted to the Committee by the Sweep Date that relates to the
Settlement Date upon which payments are to begin.
(b) FAILURE TO REQUEST DISTRIBUTION. In the event a Beneficiary
fails to submit a timely distribution request form, his or her vested
Accrued Benefit shall be valued as of the Valuation Date which
immediately precedes such latest date of distribution (called the
"Default Valuation Date") and a notice of
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such deemed distribution shall be issued to his or her last known
address as soon as administratively possible. If the Beneficiary does
not respond to the notice or cannot be located, his or her vested
Accrued Benefit determined on the Default Valuation Date shall be
treated as a Forfeiture. If the Beneficiary subsequently files a
claim, the amount forfeited (unadjusted for gains and losses) shall be
reinstated to his or her Accounts and distributed as soon as
administratively feasible, and such payment shall be accounted for by
charging it against the Forfeiture or by a Contribution from the
Employer of the affected Beneficiary.
XII.4 PAYMENT FORM. In the event of a Participant's death prior to his
or her Payment Date, a Beneficiary shall be limited to the same form of payment
to which the Participant was limited, unless the Participant has elected an
annuity form of payment which provides for a QPSA with respect to that portion
of his Account which is payable in an annuity form of payment. Payments will be
made in cash (generally by check).
XII.5 TIME LIMIT FOR PAYMENT TO BENEFICIARY. Payment to a Beneficiary
must either:
(a) be completed within five (5) years of the Participant's
death; or
(b) begin within one year of his or her death and be
completed within the period of the Beneficiary's lifetime, except
that:
(1) If the Participant dies after the April 1
immediately following the end of the calendar year
in which he or she attains age seventy and one-half
(70-1/2), payment to his or her Beneficiary must be
made at least as rapidly as provided in the
Participant's distribution election;
(2) If the surviving Spouse is the Beneficiary, payments
need not begin until the date on which the
Participant would have attained age seventy and
one-half (70-1/2) and must be completed within the
Spouse's lifetime; and
(3) If the Participant and the surviving Spouse who is
the Beneficiary die (A) before the April 1
immediately following the end of the calendar year
in which the Participant would have attained age
seventy and one-half (70-1/2); and (B) before
payments have begun to the Spouse, the Spouse will
be treated as the Participant in applying these
rules.
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XII.6 DIRECT ROLLOVER. With respect to any payment hereunder which
constitutes an Eligible Rollover Distribution, a Distributee may direct the
Committee to have such payment (other than from a Post-Tax Account) paid in the
form of a Trustee Transfer, in accordance with the procedure established by the
Committee, provided the Committee receives written notice of such direction with
specific instructions as to the Eligible Retirement Plan on or prior to the
applicable Sweep Date for payment.
XII.7 QPSA INFORMATION AND ELECTION. The following information and
election rules shall apply to any Beneficiary of a Participant who dies prior to
his or her Payment Date after having elected an annuity option which provides
for a QPSA, but only to the extent his or her Account includes a transfer from
the National Metalwares Profit Sharing Plan and Trust, the Precision Scientific
Profit Sharing Plan or the Freightliner portion of the Consolidated Metco Profit
Sharing and Retirement Savings Plan:
(a) FORM OF PAYMENT. The applicable portion of the Participant's
vested Accrued Benefit will be paid in the form of a QPSA.
(b) QPSA INFORMATION TO A SURVIVING SPOUSE. Each surviving
Spouse who requests a life annuity form of payment shall be given a
written explanation of (1) the terms and conditions of being paid the
applicable portion of his or her vested Accrued Benefit in the form of a
single life annuity, (2) the right to make an election to waive this form
of payment and choose an optional form of payment and the effect of
making this election, and (3) the right to revoke this election and the
effect of this revocation.
(c) QPSA ELECTION BY SURVIVING SPOUSE. A surviving Spouse may
elect, at any time up to the Sweep Date associated with the Settlement
Date upon which payments will begin, to (1) waive the single life annuity
and elect an optional form of payment, or (2) revoke or change any such
election.
XII.8 SMALL AMOUNTS PAID IMMEDIATELY. If a Beneficiary's vested Accrued
Benefit is $5,000 or less, the Beneficiary's vested Accrued Benefit shall be
paid as a single lump sum as soon as administratively feasible.
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ARTICLE XIII
- ------------------------------------------------------------------------------
MAXIMUM CONTRIBUTIONS
XIII.1 DEFINITIONS.
(a) "ANNUAL ADDITIONS" means with respect to a Participant for
any Plan Year the sum of:
(1) Contributions and Forfeitures (and any earnings
thereon) allocated as of a date within the Plan
Year;
(2) All contributions, forfeitures and suspended amounts
(and income thereon) for such Plan Year, allocated
to such Participant's account(s) under any Related
Defined Contribution Plan as of a date within such
Plan Year;
(3) The sum of all after-tax contributions of the
Participant to Related Plans for the Plan Year and
allocated to such Participant's accounts under such
Related Plan as of a date within such Plan Year
("Aggregate Employee Contributions");
(4) Solely for purposes of this Section, all
contributions to any "separate account" (as defined
in Section 419A(d) of the Code) allocated to such
Participant as of a date within the Plan Year if
such Participant is a "Key Employee" within the
meaning of Code Section 416(i); and
(5) Solely for purposes of this Section, all
contributions to any "individual medical benefit
account" (as defined in Section 415(l) of the Code)
allocated to such Participant as of a date within
the Plan Year.
(b) "MAXIMUM ANNUAL ADDITIONS" of a Participant for a Plan Year
means the lesser of:
(1) twenty-five percent (25%) of the Participant's
Compensation, or
(2) the greater of thirty thousand dollars ($30,000) or
one-quarter of the dollar limitation in Code Section
415(b)(1)(A) as adjusted for cost of living
increases
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(determined in accordance with regulations
prescribed by the Secretary of the Treasury or his
or her delegate pursuant to the provisions of
Section 415(d) of the Code).
(c) "ANNUAL EXCESS" means, for each Participant affected, the
amount by which the allocable Annual Additions for such Participant
exceeds or would exceed the Maximum Annual Addition for such Participant.
XIII.2 AVOIDING AN ANNUAL EXCESS. Notwithstanding any other provision of
this Plan, a Participant's "Annual Additions" for any Plan Year, which is hereby
designated as the "limitation year" for the Plan, as that term is used in
Section 415 of the Code, shall not exceed his or her "Maximum Annual Additions."
If, at any time during a Plan Year, the allocation of additional Contributions
for a Plan Year would produce an Annual Excess, the affected Participant shall
receive the Maximum Annual Addition from Contributions, and, at the direction of
the Committee, for the remainder of the Plan Year Contributions will be reduced,
if possible, to the amount needed for each affected Participant to receive the
Maximum Annual Addition.
XIII.3 CORRECTING AN ANNUAL EXCESS. If for any Plan Year as a result of
a reasonable error in estimating a person's Compensation, Elective Deferrals, or
such other facts and circumstances which the Internal Revenue Service will
permit, a Participant's Annual Excess shall be treated in the following manner:
(a) Aggregate Employee Contributions allocable under a Related
Plan shall be distributed to the Participant, if permitted, by the amount
of the Annual Excess.
(b) If any Annual Excess remains, Pre-Tax Contributions shall
be distributed to such Participant.
(c) If any Annual Excess (adjusted for investment gains and
losses) remains, Contributions shall be a Forfeiture for such Participant
in the following order:
(1) Matching Contributions; and
(2) Profit Sharing Contributions.
(d) Any Forfeiture of a Participant's allocations of
Contributions under subparagraph (c) above shall be held in the
Forfeiture Account and shall be used for the Plan Year to reduce or
applied as Contributions. If any such amount remains in the Forfeiture
Account, it shall again be held in suspense in
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the Forfeiture Account and be utilized to reduce future Contributions
for succeeding Plan Years.
(e) Any amounts held in suspense in the Forfeiture Account
pursuant to Paragraph (d) above remaining upon Plan termination shall be
returned to the Employers in such proportions as shall be determined by
the Committee.
XIII.4 CORRECTING A MULTIPLE PLAN EXCESS. If a Participant's Accounts
have or would have an Annual Excess, the Annual Excess shall be corrected by
reducing the Annual Addition to this Plan before reductions have been made to
other Related Defined Contribution Plans.
XIII.5 TWO-PLAN LIMIT. Prior to January 1, 2000, if a Participant
participates in any Related Defined Benefit Plan, the sum of the "Defined
Benefit Plan Fraction" (as defined below) and the "Defined Contribution Plan
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Fraction" (as defined below) for such Participant shall not exceed one (called
the "Combined Fraction").
(a) "DEFINED BENEFIT PLAN FRACTION" means, for any Plan Year, a
fraction, the numerator of which is the projected benefit payable
pursuant to Code Section 415(e)(2)(A) under all Related Defined Benefit
Plans and the denominator of which is the lesser of: (i) the product of
1.25 and the dollar limit in effect for the Plan Year under Code Section
415(b)(1)(A), and (ii) the product of 1.4 and one hundred percent (100%)
of the Participant's average Compensation for his or her high three (3)
years.
(b) "DEFINED CONTRIBUTION PLAN FRACTION" means, for any Plan
Year, a fraction, the numerator of which is the sum of the Annual
Additions (as determined pursuant to Section 415(c) of the Code in effect
for such Plan Year) to a Participant's Accounts as of the end of the Plan
Year under the Plan or any Related Defined Contribution Plan, and the
denominator of which is the lesser of:
(1) The sum of the products of 1.25 and the dollar limit
under Code Section 415(c)(1)(A) for such Plan Year
and for each prior year of service with a Commonly
Controlled Entity and its predecessor, and
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(2) the sum of the products of 1.4 and twenty-five
percent (25%) of the Participant's Compensation for
such Plan Year and for each prior year of service
with a Commonly Controlled Entity and its
predecessor.
If the Combined Fraction of such Participant exceeds one and if the
Related Defined Benefit Plan permits it, the Participant's Defined
Benefit Plan Fraction shall be reduced by limiting the Participant's
annual benefits payable from the Related Defined Benefit Plan in which he
or she participates to the extent necessary to reduce the Combined
Fraction of such Participant to one.
XIII.6 SHORT PLAN YEAR. With respect to any change of the Plan Year (and
co-existent limitation year), the dollar limitation of the Maximum Annual
Addition for such Plan Year shall be determined by multiplying such dollar
amount by a fraction, the numerator of which is the number of months (including
fractional parts of a month) in the short Plan Year, and the denominator of
which is twelve (12).
XIII.7 GRANDFATHERING OF APPLICABLE LIMITATIONS. The Plan shall
recognize and apply any grandfathering of applicable benefits and contributions
limitations which are permitted under ERISA, the Tax Equity and Fiscal
Responsibility Act of 1982 and the Tax Reform Act of 1986.
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ARTICLE XIV
- ------------------------------------------------------------------------------
ADP AND ACP TESTS
XIV.1 CONTRIBUTION LIMITATION DEFINITIONS. For purposes of this
Article, the following terms are defined as follows:
(a) "AVERAGE CONTRIBUTION PERCENTAGE" OR "ACP" means,
separately, the average of the Calculated Percentage for Participants
within the HCE Group and the NHCE Group, respectively, for a Plan Year.
(b) "AVERAGE DEFERRAL PERCENTAGE" OR "ADP" means, separately,
the average of the Calculated Percentage calculated for Participants
within the HCE Group and the NHCE Group, respectively, for a Plan Year.
(c) "CALCULATED PERCENTAGE" means the calculated percentage for
a Participant. The calculated percentage refers to either the
K-Contributions (including amounts distributed because they exceeded the
Contribution Dollar Limit) with respect to Compensation which would have
been received by the Participant in the Plan Year but for his or her
Contribution Election, or M-Contributions allocated to the Participant's
Account as of a date within the Plan Year, divided by his or her
Compensation for such Plan Year.
(d) "M-CONTRIBUTIONS" shall include Matching Contributions
(excluding Qualified Matching Contributions). In addition,
M-Contributions may include Pre-Tax Contributions and Special
Contributions treated as Matching Contributions, but only to the extent
that (1) the Committee elects to use them; and (2) they meet the
requirements of Code Section 401(m) to be regarded as Matching
Contributions. M-Contributions shall not include Matching Contributions
which become a Forfeiture because the Contribution to which it relates is
in excess of the ADP Test, ACP Test or the Contribution Dollar Limit.
(e) "K-CONTRIBUTIONS" shall include Pre-Tax Contributions
(excluding Pre-Tax Contributions treated as Matching Contributions), but
shall exclude Limited Deferrals to this Plan made on behalf of any NHCE
in excess of the Contribution Dollar Limit. In addition, Deferrals may
include Qualified Matching Contributions and Special Contributions, but
only to the extent that (1) the Committee elects to use them and (2) they
meet the requirements of Code Section 401(k) to be regarded as elective
contributions.
(f) "HCE GROUP" AND "NHCE GROUP" means, with respect to each
Employer and its Commonly Controlled Entities, the respective group of
HCEs
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and NHCEs who are eligible to have amounts contributed on their
behalf for the Plan Year, including Employees who would be eligible but
for their election not to participate or to contribute, or because their
pay is greater than zero but does not exceed a stated minimum, but
subject to the following:
(1) If the Related Plans are subject to the ADP or ACP
Test, and are considered as one plan for purposes of
Code Sections 401(a)(4) or 410(b) (other than
410(b)(2)), all such plans shall be aggregated and
treated as one plan for purposes of meeting the ADP
and ACP Tests provided that, for Plan Years
beginning after December 31, 1989, plans may only be
aggregated if they have the same Plan Year.
(2) If an HCE is covered by more than one cash or
deferred arrangement maintained by the Related
Plans, all such arrangements (other than
arrangements in plans that are not required to be
aggregated for this purpose under Treas. Reg.
Section 1.401(k)-1(g)(l)(ii)(B)) with respect to the
Plan Years ending with or within the same calendar
year shall be aggregated and treated as one
arrangement for purposes of calculating the separate
percentage for the HCE which is used in the
determination of the Average Percentage.
XIV.2 ADP AND ACP TESTS. For each Plan Year, the ADP and ACP for the
HCE Group must meet either the Basic or Alternative Limitation when compared to
the respective ADP and ACP for the NHCE Group:
(a) BASIC LIMITATION. The ADP or ACP for the HCE Group may not
exceed 1.25 times the ADP or ACP, respectively, for the NHCE Group.
(b) ALTERNATIVE LIMITATION. The ADP or ACP for the HCE Group
is limited by reference to the ADP or ACP, respectively, for the NHCE
Group as follows:
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If the NHCE Group Then the Maximum HCE
Percentage is: Group Percentage is:
------------- --------------------
Less than 2% 2 times ADP or ACP for the NHCE Group
2% to 8% ADP or ACP for the NHCE Group plus 2%
More than 8% Basic Limitation applies
XIV.3 CORRECTION OF ADP AND ACP TESTS.
(a) REDUCTION OF K-CONTRIBUTIONS OR M-CONTRIBUTIONS. If the
ADP or ACP are not met or will not be met, the Committee shall determine
a maximum dollar amount (in accordance with Sections 401(k)(8) and
401(m)(6) of the Code) for each HCE that would reduce the ADP or ACP of
the HCE Group by a sufficient amount to meet the ADP and ACP Tests.
(b) ADP CORRECTION. Pre-Tax Contributions (including amounts
previously refunded because they exceeded the Contribution Dollar Limit)
shall be recharacterized by allocating such Pre-Tax Contributions to the
Participant's Post-Tax Account within two and one-half months after the
close of the Plan Year but not to exceed Ten Percent (10%) of his or her
Compensation in an amount equal to the actual K-Contribution minus the
maximum Pre-Tax Contribution (as determined under Section 14.4 herein)
for each individual HCE. Matching Contributions with respect to such
distributed Pre-Tax Contributions shall be forfeited (unless paid to the
Participant due to an ACP Correction).
(c) ACP CORRECTION. Matching Contribution amounts in excess of
the maximum percentage of an HCE's Compensation shall, by the end of the
next Plan Year, be refunded to the Participant to the extent vested, and
forfeited to the extent such amounts were not vested as of the end of the
Plan Year being tested.
(d) INVESTMENT FUND SOURCES. Once the amount of Pre-Tax and
Matching Contributions to be refunded is determined, amounts shall then
be taken by type of investment in direct proportion to the market value
of the Participant's interest in each Investment Fund (which excludes
Participant loans) as of the Trade Date as of which the correction is
processed.
XIV.4 METHOD OF CALCULATION. Effective January 1, 1997, the Committee
shall determine the maximum permissible Pre-Tax Contribution (and corresponding
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Matching Contribution) for HCEs by reducing the appropriate HCE's Pre-Tax
Contribution in the following manner until the ADP or ACP Test is satisfied:
(a) The Pre-Tax Contribution of the HCE(s) with the greatest
Pre-Tax Contribution shall be reduced by one dollar ($1.00) until it is
equal to the dollar amount of the next greatest HCE Pre-Tax Contribution.
(b) If more reduction is needed, the procedure in Paragraph (a)
shall be repeated as needed.
XIV.5 MULTIPLE USE TEST. If the Average Contribution Percentage and the
Average Deferral Percentage for the HCE Group exceeds the Basic Limitation in
both the ADP or the ACP Tests (after correction of the ADP and ACP Test), the
ADP and ACP (as corrected) for the HCE Group must also comply with the
requirements of Code Section 401(m)(9), which as of the Effective Date require
that the sum of these two percentages (as determined after any corrections
needed to meet the ADP or ACP Tests have been made) must not exceed the greater
of:
(a) the sum of
(1) the larger of the ADP or ACP for the NHCE Group
times 1.25; and
(2) the smaller of the ADP or ACP for the NHCE Group,
times two (2) if the NHCE Average Percentage is less
than two percent (2%), or plus two percent (2%) if
it is two percent (2%) or more; or
(b) the sum of
(1) the lesser of the ADP or ACP for the NHCE Group
times 1.25; and
(2) the greater of the ADP or ACP for the NHCE Group,
times two (2) if the NHCE Average Percentage is less
than two percent (2%), or plus two percent (2%) if
it is two percent (2%) or more.
If the multiple use limit is exceeded, the Committee shall determine a
maximum ADP or ACP for the HCE Group and shall reduce the ADP or ACP for
each HCE in the same manner as would be used to correct to ADP or ACP.
XIV.6 ADJUSTMENT FOR INVESTMENT GAIN OR LOSS. The net investment gain
or
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loss associated with the K-Contributions and/or M-Contributions to be
distributed shall be distributed or charged against a distribution within two
and one-half (2-1/2) months but no later than twelve (12) months following the
close of the applicable Plan Year. Such gain or loss is calculated as follows:
G
Ex----------x(1+(10%xM))
(AB-G)
where:
E = the total excess Deferrals or Contributions,
G = the net gain or loss for the Plan Year from all of
an HCE's affected Accounts,
AB = the total value of an HCE's affected Accounts,
determined as of the end of the Plan Year being
corrected,
M = the number of full months from the Plan Year end to
the date excess amounts are paid, plus one for the
month during which payment is to be made if payment
will occur after the fifteenth (15th) of the month.
XIV.7 REQUIRED RECORDS. The Committee shall maintain records which are
sufficient to demonstrate that the ADP, ACP and Multiple Use Test has been met
for each Plan Year for at least as long as the Employer's corresponding tax year
is open to audit.
XIV.8 INCORPORATION BY REFERENCE. The provisions of this Section are
intended to satisfy the requirements of Code Sections 401(k)(3), (m)(2), (m)(9)
and Treas. Reg. Sections 1.401(k)-1(b), 1.401(m)-1(b) and 1.401(m)-2 and, to the
extent not otherwise stated in this Section, those Code Sections and Treasury
Regulations are incorporated herein by reference.
XIV.9 COLLECTIVELY BARGAINED EMPLOYEES. The provisions of this Article
shall apply separately to Participants who are collectively bargained employees
within the meaning of Treas. Reg. Section 1.410(b)-6(d)(2) and for Participants
who are not collectively bargained employees.
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XIV.10 QSLOB. The Committee in its sole discretion may apply the
provisions of this Article separately with respect to each qualified separate
line of business, as defined in Section 414(r) of the Code.
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ARTICLE XV
- ------------------------------------------------------------------------------
CUSTODIAL ARRANGEMENTS
XV.1 CUSTODIAL AGREEMENT. The Committee may enter into one or more
Custodial Agreements to provide for the holding, investment and payment of Plan
assets, or direct by execution of an insurance contract that all or a specified
portion of the Plan's assets be held, invested and paid under such a contract.
All Custodial Agreements, as from time to time amended, shall continue in force
and shall be deemed to form a part of the Plan. Subject to the requirements of
the Code and ERISA, the Committee may cause assets of the Plan which are
securities to be held in the name of a nominee or in street name provided such
securities are held on behalf of the Plan by:
(a) a bank or trust company that is subject to supervision by
the United States or a State, or a nominee of such bank or trust company;
(b) a broker or dealer registered under the Securities Exchange
Act of 1934, or a nominee of such broker or dealer; or
(c) a "clearing agency" as defined in Section 3(a)(23) of the
Securities Exchange Act of 1934, or its nominee.
XV.2 SELECTION OF CUSTODIAN. The Committee shall select, remove or
replace the Custodian in accordance with the Custodial Agreement. The
subsequent resignation or removal of a Custodian and the approval of its
accounts shall all be accomplished in the manner provided in the Custodial
Agreement.
XV.3 CUSTODIAN'S DUTIES. Except as provided in ERISA, the powers,
duties and responsibilities of the Custodian shall be as stated in the Custodial
Agreement, and unless expressly stated or delegated to the Custodian (with the
Custodian's acceptance), nothing contained in this Plan shall be deemed by
implication to impose any additional powers, duties or responsibilities upon the
Custodian. All Employer Contributions and Rollover Contributions shall be paid
into the Trust, and all benefits payable under the Plan shall be paid from the
Trust, except to the extent such amounts are paid to a Custodian other than the
Trustee. An Employer shall have no rights or claims of any nature in or to the
assets of the Plan except the right to require the Custodian to hold, use, apply
and pay such assets in its hands, in accordance with the directions of the
Committee, for the exclusive benefit of the Participants and their
Beneficiaries, except as hereinafter provided.
XV.4 SEPARATE ENTITY. The Custodial Agreement under this Plan from its
inception shall be a separate entity aside and apart from Employers or their
assets,
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and the corpus and income thereof shall in no event and in no manner
whatsoever be subject to the rights or claims of any creditor of any Employer.
XV.5 PLAN ASSET VALUATION. As of each Valuation Date, the Fair Market
Value of the Plan's assets held or posted to an Investment Fund shall be
determined by the Committee or the Custodian, as appropriate.
XV.6 RIGHT OF EMPLOYERS TO PLAN ASSETS. The Employers shall have no
right or claim of any nature in or to the assets of the Plan except the right to
require the Custodian to hold, use, apply, and pay such assets in its possession
in accordance with the Plan for the exclusive benefit of the Participants or
their Beneficiaries and for defraying the reasonable expenses of administering
the Plan; provided, that:
(a) if the Plan receives an adverse determination with respect
to its initial qualification under Sections 401(a), 401(k) and 401(m) of
the Code, Contributions conditioned upon the qualification of the Plan
shall be returned to the appropriate Employer within one (1) year of such
denial of qualification; provided, that the application for determination
of initial qualification is made by the time prescribed by law for filing
the respective Employer's return for the taxable year in which the Plan
is adopted, or by such later date as is prescribed by the Secretary of
the Treasury under Section 403(c)(2)(B) of ERISA;
(b) if, and to the extent that, deduction for a Contribution
under Section 404 of the Code is disallowed, Contributions conditioned
upon deductibility shall be returned to the appropriate Employer within
one (1) year after the disallowance of the deduction;
(c) if, and to the extent that, a Contribution is made through
mistake of fact, such Contribution shall be returned to the appropriate
Employer within one year of the payment of the Contribution; and
(d) any amounts held suspended pursuant to the limitations of
Code Section 415 shall be returned to the Employers upon termination of
the Plan.
All Contributions made hereunder are conditioned upon the Plan being
qualified under Sections 401(a) or 401(k) and 401(m) of the Code and a
deduction being allowed for such contributions under Section 404 of the
Code. Pre-Tax Contributions returned to an Employer pursuant to this
Section shall be paid to the Participant for whom contributed as soon as
administratively convenient. If these provisions result in the return of
Contributions after such amounts have been allocated to Accounts, such
Accounts shall be reduced by the amount of the allocation attributable to
such amount, adjusted for any losses or expenses.
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ARTICLE XVI
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ADMINISTRATION AND INVESTMENT MANAGEMENT
XVI.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS. The Board
of Directors shall have overall responsibility for the establishment, amendment,
termination, administration and operation of the Plan, for the establishment of
a funding policy for the Plan, and for the investment of the Plan's assets.
There is hereby delegated to the Committee, as set forth in this Plan and to the
Investment Committee, as set forth in the Custodial Agreement, such
responsibilities as are designated in each document.
XVI.2 COMMITTEE MEMBERSHIP. The Committee shall consist of not less
than 3 persons, who shall be appointed by the Board of Directors of the Company.
In the absence of such appointment of the Committee, the Company will be the
Committee. Committee members shall remain in office at the will of the Board of
Directors and the Board of Directors may from time to time remove any of said
members with or without cause and shall appoint their successors.
XVI.3 COMMITTEE STRUCTURE. Any individual may be a member of the
Committee. Any member of the Committee may resign by delivering his or her
written resignation to the Board of Directors, and such resignation shall become
effective upon the date specified therein. A member who is an Employee shall
automatically cease to be a member upon his or her Termination of Employment.
In the event of a vacancy in membership, the remaining members shall constitute
the Committee in question with full power to act until said vacancy is filled.
XVI.4 COMMITTEE ACTIONS. The Committee may act as follows:
(a) The members of the Committee may act at a meeting
(including a meeting at different locations by telephone conference) or
in writing without a meeting (through the use of a single document or
concurrent document).
(b) Any Committee member by writing may delegate any or all of
his or her rights, powers, duties and discretions to any other member
with the consent of such other member.
(c) The Committee shall act by majority decision, which action
shall be effective as if such action had been taken by all members of the
Committee; provided that by majority action one or more Committee members
or other persons may be authorized to act with respect to particular
matters on behalf of all Committee members.
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(d) Subject to applicable law, no member of the Committee shall
be liable for an act or omission of the other Committee members in which
the former had not concurred.
(e) Any action by the Committee under this Plan shall be
treated as an action of a Named Fiduciary under this Plan; provided that,
where reference is made in this Plan (or where the Committee designates
in writing) that the action is on behalf of the Employer, the Committee
shall be acting as an agent of the Employer, pursuant to authority
granted by the Employer.
XVI.5 COMPENSATION. The members of the Committee shall serve without
compensation for their services as such.
XVI.6 RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE REGARDING
ADMINISTRATION OF THE PLAN. The Committee on behalf of the Participants will
enforce the Plan in accordance with its respective terms and maintain the
Plan in the form of a written document as required by law and to maintain its
tax-exempt status under the Code. Unless otherwise specifically provided in
the Plan, the Committee shall have full and complete authority,
responsibility and control over the management, administration, and operation
of the Plan, including, but not limited to, the authority and discretion to:
(a) formulate, adopt, issue and apply procedures and rules and
change, alter or amend such procedures and rules in accordance with law
and as may be consistent with the terms of the Plan;
(b) exercise such discretion as may be required to construe and
apply the provisions of the Plan, subject only to the terms and
conditions of the Plan;
(c) appoint and compensate such agents and other specialists
(including attorneys, actuaries and accountants) to aid it in the
administration of the Plan, and arrange for such clerical, accounting,
legal or other services, as the Committee considers necessary or
appropriate in carrying out the provisions of the Plan;
(d) appoint and compensate an independent outside accountant to
conduct such audits of the financial statements of the Plan as the
Committee considers necessary or appropriate;
(e) delegate to the Custodian any tax withholding or tax
reporting obligations it may have under law;
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(f) be the agent for service of legal process;
(g) determine the Accounting Periods, Change Date, Notice Date
and Sweep Date for various transactions;
(h) exercise authority regarding the creation, cancellation or
change of an Investment Fund; and
(i) take all necessary and proper acts as are required for the
Committee to fulfill its duties and obligations under the Plan.
XVI.7 ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY.
(a) DELEGATIONS. Each Named Fiduciary, respectively, shall
have the authority to delegate, from time to time, all or any part of its
responsibilities under the Plan to such person or persons as it may deem
advisable and to revoke any such delegation of responsibility. Any
action of the delegate in the exercise of such delegated responsibilities
shall have the same force and effect for all purposes hereunder as if
such action had been taken by the Named Fiduciary. Any Named Fiduciary
shall not be liable for any acts or omissions of any such delegate. The
delegate shall report periodically to the Named Fiduciary, as applicable,
concerning the discharge of the delegated responsibilities.
(b) ALLOCATIONS. Each Named Fiduciary, respectively, shall
have the authority to allocate, from time to time, all or any part of its
responsibilities under the Plan to one or more of its members as it may
deem advisable, and to revoke such allocation of responsibilities. Any
action of the member to whom responsibilities are allocated in the
exercise of such allocated responsibilities shall have the same force and
effect for all purposes hereunder as if such action had been taken by the
Named Fiduciary. Any Named Fiduciary shall not be liable for any acts or
omissions of such member. The member to whom responsibilities have been
allocated shall report periodically to the Named Fiduciary, as
applicable, concerning the discharge of the allocated responsibilities.
(c) LIMIT ON LIABILITY. Fiduciary duties and responsibilities
which have been allocated or delegated pursuant to the terms of the Plan
or the Trust, are intended to limit the liability of each Named
Fiduciary, as appropriate, in accordance with the provisions of Section
405(c)(2) of ERISA.
XVI.8 COMMITTEE BONDING. The members of the Committee shall serve
without bond (except as otherwise required by federal law).
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XVI.9 INFORMATION TO BE SUPPLIED BY EMPLOYER. Each Employer shall
supply to the Committee, within a reasonable time of its request, the names of
all Employees, their age, their date of hire, and the amount of Compensation
paid to each Employee, the names and dates of all Employees who incurred a
Termination of Employment during the Plan Year, and the Hours of Service earned
by each Employee during the Plan Year. Each Employer shall provide to the
Committee or its delegate such other information as it shall from time to time
need in the discharge of its duties. The Committee may rely conclusively on the
information certified to it by an Employer.
XVI.10 RECORDS. The regularly kept records of the Committee (or, where
applicable, the Custodian) and any Employer shall be conclusive evidence of the
Accrued Benefit of a Participant, his or her Compensation, his or her age, his
or her status as an Eligible Employee, and all other matters contained therein
applicable to this Plan; provided that a Participant may request a correction in
the record of his or her age at any time prior to retirement, and such
correction shall be made if within ninety (90) days after such request he or she
furnishes in support thereof a birth certificate, baptismal certificate, or
other documentary proof of age satisfactory to the Committee.
XVI.11 PLAN EXPENSES. All expenses of the Plan shall be paid by the
Trust except to the extent paid by the Employers, and if paid by the Employers
such Employers may seek reimbursement of such expenses from the Trust and the
Trust shall reimburse the Employers if not prohibited by ERISA. If borne by
the Employers, expenses of administering the Plan shall be borne by the
Employers in such proportions as the Committee shall determine.
XVI.12 FIDUCIARY CAPACITY. Any person or group of persons may serve in
more than one fiduciary capacity with respect to the Plan.
XVI.13 EMPLOYER'S AGENT. The Committee shall act as agent for each
Employer in the administration of the Plan and the investment of the Plan's
assets and the Company shall act as agent for each Employer in amending or
terminating the Plan.
XVI.14 PLAN ADMINISTRATOR. The Committee may appoint a plan administrator
who may (but need not) be a member of the Committee; and in the absence of such
appointment, the Committee shall be the plan administrator.
XVI.15 APPOINTMENT OF RECORD-KEEPER. The plan administrator has
responsibility for the maintenance of the records of the Participants' Accounts
in accordance with the terms of the Plan. Such records shall include
year-to-date and life-to-date Contributions under the Plan (adjusted for gains,
losses and distributions)
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allocated to each Participant's Accounts and such other information,
including such information as the Committee or plan administrator require to
satisfy their reporting and disclosure obligations under ERISA and the Code.
The plan administrator also has responsibility for preparation and issuance
of any and all reports required by the Code with respect to distributions
under the Plan and the responsibility with respect to the withholding of any
amounts required by the Code to be withheld at the source and to transmit
funds withheld and any and all necessary reports with respect to such
withholding to the Internal Revenue Service.
XVI.16 PLAN ADMINISTRATOR DUTIES AND AUTHORITY. Except to the extent
that certain responsibilities may be reserved by the Committee to itself or
delegated to other fiduciaries, the plan administrator shall perform all such
duties as are necessary to operate, administer and manage the Plan in accordance
with the terms thereof, including but not limited to the following:
(a) to determine all questions relating to a Participant's
eligibility for participation and benefits under the Plan and to finally
resolve, in the exercise of its full and complete discretionary
authority, any issues presented through the Plan claims procedure (and
any final determination of the Committee shall not be subject to DE NOVO
review if challenged in court and shall not be overturned unless proven
to be arbitrary and capricious upon the evidence considered by the
Committee at the time of its decision);
(b) to provide each Participant with a summary plan description
no later than 90 days after he or she has become a Participant (or such
other period permitted under ERISA Section 104(b)(1)), as well as
informing each Participant of any material modification to the Plan in a
timely manner;
(c) to make appropriate determinations as to allocations of
Contributions and the application of Forfeitures; and to make appropriate
determination as to whether Rollover Contributions constitute such;
(d) to interpret and construe the provisions of the Plan, to
make regulations and settle disputes within limits which are not
inconsistent with the terms thereof;
(e) where applicable, to provide each Participant or his Spouse
with QJSA and QPSA information;
(f) to adopt and prescribe the use of necessary forms and
procedures for giving instructions to the Committee, a Named Fiduciary or
the Trustee;
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(g) to prepare and file reports, notices, and any other
documents relating to the Plan which may be required by the Secretary of
Labor, the Secretary of the Treasury or any other governmental department
or agency, including, without limitation, those relating to a
Participant's service, accrued benefits, the percentage of such benefits
which are nonforfeitable, the date after which benefits are
nonforfeitable even if the Participant dies and annual registrations;
(h) to prepare and distribute to Participants all communication
materials required by ERISA;
(i) to compute and certify to the Custodian the amount and kind
of benefits payable to or withdrawn from Participants and Beneficiaries
and the date of payment, including withdrawals; and to prescribe
procedures to be followed by Participants and Beneficiaries in claiming
benefits;
(j) to keep records relating to Participants and other matters
applicable to this Plan, provided that the Committee and the Custodian
may, by a separate written agreement, require that the Custodian keep
such records;
(k) to respond to a QDRO;
(l) to instruct the Custodian as to Participants' and
Beneficiaries' Investment Elections and Conversion Elections;
(m) to make available for inspection and to provide upon
request at such charge as may be permitted and determined by the
Committee, documents and instruments required to be disclosed by ERISA;
(n) to make a determination of whether a Participant is
suffering a deemed or demonstrated financial need and whether a
withdrawal from this Plan is deemed or demonstrated necessary to satisfy
such financial need, provided, however, in making such determination, the
plan administrator may rely, if reasonable to do so, upon representations
made by such Participant in connection with his or her request for a
withdrawal;
(o) to take such actions as are necessary to establish and
maintain in full and timely compliance with any law or regulation having
pertinence to this Plan; and
(p) to have reasonable powers necessary or appropriate to
accomplish its duties as plan administrator, including delegation to,
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employment of, or contracting for the services of others to assist in
performing its duties.
XVI.17 COMMITTEE DECISIONS FINAL. The decision of the Committee in
matters within its jurisdiction shall be final, binding, and conclusive upon the
Employers and the Custodian and upon each Employee, Participant, Spouse,
Beneficiary, and every other person or party interested or concerned.
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ARTICLE XVII
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CLAIMS PROCEDURE
XVII.1 INITIAL CLAIM FOR BENEFITS. Each person entitled to benefits
under this Plan (a "Claimant") must sign and submit his or her claim for
benefits to the Committee or its agent in writing in such form as is provided or
approved by such Committee. A Claimant shall have no right to seek review of a
denial of benefits, or to bring any action in any court to enforce a claim for
benefits prior to his or her filing a claim for benefits and exhausting his or
her rights under this Section. When a claim for benefits has been filed
properly, such claim for benefits shall be evaluated and the Claimant shall be
notified by the Committee or agent of its approval or denial within ninety (90)
days after the receipt of such claim unless special circumstances require an
extension of time for processing the claim. If such an extension of time for
processing is required, written notice of the extension shall be furnished to
the Claimant by the Committee or agent prior to the termination of the initial
ninety (90) day period which shall specify the special circumstances requiring
an extension and the date by which a final decision will be reached (which date
shall not be later than one hundred eighty (180) days after the date on which
the claim was filed). A Claimant shall be given a written notice in which the
Claimant shall be advised as to whether the claim is granted or denied, in whole
or in part. If a claim is denied, in whole or in part, the Claimant shall be
given written notice which shall contain (1) the specific reasons for the
denial, (2) references to pertinent Plan provisions upon which the denial is
based, (3) a description of any additional material or information necessary to
perfect the claim and an explanation of why such material or information is
necessary, and (4) the Claimant's rights to seek review of the denial.
XVII.2 REVIEW OF CLAIM DENIAL. If a claim is denied, in whole or in part
(or if within the time periods prescribed for in the initial claim, the
Committee or agent has not furnished the Claimant with a denial and the claim is
therefore deemed denied), the Claimant shall have the right to request that the
Committee review the denial, provided that the Claimant files a written request
for review with the Committee within sixty (60) days after the date on which the
Claimant received written notification of the denial. A Claimant (or his or her
duly authorized representative) may review pertinent documents and submit issues
and comments in writing to the Committee. Within sixty (60) days after a
request for review is received, the review shall be made and the Claimant shall
be advised in writing by the Committee of the decision on review, unless special
circumstances require an extension of time for processing the review, in which
case the Claimant shall be given a written notification by the Committee within
such initial sixty (60) day period specifying the reasons for the extension and
when such review shall be completed (provided that such review shall be
completed within one hundred and twenty (120) days after the date on which the
request for review was filed). The decision on review shall be
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forwarded to the Claimant by the Committee in writing and shall include
specific reasons for the decision and references to Plan provisions upon
which the decision is based. A decision on review shall be final and binding
on all persons for all purposes. If a Claimant shall fail to file a request
for review in accordance with the procedures described in this Section, such
Claimant shall have no right to review and shall have no right to bring
action in any court and the denial of the claim shall become final and
binding on all persons for all purposes.
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ARTICLE XVIII
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ADOPTION AND WITHDRAWAL FROM PLAN
XVIII.1 PROCEDURE FOR ADOPTION. Any Commonly Controlled Entity may
by resolution of such Commonly Controlled Entity's board of directors adopt
the Plan for the benefit of its employees as of the date specified in the
board resolution. No such adoption shall be effective until such adoption
has been approved by the Committee.
XVIII.2 PROCEDURE FOR WITHDRAWAL. An Employer (other than the
Company) will be deemed to have withdrawn from the Plan upon resolution to
that effect by the Committee. Notwithstanding the foregoing, an Employer
will be deemed to have withdrawn from the Plan when it ceases to be a
Commonly Controlled Entity. With respect to any Participant whose Employer
is deemed to have withdrawn from the Plan because it ceases to be a Commonly
Controlled Entity, such Participant's Account shall be fully vested as of the
date of such withdrawal, provided there is no successor plan or trust to
which the balance of such Participant's Accounts may be transferred.
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ARTICLE XIX
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AMENDMENT, TERMINATION AND MERGER
XIX.1 AMENDMENTS.
(a) POWER TO AMEND. The Company, by resolution of the Board of
Directors on behalf of all Employers, or the Committee as provided in
Subsection (c) below, may amend, modify, change, revise or discontinue
this Plan by amendment at any time; provided, however, that no amendment
shall:
(1) increase the duties or liabilities of the Custodian
or the Committee without its written consent;
(2) have the effect of vesting in any Employer any
interest in any funds, securities or other property,
subject to the terms of this Plan and the Custodial
Agreement;
(3) authorize or permit at any time any part of the
corpus or income of the Plan's assets to be used or
diverted to purposes other than for the exclusive
benefit of Participants and Beneficiaries;
(4) except to the extent permissible under ERISA and the
Code, make it possible for any portion of the Trust
assets to revert to an Employer to be used for, or
diverted to, any purpose other than for the
exclusive benefit of Participants and Beneficiaries
entitled to Plan benefits and to defray reasonable
expenses of administering the Plan;
(5) amend the provisions of this Plan which either (1)
state the amount and price of Company Stock to be
awarded to designated officers or categories of
officers and, specifically, the timing of such
awards, or (2) set forth a formula that determines
the amount, price and timing of such awards, shall
not be amended more than once every six (6) months,
other than to comport with changes in the Code,
ERISA or the rules thereunder;
(6) permit an Employee to be paid the balance of his or
her Pre-Tax Account unless the payment would
otherwise be permitted under Code Section 401(k);
and
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(7) have any retroactive effect as to deprive any such
person of any benefit already accrued, except that
no amendment made in order to conform the Plan as a
plan described in Section 401(a) of the Code of
which amendments are permitted by the Code or are
required or permitted by any other statute relating
to employees' trusts, or any official regulations or
ruling issued pursuant thereto, shall be considered
prejudicial to the rights of any such person.
(b) RESTRICTION ON AMENDMENT. No amendment to the Plan shall
deprive a Participant of his or her nonforfeitable rights to benefits
accrued to the date of the amendment. Further, if the vesting schedule
of the Plan is amended, each Participant with at least three (3) years of
Vesting Service with the Employer may elect, within a reasonable period
after the adoption of the amendment, to have his nonforfeitable
percentage computed under the Plan without regard to such amendment. The
period during which the election may be made shall commence with the date
the amendment is adopted and shall end on the latest of:
(1) sixty (60) days after the amendment is adopted;
(2) sixty (60) days after the amendment becomes
effective; or
(3) sixty (60) days after the Participant is issued
written notice of the amendment by the Employer or
the Committee.
The preceding language concerning an amendment to the Plan's vesting
schedule shall also apply when a Plan with a different vesting schedule
is merged into this Plan. In addition to the foregoing, the Plan shall
not be amended so as to eliminate an optional form of payment of an
Accrued Benefit attributable to employment prior to the date of the
amendment. The foregoing limitations do not apply to benefit accrual
occurring after the date of the amendment.
(c) THE COMMITTEE. The Committee may amend, modify, change or
revise the Plan by amendment if such amendment could have been adopted
under this Section and it does not cause a change in the level or type of
contributions to be made to the Plan or otherwise materially increase the
duties and obligations of any or all Employers with respect to the Plans.
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XIX.2 PLAN TERMINATION. It is the expectation of the Company that it
will continue the Plan and the payment of Contributions hereunder indefinitely,
but the continuation of the Plan and the payment of Contributions hereunder is
not assumed as a contractual obligation of the Company or any other Employer.
The right is reserved by the Company to terminate the Plan at any time, and the
right is reserved by the Company and any other Employer at any time to reduce,
suspend or discontinue its Contributions hereunder, provided, however, that the
Contributions for any Plan Year accrued or determined prior to the end of said
year shall not after the end of said year be retroactively reduced, suspended or
discontinued except as may be permitted by law. Upon termination of the Plan or
complete discontinuance of Contributions hereunder (other than for the reason
that the Employer has had no net profits or accumulated net profits), each
Participant's Accrued Benefit shall be fully vested. Upon termination of the
Plan or a complete discontinuance of Contributions, unclaimed amounts shall be
applied as Forfeitures and any unallocated amounts shall be allocated to
Participants who are Eligible Employees as of the date of such termination or
discontinuance on the basis of Compensation for the Plan Year (or short Plan
Year). Upon a partial termination of the Plan, the Accrued Benefit of each
affected Participant shall be fully vested. In the event of termination of the
Plan, the Committee shall direct the Custodian to distribute to each Participant
the entire amount of his or her Accrued Benefit as soon as administratively
possible, but not earlier than would be permitted in order to retain the Plan's
qualified status under Sections 401(a), (k) and (m) of the Code, as if all
Participants who are Employees had incurred a Termination of Employment on the
Plan's termination date. Should a Participant or a Beneficiary not elect
immediate payment of a nonforfeitable Accrued Benefit in excess of five thousand
dollars ($5,000), the Committee shall direct the Custodian to continue the Plan
and Custodial Agreement for the sole purpose of paying to such Participant his
or her Accrued Benefit or death benefit, respectively, unless in the opinion of
the Committee, to make immediate single sum payments to such Participant or
Beneficiary would not adversely affect the tax qualified status of the Plan upon
termination and would not impose additional liability upon any Employer or the
Custodian.
XIX.3 PLAN MERGER. The Plan shall not merge or consolidate with, or
transfer any assets or liabilities to any other plan, unless each person
entitled to benefits would receive a benefit immediately after the merger,
consolidation or transfer (if the Plan were then terminated) which is equal to
or greater than the benefit he or she would have been entitled to immediately
before the merger, consolidation or transfer (if the Plan were then terminated).
The Committee shall amend or take such other action as is necessary to amend the
Plan in order to satisfy the requirements applicable to any merger,
consolidation or transfer of assets and liabilities.
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ARTICLE XX
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SPECIAL TOP-HEAVY RULES
XX.1 APPLICATION. Notwithstanding any provisions of this Plan to the
contrary, the provisions of this Article shall apply and be effective for any
Plan Year for which the Plan shall be determined to be a "Top-Heavy Plan" as
provided and defined herein.
XX.2 SPECIAL TERMS. For purposes of this Article, the following terms
shall have the following meanings:
(a) "AGGREGATE BENEFIT" means the sum of:
(1) the present value of the accrued benefit under each
and all defined benefit plans in the Aggregation
Group determined on each plan's individual
Determination Date as if there were a termination of
employment on the most recent date the plan is
valued by an actuary for purposes of computing plan
costs under Section 412 of the Code within the
twelve (12) month period ending on the Determination
Date of each such plan, but with respect to the
first plan year of any such plan determined by
taking into account the estimated accrued benefit as
of the Determination Date; provided (A) the method
of accrual used for the purpose of this
Paragraph (1) shall be the same as that used under
all plans maintained by all Employers and Commonly
Controlled Entities if a single method is used by
all stock plans or, otherwise, the slowest accrual
method permitted under Section 411(b)(1)(C) of the
Code, and (B) the actuarial assumptions to be
applied for purposes of this Paragraph (1) shall be
the same assumptions as those applied for purposes
of determining the actuarial equivalents of optional
benefits under the particular plan, except that the
interest rate assumption shall be five percent (5%);
(2) the present value of the accrued benefit (i.e.,
account balances) under each and all defined
contribution plans in the Aggregation Group, valued
as of the valuation date coinciding with or
immediately preceding the Determination Date of each
such plan, including (A) contributions made after
the valuation date but on or prior
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to the Determination Date, (B) with respect to
the first plan year of any plan, any contribution
made subsequent to the Determination Date but
allocable as of any date in the first plan year,
or (C) with respect to any defined contribution
plan subject to Section 412 of the Code, any
contribution made after the Determination Date
that is allocable as of a date on or prior to the
Determination Date; and
(3) the sum of each and all amounts distributed (other
than a rollover or plan-to-plan transfer) from any
Aggregation Group Plan, plus a rollover or
plan-to-plan transfer initiated by the Employee and
made to a plan which is not an Aggregation Group
Plan within the Current Plan Year or within the
preceding four (4) plan years of any such plan,
provided such amounts are not already included in
the present value of the accrued benefits as of the
valuation date coincident with or immediately
preceding the Determination Date.
The Aggregate Benefit shall not include the value of any rollover or
plan-to-plan transfer to an Aggregation Group Plan, which rollover or
transfer was initiated by a Participant, was from a plan which was not
maintained by an Employer or a Commonly Controlled Entity, and was made
after December 31, 1983, nor shall the Aggregate Benefit include the
value of employee contributions which are deductible pursuant to Section
219 of the Code.
(b) "AGGREGATION GROUP" means the Plan and one or more plans
(including plans that terminated) which is described in Section 401(a) of
the Code, is an annuity contract described in Section 403(a) of the Code
or is a simplified employee pension described in Section 408(k) of the
Code maintained or adopted by an Employer or a Commonly Controlled Entity
in the Current Plan Year or one of the four preceding Plan Years which is
either a "Required Aggregation Group" or a "Permissive Aggregation
Group".
(1) A "REQUIRED AGGREGATION GROUP" means all Aggregation
Group Plans in which either (1) a Key Employee
participates or (2) which enables any Aggregation
Group Plan in which a Key Employee participates to
satisfy the requirements of Sections 401(a)(4) and
410 of the Code.
(2) A "PERMISSIVE AGGREGATION GROUP" means Aggregation
Group Plans included in the Required Aggregation
Group,
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plus one or more other Aggregation Group
Plans, as designated by the Committee in its sole
discretion, which satisfy the requirements of
Sections 401(a)(4) and 410 of the Code, when
considered with the other component plans of the
Required Aggregation Group.
(c) "AGGREGATION GROUP PLAN" means the Plan and each other plan
in the Aggregation Group.
(d) "CURRENT PLAN YEAR" means (1) with respect to the Plan,
the Plan Year in which the Determination Date occurs, and (2) with
respect to each other Aggregation Group Plan, the plan year of such other
plan in which occurs the Determination Date of such other plan.
(e) "DETERMINATION DATE" means (1) with respect to the Plan
and its Plan Year, the last day of the preceding Plan Year; or (2) with
respect to any other Aggregation Group Plan in any calendar year during
which the Plan is not the only component plan of an Aggregation Group,
the determination date of each plan in such Aggregation Group to occur
during the calendar year as determined under the provisions of each such
plan.
(f) "FORMER KEY EMPLOYEE" means an Employee (including a
terminated Employee) who is not a Key Employee but who was a Key
Employee.
(g) "KEY EMPLOYEE" means an Employee (or a terminated Employee)
who at any time during the Current Plan Year or at any time during the
four preceding Plan Years is:
(1) an officer of a Commonly Controlled Entity whose
compensation from a Commonly Controlled Entity
during the Plan Year is greater than fifty percent
(50%) of the amount specified in Section
415(b)(1)(A) of the Code (as adjusted for
cost-of-living increases by the Secretary of the
Treasury) for the calendar year in which the Plan
Year ends; provided, however, that no more than the
lesser of (A) fifty (50) Employees, or (B) the
greater of (i) three (3) Employees or (ii) ten
percent (10%) (rounded to the next whole integer) of
the greatest number of Employees during the Current
Plan Year or any of the preceding four Plan Years
shall be considered as officers for this purpose.
Such officers considered will be those with the
greatest annual compensation as an officer during
the five
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(5) year period ending on the Determination Date;
(2) One of the ten employees who owns (or is
considered to own within the meaning of Section
318 of the Code) more than a one half percent
(1/2%) interest in value and the largest
percentage ownership interest in value in a
Commonly Controlled Entity and whose total annual
compensation from a Commonly Controlled Entity is
not less than the amount specified in Section
415(b)(1)(A) of the Code (as adjusted for
cost-of-living increases by the Secretary of the
Treasury) for the calendar year in which the Plan
Year ends;
(3) A person who owns more than five percent (5%) of the
value of the outstanding stock of any Commonly
Controlled Entity or more than five percent (5%) of
the total combined voting power of all stock of any
Commonly Controlled Entity (considered separately)
or;
(4) A person who owns more than one percent (1%) of the
value of the outstanding stock of a Commonly
Controlled Entity or more than one percent (1%) of
the total combined voting power of all stock of a
Commonly Controlled Entity (considered separately)
and whose total annual compensation (as defined in
section 1.415-2(d) of the Treasury Regulations) from
the Employer or a Commonly Controlled Entity is in
excess of one hundred and fifty thousand dollars
($150,000).
The rules of Section 416 (i)(1)(B) and (C) of the Code shall be applied
for purposes of determining an Employee's ownership interest in a
Commonly Controlled Entity for purposes of Paragraphs (3) and (4) herein.
A Beneficiary (who would not otherwise be considered a Key Employee) of a
deceased Key Employee shall be deemed to be a Key Employee in
substitution for such deceased Key Employee. Any person who is a Key
Employee under more than one of the four Paragraphs of this Section shall
have his or her Aggregate Benefit under the Aggregation Group Plans
counted only once with respect to computing the Aggregate Benefit of Key
Employees as of any Determination Date. Any Employee who is not a Key
Employee shall be a Non-Key Employee.
(h) "TOP-HEAVY PLAN" means the Plan with respect to any Plan
Year if the Aggregate Benefit of all Key Employees or the Beneficiaries
of Key
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Employees determined on the Determination Date is an amount in
excess of sixty percent (60%) of the Aggregate Benefit of all persons who
are Employees within the Current Plan Year; provided, that if an
individual has not performed services for an Employer or a Commonly
Controlled Entity at any time during the five (5) year period ending on
the Determination Date, the individuals's Accrued Benefit shall not be
taken into account. With respect to any calendar year during which the
Plan is not the only Aggregation Group Plan, the ratio determined under
the preceding sentence shall be computed based on the sum of the
Aggregate Benefits of each Aggregation Group Plan totaled as of the last
Determination Date of any Aggregation Group Plan to occur during the
calendar year.
XX.3 MINIMUM CONTRIBUTION. For any Plan Year that the Plan shall be a
Top-Heavy Plan, each Participant who is an Eligible Employee but who is neither
a Key Employee nor a Former Key Employee on the last day of the Plan Year shall
have allocated to his or her Matching and Employer Accounts on the last day of
the Plan Year a Profit Sharing Contribution in an amount equal to three percent
(3%) of such Participant's Compensation not in excess of two hundred thousand
dollars ($200,000); provided, however, in no event shall such contribution on
behalf of such Participant be less than five percent (5%) of such Compensation
if any Aggregation Group Plan is a defined benefit plan which does not satisfy
the minimum benefit requirements with respect to such Participant. The amount
of Profit Sharing Contributions required to be allocated under this Section for
any Plan Year shall be reduced by the amount of Employer Contributions and
Forfeitures allocated under this Plan on behalf of the Participant and employer
contributions and forfeitures allocated on behalf of the Participant under any
other defined contribution plan in the Aggregation Group for the Plan Year.
Elective Deferrals to any Aggregation Group Plan made on behalf of a Participant
in Plan Years beginning after December 31, 1984 but before January 1, 1989 shall
be deemed to be Employer Contributions for the purpose of this Section.
Elective Deferrals and Matching Contributions to Aggregation Group Plans in Plan
Years beginning on or after January 1, 1989 shall not be used to meet the
minimum contribution requirements of this Section. Where Employer Contributions
and Forfeitures allocated on behalf of a Participant are insufficient to satisfy
the minimum contribution otherwise required by this Section, an additional
employer contribution shall be made and allocated to the Matching or Employer
Accounts of such Participant.
XX.4 MAXIMUM BENEFIT ACCRUAL. For any Plan Year that the Plan is a
Top-Heavy Plan, the denominator of the "defined benefit plan fraction" and the
denominator of the "defined contribution plan fraction" shall be determined by
substituting "1.0" for "1.25"; provided, however, this limit shall not apply
with respect to an Employee for any Plan Year during which he accrues no benefit
under any plan of the Aggregation Group. The preceding sentence shall not apply
if, within
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this Article, there is substituted "four percent (4%)" for "three percent
(3%)" and "seven and one-half percent (7.5%)" for "five percent (5%)" and
"ninety percent (90%)" for "sixty percent (60%)."
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ARTICLE XXI
- -------------------------------------------------------------------------------
MISCELLANEOUS PROVISIONS
XXI.1 ASSIGNMENT AND ALIENATION. As provided by Code Section 401(a)(13)
and to the extent not otherwise required by law, no benefit provided by the Plan
may be anticipated, assigned or alienated, except:
(a) to create, assign or recognize a right to any benefit with
respect to a Participant pursuant to a QDRO, or
(b) to use a Participant's vested Account balance as security
for a loan from the Plan which is permitted pursuant to Code Section
4975.
XXI.2 PROTECTED BENEFITS. All benefits which are protected by the terms
of Code Section 411(d)(6) and ERISA Section 204(g), which cannot be eliminated
without adversely affecting the qualified status of the Plan on and after May 1,
1999, shall be provided under this Plan to Participants for whom such benefits
are protected. The Committee shall cause such benefits to be determined and the
terms and provisions of the Plan (or, to the extent relevant, the Brenco
Supplement Pension Plan) immediately prior to May 1, 1999 are incorporated
herein by reference and made a part hereof, but only to the extent such terms
and provisions are so protected. Otherwise, they shall operate within the terms
and provisions of this Plan, as determined by the Committee.
XXI.3 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS. The Plan does not provide
any employment rights to any Employee. The Employer expressly reserves the
right to discharge an Employee at any time, with or without Cause, without
regard to the effect such discharge would have upon the Employee's interest in
the Plan.
XXI.4 DEDUCTION OF TAXES FROM AMOUNTS PAYABLE. The Custodian shall
deduct from the amount to be distributed such amount as the Custodian, in its
sole discretion, deems proper to protect the Custodian and the Plan's assets
held under the Custodial Agreement against liability for the payment of death,
succession, inheritance, income, or other taxes, and out of money so deducted,
the Custodian may discharge any such liability and pay the amount remaining to
the Participant, the Beneficiary or the deceased Participant's estate, as the
case may be.
XXI.5 FACILITY OF PAYMENT. If a Participant or Beneficiary is declared
an incompetent or is a minor and a conservator, guardian, or other person
legally charged with his or her care has been appointed, any benefits to which
such Participant or Beneficiary is entitled shall be payable to such
conservator, guardian, or other person legally charged with his or her care.
The decision of the Committee in
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such matters shall be final, binding, and conclusive upon the Employer and
the Custodian and upon each Employee, Participant, Beneficiary, and every
other person or party interested or concerned. An Employer, the Custodian
and the Committee shall not be under any duty to see to the proper
application of such payments.
XXI.6 SOURCE OF BENEFITS. All benefits payable under the Plan shall be
paid or provided for solely from the Plan's assets held under the Custodial
Agreement and the Employers assume no liability or responsibility therefor.
XXI.7 INDEMNIFICATION. To the extent permitted by law each Employer
shall indemnify and hold harmless each member (and former member) of the Board
of Directors, each member (and former member) of the Committee, and each officer
and employee (and each former officer and employee) of an Employer to whom are
(or were) delegated duties, responsibilities, and authority with respect to the
Plan against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon him or her (including but not limited to
reasonable attorney fees and amounts paid in any settlement relating to the
Plan) by reason of his or her service under the Plan if he or she did not act
dishonestly, with gross negligence, or otherwise in knowing violation of the law
under which such liability, loss, cost or expense arises. This indemnity shall
not preclude such other indemnities as may be available under insurance
purchased or provided by an Employer under any by-law, agreement, or otherwise,
to the extent permitted by law. Payments of any indemnity, expenses or fees
under this Section shall be made solely from assets of the Employer and shall
not be made directly or indirectly from the assets of the Plan.
XXI.8 REDUCTION FOR OVERPAYMENT. The Committee shall, whenever it
determines that a person has received benefit payments under this Plan in excess
of the amount to which the person is entitled under the terms of the Plan, make
two reasonable attempts to collect such overpayment from the person.
XXI.9 LIMITATION ON LIABILITY. No Employer nor any agent or
representative of any Employer who is an employee, officer, or director of an
Employer in any manner guarantees the assets of the Plan against loss or
depreciation, and to the extent not prohibited by federal law, none of them
shall be liable (except for his or her own gross negligence or willful
misconduct), for any act or failure to act, done or omitted in good faith, with
respect to the Plan. No Employer shall be responsible for any act or failure to
act of any Custodian appointed to administer the assets of the Plan.
XXI.10 COMPANY MERGER. In the event any successor corporation to the
Company, by merger, consolidation, purchase or otherwise, shall elect to adopt
the Plan, such successor corporation shall be substituted hereunder for the
Company upon filing in writing with the Custodian its election so to do.
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XXI.11 EMPLOYEES' TRUST. The Plan and Custodial Agreement are created
for the exclusive purpose of providing benefits to the Participants in the Plan
and their Beneficiaries and defraying reasonable expenses of administering the
Plan, and the Plan and Custodial Agreement shall be interpreted in a manner
consistent with their being, respectively, a Plan described in Sections 401(a),
401(k) and 401(m) of the Code and Custodial Agreements exempt under Section
501(a) of the Code. At no time shall the assets of the Plan be diverted from
the above purpose.
XXI.12 GENDER AND NUMBER. Except when the context indicates to the
contrary, when used herein, masculine terms shall be deemed to include the
feminine, and singular the plural.
XXI.13 INVALIDITY OF CERTAIN PROVISIONS. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed and
enforced as if such provisions, to the extent invalid or unenforceable, had not
been included.
XXI.14 HEADINGS. The headings or articles are included solely for
convenience of reference, and if there is any conflict between such headings and
the text of this Plan, the text shall control.
XXI.15 UNIFORM AND NONDISCRIMINATORY TREATMENT. Any discretion
exercisable hereunder by an Employer or the Committee shall be exercised in a
uniform and nondiscriminatory manner.
XXI.16 LAW GOVERNING. The Plan shall be construed and enforced according
to the laws of the state in which the Trust is located, to the extent not
preempted by ERISA.
XXI.17 NOTICE AND INFORMATION REQUIREMENTS. Except as otherwise provided
in this Plan or in the Custodial Agreement or as otherwise required by law, the
Employer shall have no duty or obligation to affirmatively disclose to any
Participant or Beneficiary, nor shall any Participant or Beneficiary have any
right to be advised of, any material information regarding the Employer, at any
time prior to, upon or in connection with the Employer's purchase, or any other
distribution or transfer (or decision to defer any such distribution) of any
Company Stock or any other stock held under the Plan.
XXI.18 QUALIFIED MILITARY SERVICE. Notwithstanding any provision in the
Plan to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of
the Code.
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Executed in _______ counterpart originals this ____ day of __________,
1999, but effective as of the Effective Date.
VARLEN CORPORATION
By:________________________________
Title:_____________________________
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<PAGE>
APPENDIX A
INVESTMENT FUNDS
The Investment Funds offered to Participants and Beneficiaries as of March 1,
1999, are:
The following core funds:
1. Fidelity Money Market Trust: Retirement Money Market
Portfolio
2. Fidelity Managed Income Portfolio (blended with existing
GICs, if any)
3. Fidelity Asset Manager
4. Fidelity Growth & Income Portfolio
5. Fidelity Magellan Fund
6. Fidelity Overseas Fund
7. Fidelity Small Cap Stock Fund
8. Varlen Corporation Common Stock
9. Spartan U.S. Equity Index Fund
10. Fidelity Retirement Growth Fund
The following Freedom Funds:
1. Fidelity Freedom Income Fund
2. Fidelity Freedom 2000 Fund
3. Fidelity Freedom 2010 Fund
4. Fidelity Freedom 2020 Fund
5. Fidelity Freedom 2030 Fund
The following additional funds:
1. Fidelity Capital & Income Fund
2. Fidelity Ginnie Mae Fund
3. Fidelity Government Income Fund
4. Fidelity High Income Fund
5. Fidelity Institutional Short-Intermediate Governmental Fund
6. Fidelity Intermediate Bond Fund
7. Fidelity Investment Grade Bond Fund
8. Fidelity Mortgage Securities Fund
9. Fidelity Short-Term Bond Fund
10. Fidelity Target Timeline 2001 Fund
11. Fidelity Target Timeline 2003 Fund
12. Fidelity U.S. Bond Index Fund
13. Fidelity Balanced Fund
<PAGE>
14. Fidelity Puritan Fund
15. Fidelity Convertible Securities Fund
16. Fidelity Equity-Income Fund
17. Fidelity Equity-Income II Fund
18. Fidelity Growth & Income II Portfolio
19. Fidelity Real Estate Investment Portfolio
20. Spartan Market Index Fund
21. Spartan Total Market Index Fund
22. Spartan Extended Market Index Fund
23. Fidelity Utilities Fund
24. Fidelity Asset Manager: Income
25. Fidelity Asset Manager: Growth
26. Fidelity Blue Chip Growth Fund
27. Fidelity Capital Appreciation Fund
28. Fidelity Contrafund II
29. Fidelity Disciplined Equity Fund
30. Fidelity Dividend Growth Fund
31. Fidelity Emerging Growth Fund
32. Fidelity Export and Multinational Fund
33. Fidelity Fifty Fund
34. Fidelity Growth Company Fund
35. Fidelity Large-Cap Stock Fund
36. Fidelity Mid-Cap Stock Fund
37. Fidelity OTC Portfolio
38. Fidelity Stock Selector Fund
39. Fidelity TechnoQuant Growth Fund
40. Fidelity Trend Fund
41. Fidelity Value Fund
42. Fidelity Canada Fund
43. Fidelity Diversified International Fund
44. Fidelity Emerging Markets Fund
45. Fidelity Europe Fund
46. Fidelity Europe Capital Appreciation Fund
47. Fidelity France Fund
48. Fidelity Germany Fund
49. Fidelity Global Balanced Fund
50. Fidelity Hong Kong & China Fund
51. Fidelity International Bond Fund
52. Fidelity International Growth & Income Fund
53. Fidelity International Value Fund
54. Fidelity Japan Fund
55. Fidelity Japan Small Companies Fund
56. Fidelity Latin America Fund
<PAGE>
57. Fidelity New Markets Income Fund
58. Fidelity Nordic Fund
59. Fidelity Pacific Basin Fund
60. Fidelity Southeast Asia Fund
61. Spartan International Index Fund
62. Fidelity United Kingdom Fund
63. Fidelity Worldwide Fund
<PAGE>
APPENDIX B
Additional Groups of Employees
WHO ARE ELIGIBLE TO PARTICIPATE IN THE PLAN
Employees who are members of the following groups (in connection with their
employment with an Employer) are eligible to participate in the Plan:
1. UAW, Local #455 ("Local #455").
2. Prime Manufacturing Corp./District #10, International Association
of Machinists and Aerospace Workers.
3. Chrome Crankshaft Company of Illinois/Industrial Technical and
Professional Employees Union, AFL-CIO.
PARTICIPATION OF UAW, LOCAL #455
For any Employees who are members of Local #455 (but only to the extent such
Employee was hired before March 1, 1994), the Matching Contributions for each
period shall be as follows:
(a) effective for pay periods beginning prior to March
1, 1994, one hundred percent (100%) of each eligible Participant's first
one hundred dollars ($100.00) of Pre-Tax Contributions for the Plan Year
and fifty percent (50%) of each such Participant's next one hundred
dollars ($100.00) of Pre-Tax Contributions for the Plan Year; and
(b) effective for pay periods beginning on and after
March 1, 1994, one hundred percent (100%) of each eligible Participant's
first one hundred fifty dollars ($150.00) of Pre-Tax Contributions for
the Plan Year and fifty percent (50%) of each such Participant's next two
hundred dollars ($200.00) of Pre-Tax Contributions for the Plan Year.
In addition, no Profit Sharing Contributions shall be made on behalf of any
Employees who are members of Local #455 (but only to the extent such Employee
was hired before March 1, 1994).
Any Employees who are members of Local #455 and who are hired on or after
March 1, 1994 shall not be subject to these special rules regarding Matching and
Profit Sharing Contributions.
PARTICIPATION OF PRIME MANUFACTURING CORP. EMPLOYEES
Effective for pay periods beginning on or after May 1, 1995, with respect to
each
<PAGE>
Participant who is an Employee of Prime Manufacturing Corp. and who is a
member of District #10, International Association of Machinists and Aerospace
Workers:
1. his or her Matching Contributions for each period shall be equal
to twenty-five percent (25%) of the Participant's Pre-Tax
Contributions for the period, provided that no Matching
Contributions shall be made based upon a Participant's
Contributions in excess of three percent (3%) of his or her
Compensation for such period; and
2. no Profit Sharing Contributions shall be made on behalf of such
Participant.
PARTICIPATION OF CHROME CRANKSHAFT COMPANY OF ILLINOIS EMPLOYEES
Effective for pay periods beginning on or after January 4, 1999, with respect to
each Participant who is an Employee of Chrome Crankshaft Company of Illinois and
who is a member of the Industrial, Technical and Professional Employees Union,
AFL-CIO, the following special rules shall apply:
1. For the Plan Year ending on December 31, 1999, no Profit Sharing
Contributions shall be made on behalf of such Participant; and
2. For the Plan Years beginning on and after January 1, 2000, the
Profit Sharing Contribution with respect to each Participant who
was an Eligible Employee on the last day of the Plan Year shall
be two percent (2%) of such Participant's Compensation for the
prior Plan Year (for the period the Employee was a Participant).
In addition, such Contribution shall be made on behalf of each
Participant who ceased being an Employee during the period after
having attained his or her Normal Retirement Date, having
attained fifty-five (55) years of age and completing five (5)
years of Continuous Service, or by reason of his or her
Disability or death.
<PAGE>
VARLEN CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended January 30, 1999)
<PAGE>
VARLEN CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ESTABLISHMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 "ACCRUED BENEFIT" . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 "ACT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 "ACTUARIAL EQUIVALENT". . . . . . . . . . . . . . . . . . . . . .2
2.4 "AFFILIATE" . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.5 "APPENDIX". . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.6 "AUTHORIZED LEAVE OF ABSENCE" . . . . . . . . . . . . . . . . . .2
2.7 "AVERAGE MONTHLY COMPENSATION". . . . . . . . . . . . . . . . . .2
2.8 "BENEFICIARY".. . . . . . . . . . . . . . . . . . . . . . . . . .3
2.9 "BOARD OF DIRECTORS". . . . . . . . . . . . . . . . . . . . . . .3
2.10 "CHANGE OF CONTROL" . . . . . . . . . . . . . . . . . . . . . . .3
2.11 "COMMITTEE".. . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.12 "COMPANY" . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.13 "COMPENSATION". . . . . . . . . . . . . . . . . . . . . . . . . .4
2.14 "DEATH BENEFITS". . . . . . . . . . . . . . . . . . . . . . . . .4
2.15 "DISABILITY". . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.16 "EARLY RETIREMENT DATE".. . . . . . . . . . . . . . . . . . . . .4
2.17 "EFFECTIVE DATE". . . . . . . . . . . . . . . . . . . . . . . . .5
2.18 "EMPLOYEE". . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.19 "EMPLOYER". . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.20 "EMPLOYER PLAN BENEFITS". . . . . . . . . . . . . . . . . . . . .5
2.21 "GOOD REASON" . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.22 "INTERNAL REVENUE CODE" . . . . . . . . . . . . . . . . . . . . .7
2.23 "JOINT AND 50% SURVIVOR ANNUITY". . . . . . . . . . . . . . . . .7
2.24 "LUMP SUM". . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.25 "NORMAL RETIREMENT DATE". . . . . . . . . . . . . . . . . . . . .7
2.26 "PARTICIPANT" . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.27 "PAYMENT DATE". . . . . . . . . . . . . . . . . . . . . . . . . .7
2.28 "PLAN". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.29 "PLAN YEAR" . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.30 "RETIREMENT BENEFIT". . . . . . . . . . . . . . . . . . . . . . .8
2.31 "SINGLE LIFE ANNUITY" . . . . . . . . . . . . . . . . . . . . . .8
2.32 "SINGLE LIFE ANNUITY FOR A TEN-YEAR TERM CERTAIN" . . . . . . . .8
2.33 "SPOUSE". . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.34 "TERMINATION OF EMPLOYMENT FOR CAUSE" . . . . . . . . . . . . . .8
i
<PAGE>
2.35 "TERMINATION OF EMPLOYMENT" . . . . . . . . . . . . . . . . . . .8
2.36 "YEARS OF SERVICE". . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.1 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.2 TERMINATION OF PARTICIPATION. . . . . . . . . . . . . . . . . . .9
3.3 REEMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4 TRANSFER OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 NORMAL OR LATE RETIREMENT . . . . . . . . . . . . . . . . . . . 10
4.2 EARLY RETIREMENT. . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 FORFEITURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 COMMITTEE DISCRETION. . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 ENTITLEMENT TO DEATH BENEFITS . . . . . . . . . . . . . . . . . 10
5.2 REQUEST FOR DISTRIBUTION. . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
FORM AND PAYMENT OF RETIREMENT BENEFITS . . . . . . . . . . . . . . . . 12
6.1 NORMAL FORM OF PAYMENT. . . . . . . . . . . . . . . . . . . . . 12
6.2 OPTIONAL FORMS PAYMENT. . . . . . . . . . . . . . . . . . . . . 12
6.3 DESIGNATION OF BENEFICIARY. . . . . . . . . . . . . . . . . . . 13
6.4 EFFECT OF PARTICIPANT RESUMING EMPLOYMENT OR RECEIVING A
LUMP SUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS. . . . . 14
7.2 COMMITTEE MEMBERSHIP. . . . . . . . . . . . . . . . . . . . . . 14
7.3 COMMITTEE STRUCTURE . . . . . . . . . . . . . . . . . . . . . . 14
7.4 COMMITTEE ACTIONS.. . . . . . . . . . . . . . . . . . . . . . . 14
7.5 COMMITTEE DUTIES. . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 BOARD AND COMMITTEE LIABILITY . . . . . . . . . . . . . . . . . 16
7.7 COMMITTEE BONDING . . . . . . . . . . . . . . . . . . . . . . . 16
7.8 COMMITTEE ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY.. . . . 16
7.9 INFORMATION TO BE SUPPLIED BY EMPLOYERS . . . . . . . . . . . . 17
7.10 RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.11 CAPACITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.12 EMPLOYER'S AGENT. . . . . . . . . . . . . . . . . . . . . . . . 17
7.13 COMMITTEE DECISIONS FINAL.. . . . . . . . . . . . . . . . . . . 17
ii
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ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 INITIAL CLAIM FOR PAYMENT . . . . . . . . . . . . . . . . . . . 17
8.2 REVIEW OF CLAIM DENIAL. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MAINTENANCE OF PLAN BY EMPLOYERS . . . . . . . . . . . . . . . . . . . . 18
9.1 MAINTENANCE OF PLAN . . . . . . . . . . . . . . . . . . . . . . 18
9.2 PROCEDURE FOR WITHDRAWAL. . . . . . . . . . . . . . . . . . . . 18
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.2 TERMINATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXCLUSIVITY OF SERVICES AND CONFIDENTIAL INFORMATION . . . . . . . . . . 19
11.1 NON-COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . 19
11.2 NONDISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.3 REMEDIES: . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.4 LIMITATION OF APPLICATION.. . . . . . . . . . . . . . . . . . . 21
ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 21
12.1 SUCCESSOR ENTITY. . . . . . . . . . . . . . . . . . . . . . . . 21
12.2 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 NONALIENATION OF PAYMENT. . . . . . . . . . . . . . . . . . . . 22
12.4 TAXATION PRIOR TO RECEIPT.. . . . . . . . . . . . . . . . . . . 22
12.5 ALLOCATION TO EMPLOYER. . . . . . . . . . . . . . . . . . . . . 22
12.6 PRIOR BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . 23
12.7 DEDUCTION OF TAXES FROM AMOUNTS . . . . . . . . . . . . . . . . 23
12.8 FACILITY OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . 23
12.9 MITIGATION OF EXCISE TAX. . . . . . . . . . . . . . . . . . . . 23
12.10 EFFECT OF RETURN OF BENEFIT CHECKS. . . . . . . . . . . . . . . 24
12.11 SMALL PENSIONS. . . . . . . . . . . . . . . . . . . . . . . . . 24
12.12 CONTRACT OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . 24
12.13 SOURCE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 24
12.14 LIMITATION ON LIABILITY . . . . . . . . . . . . . . . . . . . . 24
12.15 ENFORCEMENT OF PLAN . . . . . . . . . . . . . . . . . . . . . . 24
12.16 NO OBLIGATIONS TO MITIGATE DAMAGES; NO EFFECT ON OTHER
CONTRACTUAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . 25
12.17 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.18 INVALIDITY OF CERTAIN PROVISIONS. . . . . . . . . . . . . . . . 26
12.19 LAW GOVERNING . . . . . . . . . . . . . . . . . . . . . . . . . 26
iii
<PAGE>
VARLEN CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended January 30, 1999)
ARTICLE I
ESTABLISHMENT
Varlen Corporation hereby amends and restates the Executive Benefit
Plan of Varlen Corporation and its Participating subsidiaries and
establishes, effective January 1, 1989, the Varlen Corporation Supplemental
Executive Retirement Plan for the purpose of providing supplemental
retirement benefits for one or more selected Employees. The Plan is intended
as an unfunded deferred compensation plan maintained primarily for a select
group of management or highly compensated employees and shall be construed
and administered in accordance with such intention.
ARTICLE II
DEFINITIONS
The following Sections of this Article II provide definitions of terms
used throughout this Plan, and whenever used herein in a capitalized form,
except as may be expressly provided, the terms shall be deemed to have the
following meanings:
2.1 "ACCRUED BENEFIT" means the benefit to which a Participant may
be entitled hereunder. The Accrued Benefit shall be an amount payable
according to the terms and provisions of Article VI herein. A person's
Accrued Benefit, as of any determination date prior to his Normal Retirement
Date, is computed as if the person were to incur a Termination of Employment
on the determination date, considering Years of Service, Employer Plan
Benefits and Average Monthly Compensation as of the determination date. The
Accrued Benefit of a Participant is equal to:
(a) fifty percent (50%) of the Participant's Average Monthly
Compensation multiplied by a fraction, not to exceed one, the numerator
of which is the Participant's Years of Service (not to exceed 15) and the
denominator of which is fifteen (15); REDUCED BY
(b) the monthly benefit payable to the Participant in the form
of a Single Life Annuity for a Ten-Year Term Certain commencing at Normal
Retirement Date, the value of which is the Actuarial Equivalent of the
Participant's Employer Plan Benefits (as defined in Section 2.20).
The amount determined under this Section 2.1 shall be determined at any point in
time for a Participant who is an Employee. For a Participant who is not an
Employee, the final
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calculation of the Accrued Benefit shall occur as of the date he was last an
Employee. Each and any calculation shall be subject to the rules of the
Committee respecting such calculation. The Accrued Benefit represents an
unfunded obligation of the Employers, the payment of which is subject to all
the terms and conditions of this Plan.
2.2 "ACT" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated thereunder.
2.3 "ACTUARIAL EQUIVALENT" means, for purposes of computing the value
of Employer Plan Benefits and optional forms of benefit payments and any
adjustments called for under the terms of the Plan for benefits commencing other
than at Normal Retirement Date, when such interest rate assumptions and
mortality assumptions are not otherwise provided for in this Plan, the benefit
having the same value as the benefit which it replaces, based upon such interest
rates and mortality assumptions as the Committee may determine, provided that in
the event of a Change of Control or the termination of the Plan the Committee
shall establish the interest rates and mortality assumptions which shall be set
forth in an Appendix and shall be and become a part of the Accrued Benefit.
2.4 "AFFILIATE" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
the Company.
2.5 "APPENDIX" means a written supplement attached to this Plan and
made a part hereof which has been added in accordance with the provisions of the
Plan.
2.6 "AUTHORIZED LEAVE OF ABSENCE" means an absence, with or without
compensation, authorized by the Employer or the Affiliate under its standard
personnel practices, provided the Employee returns to employment with the
Employer or the Affiliate within the period specified for the absence.
2.7 "AVERAGE MONTHLY COMPENSATION" means the average obtained by
dividing the sum of the person's Compensation for the 60 consecutive month
period of employment within the 120 consecutive month period of employment
preceding the earlier of the date of the Participant's obtaining age 62 or
the Participant's Termination of Employment (but taking into account any
period for which Compensation is determined under Section 2.13) (excluding
any first and last partial month of employment), which produces the largest
sum, by sixty (60). If a person has less than a 120 consecutive month period
of Compensation, Average Monthly Compensation shall mean the sum of the
person's Compensation earned for all complete months which produces the
largest sum, but not to exceed sixty (60), divided by the number of months,
but not to exceed sixty (60), during this period for which he received
Compensation. For purposes of this Section 2.7, the calendar month which ends
coincident with or immediately preceding the calendar month in which occurs a
Termination of Employment or the date the Participant attains age 62 and the
calendar month commencing coincident with or immediately following a
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Participant's return to employment shall be considered consecutive. If a
Participant is employed on less than a full time basis at any time during the
120 consecutive month period preceding the Termination of Employment or the
date the Participant attains age 62, whichever is earlier, compensation for
any period during which he is not employed on a full time basis shall be
adjusted by the Committee in its discretion to be the Compensation which
would have been paid had the Participant been employed on a full time basis.
2.8 "BENEFICIARY" means any person (including any trust, estate or
other entity) entitled to receive a Participant's death benefits hereunder in
accordance with a form of payment under Article VI.
2.9 "BOARD OF DIRECTORS" OR "BOARD" means the Board of Directors of
the Company.
2.10 "CHANGE OF 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 Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor provision thereto, whether or not the
Company is then subject to such reporting requirements; provided, however,
without limiting the generality of the foregoing, a Change in Control shall be
deemed to have occurred if:
(a) Any Person or Group (as those terms are defined in Section
13(d) and 14(d) of the Exchange Act, including the rules thereunder) is
or becomes the record or "Beneficial Owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly of twenty percent or more
of the securities of the Company entitled to vote generally in the
election of directors of the Company; or
(b) 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;
(c) 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 were members of the
board on January 1, 1993, or their successors if so approved for
nomination by a majority of the board.
2.11 "COMMITTEE" means the committee appointed pursuant to Article VII
to administer the Plan.
2.12 "COMPANY" means Varlen Corporation or, except in the event of
determining whether there is or has been a Change of Control, any successor
company by merger, consolidation, purchase or otherwise.
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2.13 "COMPENSATION" means the total compensation determined on a
completed, calendar year basis and paid by all Employers to a Participant for
personal services rendered, including regular salary, wages, bonuses (which
shall be attributed to the last month of the period for which paid),
commissions, vacation pay, short-term disability pay, amounts deferred
pursuant to Section 401(k) of the Code or pursuant to any cash or deferred
arrangement or amounts deferred pursuant to Section 125 of the Code, but
excluding any amounts paid or accrued for whatever reason after the calendar
year ending coincident with the calendar year in which occurs the earlier of
the date the Participant attains age 62 and the date the Participant incurs a
Termination of Employment, any amount paid or accrued under this Plan, living
allowances, expense allowances, overtime pay, amounts paid for an extended
work week, reimbursement for relocation, education or business expenses,
imputed income under any employee benefit plan, non-cash awards and any
employer contributions made to or benefits paid under any tax-qualified plan
(other than amounts deferred under a cash or deferred arrangement), payments
made pursuant to any accident or health insurance plan, stock options, any
value received pursuant to a stock option or stock appreciation rights plan,
any other distributions which receive special tax benefits and all other
extraordinary compensation. For purposes of this Section 2.13, Compensation
shall be attributed to the calendar year earned regardless of the calendar
year in which paid, and if the earlier of the date a Participant incurs a
Termination of Employment or attains age 62 is other than coincident with the
end of a calendar year, the Committee shall determine what Compensation the
Participant would have been paid for the completed calendar year, provided
any estimate of bonus shall be determined by multiplying the Participant's
base salary for the calendar year (as estimated by the Committee) by a
percentage determined by the Committee to be equal to the average of the
ratio of the Participant's bonus to base salary for the immediately preceding
completed calendar years of employment, not to exceed five such years.
2.14 "DEATH BENEFITS" means the benefits provided under Article V of
the Plan.
2.15 "DISABILITY" means a mental or physical condition which
entitles the Participant to benefits under the long-term disability plan
(including any insurance policy) of the Employer, provided that if there is
no such plan or the Participant is an Employee but not covered by such plan,
then "Disability" shall mean a mental or physical condition which renders the
Participant permanently and continuously unable or incompetent to engage in
any substantial gainful activity of the same type or at the same level as
that in which the Participant has been employed at the time he incurred the
Disability. Such determination shall be made by one or more physicians
appointed by the Committee, on the basis of such medical and other competent
evidence as the Committee shall deem relevant.
2.16 "EARLY RETIREMENT DATE" means the date on which the Participant
attains an age of not less than 55 and accrues not less than 15 Years of
Service.
4
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2.17 "EFFECTIVE DATE" means January 1, 1989 for the Company and any
entity which is an Employer on January 1, 1989. For all other Affiliates, it
shall mean the date the Affiliate becomes an Employer.
2.18 "EMPLOYEE" means any person who is a common-law employee of an
Employer and renders services to an Employer on or after the Effective Date.
2.19 "EMPLOYER" means the Company and any wholly owned, directly or
indirectly, subsidiary of the Company.
2.20 "EMPLOYER PLAN BENEFITS" means the sum of the benefits payable to
the Participant or with respect to the Participant determined as a monthly
benefit payable in the form of a Single Life Annuity for a Ten-Year Term Certain
and further determined as follows:
(a) any and all benefits attributable to Employer
contributions, including any benefits previously distributed or for which
an annuity contract has been purchased, which the Participant has accrued
under any and all defined benefit pension plans (as defined in section
414 (j) of the Code) maintained, sponsored or contributed to by an
Employer or an Affiliate (including any such plan maintained, sponsored
or contributed to by an entity prior to its becoming an Affiliate except
to the extent provided in an Appendix), which for purposes of this Plan
shall be calculated as an amount payable in the Actuarial Equivalent form
of Single Life Annuity with a Ten-Year Term Certain; provided that any
amount of employee contribution described in Section 401(m) of the Code
or which is a rollover contribution shall be excluded from the benefit
hereunder;
(b) any and all benefits attributable to Employer
contributions, including any benefits previously distributed or for which
an annuity contract has been purchased, which the Participant has accrued
under any and all defined contribution plans (as defined in Section
414(i) of the Code) of an Employer or an Affiliate (including any such
plan maintained, sponsored or contributed to by an entity prior to, its
becoming an Affiliate, except to the extent provided in an Appendix),
which for purposes of this Plan shall be calculated as an amount payable
the Actuarial Equivalent form of a Single Life Annuity with a Ten-Year
Term Certain; provided that any amount deferred and contributed to any
defined contribution plan the taxation of which is deferred pursuant to
Section 401(k) of the Code or is an amount of employee contribution
described in Section 401(m) of the Code or which is a rollover
contribution, shall be excluded from the benefit hereunder;
(c) any and all benefits attributable to Employer
contributions, including any benefits previously distributed or for which
an annuity contract has been purchased, which the Participant has accrued
under any and all plans of deferred compensation of an Employer or an
Affiliate (including any such plan
5
<PAGE>
maintained, sponsored or contributed to by an entity prior to its
becoming an Affiliate, except to the extent provided in an Appendix,
and further including, without limitation, the Varlen Corporation
Excess Benefit Plan), which for purposes of this Plan shall be
calculated as an amount payable in the Actuarial Equivalent form of a
Single Life Annuity with a Ten-Year Term Certain; provided that any
amount of employee contribution described in Section 401(m) of the
Code, and any amount which is a rollover contribution, under the
Varlen Corporation Excess Benefit Plan shall be excluded from the
benefit hereunder;
(d) fifty percent (50%) of the Participant's primary social
security benefit which for purposes of the Plan shall be calculated as an
amount payable in the Actuarial Equivalent form of a Single Life Annuity
with a Ten-Year Term Certain and shall be determined as the estimated
monthly amount available to the, Participant under the provisions of
Title II of the Social Security Act;
(e) The amount of the Employer Plan Benefit and each component
portion shall be determined in the sole discretion of the Committee,
which discretion shall be applied reasonably and consistently with
respect to Participants and Beneficiaries who are similarly situated.
The Committee shall adopt rules governing the computation of such amount,
including, without limitation, rules regarding calculation of the benefit
under any defined benefit pension plan and the primary social security
benefit, and the fact that an Employee does not actually receive such
amount because of failure to apply or continuance of work, or for any
other reason, shall be disregarded.
2.21 "GOOD REASON" shall mean:
(a) The substantial diminution of a Participant's role in the
operation of the Company;
(b) The failure of the Company to pay a Participant a base
salary at not less than the rate in effect immediately prior to the
Change in Control;
(c) The failure of the Company to provide a Participant with
bonus opportunities and fringe benefits, including pension and medical
benefits, substantially similar to those in effect immediately prior to
the Change of Control except to the extent that changes in such benefits
were made with the Participant's consent;
(d) The Company's mandatory transfer of a Participant to
another geographic location, except for business travel to an extent
substantially consistent with the Participant's business travel
obligations prior to the Change of Control; or
6
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(e) Failure of a successor to the Company to assume the
Company's obligations under this Plan.
2.22 "INTERNAL REVENUE CODE" OR "CODE" means the Internal Revenue Code
of 1986, as amended, and any subsequent Internal Revenue Code. If there is a
subsequent Internal Revenue Code, any references herein to Internal Revenue Code
sections shall be deemed to refer to comparable sections of any subsequent
Internal Revenue Code.
2.23 "JOINT AND 50% SURVIVOR ANNUITY" means a monthly benefit payable
during the lifetime of the Participant with the provision that 50% of such
monthly benefit shall be payable to such Participant's Spouse in monthly
installments commencing on the first day of the month in which the Participant
dies and continuing thereafter during the remaining lifetime of the Spouse
through the last monthly payment on or prior to such Spouse's death. In
determining the Actuarial Equivalent value of the Joint and 50% Survivor
Annuity, the age of the Spouse shall be increased by the lesser of 10 or the
number of years by which the Participant's age exceeds the Spouse's age.
2.24 "LUMP SUM" means a single sum payment of cash which is Actuarially
Equivalent to the replaced Retirement Benefit or Death Benefit.
2.25 "NORMAL RETIREMENT DATE" means the date the Participant attains
age 62.
2.26 "PARTICIPANT" means an Employee participating in the Plan as
provided in Article III.
2.27 "PAYMENT DATE" means the following:
(a) In the case of a Retirement Benefit payable under Section
4.1, the first day of the month coinciding with or next following a
Participant's Termination of Employment.
(b) In the case of a Retirement Benefit payable under Section
4.2, the first day of the month coinciding with or next following the
Participant's Normal Retirement Date, or if earlier, the date established
under Section 4.2 by the Committee as the Participant's Payment Date in
response to the Participant's request for early payment.
(c) In the case of a Death Benefit payable under Section 5.1,
the later of (1) the first day of the month coincident with or next
following the Participant's date of death, or (2) the date established by
the Committee in response to a Beneficiary's request.
If a Participant is reemployed by the Company or an Affiliate
prior to his Normal Retirement Date, any Payment Date determined under
Paragraph (b) shall be disregarded.
7
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2.28 "PLAN" means the Varlen Corporation Supplemental Executive
Retirement Plan, as stated herein, and as hereafter may be amended from time to
time.
2.29 "PLAN YEAR" means the 12 consecutive month period beginning
January 1, 1989, and each successive calendar year thereafter.
2.30 "RETIREMENT BENEFIT" means the benefit payable to a Participant
under the provisions of Section 4.1 or 4.2.
2.31 "SINGLE LIFE ANNUITY" means a benefit payable monthly during the
lifetime of the Participant through the last monthly payment on or prior to such
Participant's death.
2.32 "SINGLE LIFE ANNUITY FOR A TEN-YEAR TERM CERTAIN" means a benefit
payable during the lifetime of the Participant through the last month on or
prior to such Participant's death, provided that if the Participant shall die
prior to receiving 120 monthly payments (or the Actuarial Equivalent thereof)
the Participant's Beneficiary shall receive the same monthly payment until the
Participant and the Beneficiary have received in total 120 monthly payments.
2.33 "SPOUSE" means the person who is living and has been married at
least one year as of date of the Participant's death to the Participant within
the meaning of the laws of the State of the Participant's residence or evidenced
by a valid marriage certificate or other proof acceptable to the Committee.
2.34 "TERMINATION OF EMPLOYMENT FOR CAUSE" OR "CAUSE" means:
(a) The commission by a Participant of a willful wrong or a
grossly negligent act which causes, or has the potential for causing,
material harm to the Company;
(b) The commission or perpetration by a Participant of any
fraud upon the Company or any criminal act involving moral turpitude; or
(c) A Participant's willful and continued failure substantially
to perform his or her duties and obligations to the Company, which
failure continues after the Company has given the Participant written
notice thereof.
2.35 "TERMINATION OF EMPLOYMENT" means the earliest of (a)
resignation by the Employee for any reason, including Good Reason, (b) a
dismissal of the Employee for any reason, (c) the disability of the Employee,
(d) death of the Employee or (e) the retirement of the Employee from an
Employer or an Affiliate. The transfer of an Employee from employment by one
Employer or Affiliate to employment by another Employer or an Affiliate shall
not be regarded as a Termination of Employment.
8
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2.36 "YEARS OF SERVICE" means the sum of:
(a) the years of credited service accrued under and as defined
in the Executive Benefit Plan of Varlen Corporation and its Participating
Subsidiaries as of January 1, 1989 (which amount is set forth in an
Appendix hereto); and
(b) the Participant's whole, completed twelve month periods,
including the fractional parts thereof measured in whole, completed
months, of continuous, uninterrupted employment by an Employer on and
after January 1, 1989 including Authorized Leaves of Absence, measured
from the date the Participant becomes an Employee of an Employer to the
earlier of the date of his Termination of Employment or the date he
attains age 62. Years of service accrued with an entity other than an
Employer, including service prior to the date the entity becomes an
Affiliate, shall be credited on and after January 1, 1989 for purposes of
this Section only to the extent provided in an Appendix adopted by the
Board or the Committee.
Except as otherwise indicated by the context, any masculine terminology
herein shall also include the feminine and neuter, the definition of any term
herein in the singular may also include the plural, and the terms "herein",
"hereunder", "hereof" or similar terminology shall refer to this Plan.
ARTICLE III
PARTICIPATION
3.1 ELIGIBILITY. The Board, in its sole discretion, shall designate
the Employee or Employees who shall participate in this Plan as Participants and
shall designate the effective date of such participation.
3.2 TERMINATION OF PARTICIPATION. A person will cease to be a
Participant on the earliest of the date he receives the total distribution of
his Accrued Benefit, the date of his death and the date he forfeits his Accrued
Benefit in accordance with this Plan.
3.3 REEMPLOYMENT. If a Participant incurs a Termination of Employment
and is reemployed, such Participant shall not accrue Years of Service subsequent
to such reemployment nor shall such Participant's Compensation be taken into
account under the Plan unless and until the individual again becomes a
Participant in accordance with Section 3.1. Any Years of Service accrued or
Compensation earned prior to the Termination of Employment shall be considered
upon reemployment only upon terms established by the Board or the Committee.
3.4 TRANSFER OF EMPLOYMENT. A Participant who transfers from
employment with an Employer to employment with another Employer or Affiliate
shall remain a Participant, subject to Section 3.2.
9
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ARTICLE IV
BENEFITS
4.1 NORMAL OR LATE RETIREMENT. A Participant who has a Termination
of Employment on or after attaining his Normal Retirement Date and who does
not receive a benefit under Section 4.2 shall be entitled to his Accrued
Benefit commencing on the Payment Date. The payment of the Retirement
Benefit determined hereunder shall be governed by the provisions of Article
VI as in effect on his Termination of Employment.
4.2 EARLY RETIREMENT. A Participant who incurs a Termination of
Employment on or after attaining his Early Retirement Date but who has not
attained his Normal Retirement Date, and who does not receive a Retirement
Benefit under Section 4.1 shall be entitled to his Accrued Benefit determined
as of his Termination of Employment. Retirement Benefit payment timing and
form shall be governed by the terms and provisions of Article VI herein;
provided that the amount of the Retirement Benefit shall be reduced by .25%
for each of the first 24 months by which the Payment Date precedes the Normal
Retirement, and further reduced .5% for each of the next 60 months by which
the Payment Date precedes the Normal Retirement Date, except that such
reduction shall not apply if the Termination of Employment occurs subsequent
to a Change of Control or in the case of the Termination of Employment of
Richard L. Wellek. The payment of the Retirement Benefit determined
hereunder shall be governed by the provisions of Article VI as in effect on
his Termination of Employment.
4.3 FORFEITURE. A Participant who incurs a Termination of
Employment prior to the satisfaction of the requirements of Section 4.1 or
4.2, or who incurs a Termination of Employment for Cause or who violates the
provisions of Article XI shall forfeit forever the Accrued Benefit and
neither the Participant nor any Beneficiary of such Participant shall have
any right to receive any payment under this Plan. A Participant who commits
an act described in Section 2.34 or who violates the provisions of Article XI
shall return any amount previously paid within 90 days after the Company
notifies the Participant of such violation.
4.4 COMMITTEE DISCRETION. The payment elections of Participants
shall be subject to the approval of the Committee, which may be exercised
without regard to similarly situated Participants.
ARTICLE V
DEATH BENEFITS
5.1 ENTITLEMENT TO DEATH BENEFITS
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(a) AMOUNT AND CONDITIONS OF SPOUSE'S DEATH BENEFIT. If a
participant who has attained his Normal or Early Retirement Date is deceased
prior to his Payment Date the Spouse of such Participant shall be entitled to
a Death Benefit. The Death Benefit provided shall commence on the Payment
Date provided in Section 2.27(c) and shall be an amount equal to 50% of the
Retirement Benefit the Participant would have received under the following
circumstances:
(i) In the case of a Participant who is an Employee on or
after his Normal Retirement Date, the Retirement Benefit the Participant
would have received under Section 4.1 had the Participant incurred a
Termination of Employment and commenced to receive Retirement Benefits
in the form of a Joint and 50% Survivor Annuity on the first day of the
month following the date of death.
(ii) In the case of a Participant who is an Employee on or
after his Early Retirement Date, but not his Normal Retirement Date at
the time of his death, the Retirement Benefit the Participant would
have received under Section 4.2, had the Participant incurred a
Termination of Employment and commenced to receive Retirement Benefits
in the form of Joint and 50% Survivor Annuity on the date of death
based upon the Participant's Average Monthly Compensation, Years of
Service, and Employer Plan Benefits, determined as of the date of
death.
(b) SINGLE SUM PAYMENT. Notwithstanding anything herein to the
contrary, a Spouse entitled to a Death Benefit under Section 5.1, may
elect in writing, subject to the Committee's approval, after the death of
the Participant to receive payment of the Death Benefit in a Lump Sum.
(c) NO DEATH BENEFIT. If a Death Benefit is not paid in
accordance with Section 5.1(a) or (b), or if the Spouse dies before the
Payment Date of such Death Benefit, no Death Benefit shall be paid from
the Plan.
5.2 REQUEST FOR DISTRIBUTION. Payment of any Death Benefits to which
a Spouse may be entitled under this Article V shall not begin until the Spouse
has submitted to the Committee a distribution request form provided for that
purpose and the Committee has approved in its sole discretion the commencement
of the payment at the time and in the form requested, which discretion may be
exercised without regard to similarly situated Spouses. Thereafter, the
Committee shall instruct the Employer to make payment. In the event payment of
a Death Benefit does not commence or is not made until after a Spouse's Payment
Date, the Plan will pay to such Spouse all amounts due and unpaid since the
Payment Date in accordance with the form of payment automatically in effect on
the Payment Date. Notwithstanding the request or election of a Spouse to the
contrary, the Committee shall direct an immediate distribution of a single sum
payment if the value of the Beneficiary's Death Benefit payable as of the
Payment Date does not exceed $10,000.
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ARTICLE VI
FORM AND PAYMENT OF RETIREMENT BENEFITS
6.1 NORMAL FORM OF PAYMENT. Subject to Section 6.2, a
Participant's Accrued Benefit payable in accordance with Article IV shall be
paid commencing on the Payment Date in the form of a Single Life Annuity for
a Ten-Year Term Certain.
6.2 OPTIONAL FORMS OF PAYOUT. Subject to the limitations expressed
herein, a Participant who is entitled to receive a Retirement Benefit may
elect by written application to the Committee to receive such benefit in one
of the optional forms of payment set forth in Subsections 6.2(a) through
6.2(e) herein. All elections must be made within 30 days following the
effective date of this Amendment. The Committee, shall at its sole
discretion, approve or disapprove of each election submitted by each
Participant; provided, however, that any election to receive a lump sum
payout pursuant to Subsection 6.2(a) herein, where such payout occurs between
a Participant's Early Retirement Date and Normal Retirement Date, shall be
automatically approved by the Committee. All optional forms of payment shall
be Actuarially Equivalent as determined under Section 2.2 of the Plan. The
Committee's exercise of discretion under this Section 6.2 may be without
regard to other Participants who are similarly situated.
(a) LUMP SUM PAYMENT. A single sum payment equal in value to
the Actuarial Equivalent of the Participant's Accrued Benefit, provided
such Lump Sum is not payable earlier than the Participant's Early
Retirement Date or unless there has been a Change of Control; and
(b) JOINT AND SURVIVOR ANNUITY, which is a reduced Retirement
Benefit payable monthly during the lifetime of the Participant with the
provision that a percentage, which percentage shall be chosen by the
Participant but shall not exceed one hundred percent, with the consent of
the Committee not later than the 30th day following the effective date of
this Amendment, of such monthly benefit shall be payable to the
Participant's Beneficiary in monthly installments commencing on the first
day of the month following the month in which the Participant dies and
continuing thereafter on the first day of the month during the remaining
lifetime of the Beneficiary; and
(c) SINGLE LIFE ANNUITY FOR A TERM CERTAIN, which is a reduced
Retirement Benefit payable during the lifetime of the Participant,
provided that the Participant's Beneficiary shall receive the same
monthly payment until a number of years, which number shall be selected
by the Participant but shall not exceed 20 years and shall be subject to
the approval of the Committee, (the Term Certain) have passed since the
Participant's Payment Date if the Participant dies prior to receiving
payments for the Term Certain. In the event the Participant and his or
her Beneficiary decease before the Term Certain shall have expired, the
Actuarial
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Equivalent of the remaining payments for the Term Certain shall
be paid to the estate of the last to die of the Participant and the
Beneficiary; and
(d) INSURANCE ANNUITY HELD IN THE COMPANY'S NAME, which shall
be equivalent to a reduced Retirement Benefit payable during the lifetime
of the Participant, upon such terms and provisions as are available to
the Company through one or more insurance carriers selected at the sole
discretion of the Committee. Any such insurance annuity shall be
purchased by the Company, and the Company shall be the sole owner of the
insurance annuity. In the event that the Participant and any Beneficiary
named under such insurance annuity shall decease before the full payment
of the reduced Retirement Benefit, the Actuarial Equivalent of the
remaining payments for the Term Certain shall be paid to the estate of
the last to die of the Participant and the Beneficiary; and
(e) ALTERNATE PAYMENT SCHEDULE. A Participant may submit an
alternate payment schedule to the Committee for approval; provided,
however, that no such alternate payment schedule shall be permitted
unless approved by the Committee, at its sole discretion.
6.3 DESIGNATION OF BENEFICIARY. A Participant to whom the
provisions regarding an optional form of payment applies shall designate a
Beneficiary on a beneficiary designation form provided by the Committee. The
person may change such designation of Beneficiary at any time by filing a new
beneficiary designation form with the Committee. No designation of
Beneficiary or change of Beneficiary shall be effective until filed with the
Committee. Subject to the Participant's appointing a contingent Beneficiary,
if a Beneficiary commences to receive payments under an optional form of
payment before distribution of all Term Certain payments to that Beneficiary
has been completed, any payment to which the Beneficiary would have been
entitled had he survived shall be paid to the Beneficiary's estate in such
amount and at such times as it would have been paid had the Beneficiary
survived to receive the payments.
6.4 EFFECT OF PARTICIPANT RESUMING EMPLOYMENT OR RECEIVING A LUMP
SUM. If a Participant has ceased to be an Employee, has commenced to receive
Retirement Benefits in a form other than a Lump Sum, and again becomes an
Employee, Retirement Benefit payments, if any, shall not be made during the
period of such reemployment. Upon subsequent Termination of Employment by
such Participant, the Participant shall be entitled to receive a Retirement
Benefit equal to the greater of (a) the monthly benefit to which he was
entitled from the Plan upon such date of reemployment, if any, or (b) an
amount determined under the Plan, payable in the same form as (a), if
applicable, as of such Termination of Employment, reduced however, by the
Actuarial Equivalent of Retirement Benefits paid to the Participant prior to
his reemployment. If a Participant has received a Lump Sum distribution with
respect to all or any portion of his Accrued Benefit, the Accrued Benefit
shall be determined as provided in Section 2.1 except that it shall be
reduced by the Actuarial Equivalent value of such prior Lump Sum.
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ARTICLE VII
ADMINISTRATION
7.1 AUTHORITY AND RESPONSIBILITY OF THE BOARD OF DIRECTORS. The
Board of Directors shall have overall responsibility for the establishment,
amendment, termination, administration and operation of the Plan; provided
the responsibility for administration and operation of the Plan shall be
delegated to the Committee.
7.2 COMMITTEE MEMBERSHIP. The Committee shall consist of three
members, one of whom shall be the chief executive officer of the Company, one
of whom shall be the chief financial officer of the Company and a third
member who shall be chosen by the two previously named members. The members
of the Committee shall remain as such until they resign their respective
offices with the Company, and in the case of the member of the Committee,
named to serve on the Committee by the chief executive officer and chief
financial officer, until removed by such two members of the Committee. The
Committee shall have the general responsibility for the administration of the
Plan and for carrying out its provisions. In the event the previously named
three persons shall not be the Committee, the Board of Directors will
constitute the Committee.
7.3 COMMITTEE STRUCTURE. If requested to do so, each member of the
Committee, upon becoming a member of the Committee, shall file an acceptance
thereof in writing with the secretary of the Company and the secretary of the
Committee. Any member of the Committee may resign by delivering his written
resignation to the secretary of the Company and the secretary of the
Committee, and such resignation shall become effective upon the date
specified therein. In the event of a vacancy in membership, the remaining
members shall constitute the Committee with full power to act until said
vacancy is filled.
7.4 COMMITTEE ACTIONS. The action of the Committee shall be
determined by the vote or other affirmative expression of a majority of its
members. The Committee shall choose a chairman who shall be a member of the
Committee and a secretary who may (but need not) be a member of the
Committee. The secretary shall keep a record of all meetings and acts of the
Committee and shall have custody of all records and documents pertaining to
its operations. Either the chairman or the secretary may execute any
certificate or other written direction on behalf of the Committee. A
Committee member shall not exercise any discretion under this Plan with
respect to himself.
7.5 COMMITTEE DUTIES. The Committee shall administer and enforce
the Plan in accordance with the terms of the Plan and shall have all powers
necessary to accomplish that purpose, including but not by way of limitation,
the following:
(a) To issue rules and regulations necessary for the proper
conduct and administration of the Plan and to change, alter, or amend
such rules and regulations;
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(b) To construe the Plan;
(c) To determine all questions arising in its administration,
including those relating to the rights of Participants, former
Participants, Spouses and Beneficiaries to the entitlement to payment of
Retirement Benefits and Death Benefits; and its decision thereon shall be
final and binding upon all persons hereunder;
(d) To compute the amount and kind of benefits payable to
Participants, Spouses or Beneficiaries under the Plan;
(e) To authorize all disbursements in accordance with the
provisions of the Plan;
(f) To employ and suitably compensate such accountants,
attorneys (who may but need not be the accountants or attorneys of the
Company), clerical employees and other persons to render advice as may be
deemed necessary to the performance of its duties;
(g) To communicate the Plan and its eligibility requirements to
certain Employees and to notify Employees when they become eligible to
participate;
(h) To make available to Participants upon request, for
examination during business hours, such records as pertain exclusively to
the examining Participant;
(i) To keep records relating to Participants and other matters
applicable to this Plan;
(j) To appoint an agent for service of legal process;
(k) To prescribe procedures to be followed by Participants,
Spouses and Beneficiaries in claiming benefits;
(l) To develop and make available forms for use by Participants
and Spouses for making elections provided by the Plan;
(m) To make available for inspection and to provide upon
request at such charge as may be permitted and determined by the
Committee, documents and instruments required to be disclosed by law;
(n) To withhold any and all taxes as may be required by law to
be withheld from any payment; and
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(o) To file all reports as required by law with governmental
agencies.
7.6 BOARD AND COMMITTEE LIABILITY. The Board of Directors, the
Committee and the respective members hereunder shall be free from all liability,
joint or several, for their acts or failure to act hereunder.
7.7 COMMITTEE BONDING. The Board of Directors and the Committee
shall serve without bond (except as otherwise required by law) and without
compensation for their service as such; but all expenses of the Committee
shall be paid by the Employers.
7.8 COMMITTEE ALLOCATIONS AND DELEGATIONS OF RESPONSIBILITY.
(a) DELEGATION. The Board of Directors and Committee shall
have the authority to delegate from time to time, by instrument in
writing filed in its minute books, all or any part of its
responsibilities under the Plan to such person or persons as it may deem
advisable (and may authorize such person to delegate such
responsibilities to such other person or persons as the Board of
Directors or Committee shall authorize); and in the same manner the Board
of Directors and Committee shall have the authority to revoke any such
delegation of its responsibility. Any action of the delegate in the
exercise of such delegated responsibilities shall have the same force and
effect for all purposes hereunder as if such action had been taken by the
Board of Directors or the Committee whichever is appropriate. Neither
any Employer, any member of the Board of Directors, nor the Committee
shall be liable for any acts or omissions of any such delegate. The
delegate shall report periodically to the Board of Directors or the
Committee, whichever is appropriate, concerning the discharge of the
delegated responsibilities.
(b) ALLOCATION. The Board of Directors and the Committee shall
have the authority to allocate from time to time, by instrument in
writing filed in its minute books, all or any part of its
responsibilities under the Plan to one or more of its members as it may
deem advisable, and in the same manner to revoke such allocation of
responsibilities. Any action of the member to whom responsibilities are
allocated in the exercise of such allocated responsibilities shall have
the same force and effect for all purposes hereunder as if such action
had been taken by the Board of Directors or the Committee, whichever is
appropriate. Neither any Employer nor the Committee shall be liable for
any acts or omissions of such member. The member to whom
responsibilities have been allocated shall report periodically to the
Board of Directors or the Committee concerning the, discharge of the
allocated responsibilities.
(c) LIMITATION ON LIABILITY. Fiduciary duties and
responsibilities which have been allocated or delegated pursuant to
the terms of (a) or (b) of this section are intended to limit the
liability of the Employer, Board of Directors or Committee, as
appropriate.
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7.9 INFORMATION TO BE SUPPLIED BY EMPLOYERS. Employers shall provide
the Committee or its delegate with such information as it shall from time to
time need in the discharge of its duties.
7.10 RECORDS. The regularly kept records of the Committee and any
Employer shall be conclusive evidence of the Accrued Benefit, the Retirement
Benefit, the Years of Service of a person, his Compensation and Average
Monthly Compensation, his age and the age of any Spouse or Beneficiary, his
status as an Employee, and all other matters applicable to this Plan;
provided that a person may request a correction in the record of his age at
any time prior to his Payment Date, and such correction shall be made if
within 90 days after such request he furnishes in support thereof a birth
certificate, baptismal certificate, or other documentary proof of age
satisfactory to the Committee.
7.11 CAPACITY. Any person or group of persons may serve in more than
one capacity with respect to the Plan.
7.12 EMPLOYER'S AGENT. The Company and/or the Committee shall act as
agent for each Employer in the administration of the Plan.
7.13 COMMITTEE DECISIONS FINAL. The decision of the Committee in
matters within its jurisdiction shall be final, binding, and conclusive upon the
Employers and upon each Employee, Participant, Spouse, Beneficiary, and every
other person or party interested or concerned.
ARTICLE VIII
CLAIMS PROCEDURE
8.1 INITIAL CLAIM FOR PAYMENT. Each Participant or Beneficiary shall
submit a claim for payment to the Committee (or to such other person as may be
designated by the Committee) in such manner as is prescribed by the Committee.
When a claim for benefits is filed, the Committee shall undertake to dispose of
such claim in a reasonable time, and inform the Participant or Beneficiary of
such disposition and the reason for it. A Participant shall have no right to
seek review of a denial of payment or to bring any action in any court to
enforce a claim for payment prior to filing a claim for payment and exhausting
the rights to review as delineated under Section 8.2.
8.2 REVIEW OF CLAIM DENIAL. If a claim is denied, in whole or in
part, the claimant shall have the right to request that the Committee review the
denial, provided that the claimant files a written request for review with the
Committee within sixty (60) days after the date on which the claimant received
written notification of the denial. A claimant (or a claimant's duly authorized
representative) may review pertinent documents and submit issues and comments in
writing to the Committee. Within sixty (60) days after a request for review is
received, the review shall be made and the claimant shall be advised
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in writing of the decision on review, unless special circumstances require an
extension of time for processing the review, in which case the claimant shall
be given a written notification within such initial sixty (60) day period
specifying the reasons for the extension and when such review shall be
completed (provided that such review shall be completed within one hundred
and twenty (120) days after the date on which the request for review was
filed). The decision on review shall be forwarded to the claimant in writing
and shall include specific reasons for the decision and references to Plan
provisions upon which the decision is based. A decision on review shall be
final and binding on all persons for all purposes. If a claimant shall fail
to file a request for review in accordance with the procedures herein
outlined, such claimant shall have no rights to review and shall have no
right to bring action in any court and the denial of the claim shall become
final and binding on all persons for all purposes.
ARTICLE IX
MAINTENANCE OF PLAN BY EMPLOYERS
9.1 MAINTENANCE OF PLAN. An Affiliate which is a wholly-owned,
directly or indirectly, subsidiary of the Company shall be an Employer for
purposes of this Plan. Each Employer shall execute such documents and take such
other actions as may be required or directed by the Board or the Committee to
implement or effect the Plan. If the Board desires to amend this Plan as to its
application to the employees of any Employer, it may do so by use of an
Appendix. Notwithstanding any term or provision of this Plan, the terms and
provisions as may be imposed by the Board and attached hereto in an Appendix
shall govern.
9.2 PROCEDURE FOR WITHDRAWAL. Any Employer (other than the Company)
may by resolution of the Board, subject to such conditions as may be imposed by
the Board, cease to be an Employer for purposes of this Plan.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 AMENDMENTS. The Board may amend, modify, change, revise or
discontinue this Plan by amendment at any, time; provided, however, no action
shall, without the written consent of the affected person, entity, Participant,
Spouse or Beneficiary (a) increase the duties or liabilities of any person or
entity, (b) reduce the Participant's Accrued Benefit as of the date of the
amendment; or (c) change the method of determining the Participant's Accrued
Benefit or the right thereto, including the right to such Accrued Benefit as
provided in Section 10.2; or (d) amend, in any way, the provisions of Article X
or Section 12.1. Nothing in the preceding sentence on any other provision
herein shall limit or restrict the Committee's right to reasonably effect the
manner, form or timing of distributions hereunder other than any manner, form or
timing required pursuant to Section 10.2.
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10.2 TERMINATION OF THE PLAN. This Plan shall terminate: (a) at
such time as the Board, in its discretion, may determine; (b) if a petition
under any section or chapter of the Bankruptcy Reform Act of 1978 or any
similar law or regulation shall be filed by the Company or if the Company
shall make an assignment for the benefit of its creditors or if any case or
proceeding is filed by the Company for its dissolution or liquidation; (c) if
the Company is enjoined, restrained or in any way prevented by court order
from conducting all or any material part of its business affairs or if a
petition under any section or chapter of the Bankruptcy Reform Act of 1978 or
any similar law or regulation is filed against the Company or if any case or
proceeding in filed against the Company for its dissolution or liquidation
and such injunction, restraint or petition is not dismissed or stayed within
45 days after the entry or filing thereof; (d) if an application is made by
the Company for the appointment of a receiver, trustee or custodian of the
Company's assets; (e) if an application is made by any person other than the
Company for the appointment of a receiver, trustee, or custodian for the
Company's assets and the same is not dismissed within 45 days after the
application therefor; or (f) if the Company is dissolved and its business
operations are not continued by or under the control of substantially the
same person or persons as control the Company or no successor entity assumes
the liability of the Plan. Such termination shall become effective, in the
case of the occurrence of the event described in (a) of the preceding
sentence, by the delivery of notice by the Board to the Participant, or in
the case of the occurrence of an event described in (b), (c), (d), (e) or (f)
upon the occurrence of the event. In the event of a termination of the Plan
for the reasons listed in (a) or (f), the termination of the Plan shall not
reduce the Participant's Accrued Benefit, which shall be fully vested and
nonforfeitable as of the date the Plan is terminated, and the Employer shall
pay as soon as administratively possible in a Lump Sum to each Participant or
Beneficiary an amount equal to the value of his unpaid Accrued Benefit (based
upon Average Monthly Compensation and Years of Service to the date of Plan
termination) on the date of the Plan's termination. In the event of a
termination of the Plan for any reason listed in (b), (c), (d), or (e), the
Accrued Benefit shall be fully vested and nonforfeitable, and paid
consistently with the disposition of the event listed in (b), (c), (d) or (e).
ARTICLE XI
EXCLUSIVITY OF SERVICES AND CONFIDENTIAL INFORMATION
11.1 NON-COMPETITION. As a condition of participation in the Plan or
the payment or accrual of any benefit hereunder on or after the Effective Date,
each Participant agrees to execute when presented, but generally on or about the
Payment Date a written agreement whereby the Participant shall obligate himself
and be obligated:
(a) not to compete on or after the Payment Date, whether as
employer, employee, agent, proprietor, owner, partner, contractor,
stockholder (other than as the holder of less than five percent (5%) of
the stock of a corporation the securities of which are traded in the
United States of America or in another
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country on a national securities exchange or in the over-the-counter
or another comparable market), director or otherwise, with an Employer
or an entity controlled by the Employer on or after the Payment Date
or in which an Employer or an entity controlled by the Employer is
substantially engaged at any time on or after the Payment Date;
provided that this covenant shall not require the Participant to
divest himself of any interest or involvement in an enterprise held by
the Participant or existing prior to such time as the Employer or an
entity controlled by an Employer shall have begun, or begun active
consideration of, engaging in the same or similar businesses as those
conducted by such enterprise; and
(b) not to induce or attempt to persuade any employee of an
Employer or an entity controlled by an Employer to terminate such
person's employment relationship in order to enter into employment
competitive with an Employer or an entity controlled by an Employer.
11.2 NONDISCLOSURE. As a condition of participation in the Plan and
accrual of any benefit hereunder, each Participant acknowledges and agrees that
any and all information ("Information") that may be obtained by him at any time
during his employment with an Employer or an entity controlled by an Employer
with respect to the conduct and details of the business of an Employer or an
entity controlled by an Employer shall be deemed to be confidential information
("Confidential Information"). For purposes of this Agreement, "Information"
shall mean all materials and information about customers or clients of an
Employer or an entity controlled by an Employer, all materials and information
about sources or supply of property (real or otherwise), materials, equipment or
financing, price, and cost related to the business of an Employer or an entity
controlled by an Employer, and trade secrets, ideas, and all other tangible and
intangible items related to the business of an Employer or an entity controlled
by an Employer, which may be disclosed to the Participant by an Employer or an
entity controlled by an Employer or developed or acquired by the Participant;
provided that such information is maintained by an Employer or an entity
controlled by an Employer in a reasonably confidential manner and that such
information is not generally available to the public other than as a result of a
disclosure or other action by the Participant. The Participant also agrees that
Confidential Information shall not be used by the Participant, directly or
indirectly disclosed by the Participant, or used by the Participant for the
benefit of any third party during the Participant's employment with an Employer
or an entity controlled by an Employer and thereafter without the prior written
consent of the Board of Directors of the Company. The Participant further
agrees that upon Termination of Employment he will surrender to the Company any
books, lists, records, documents, and other similar property obtained by him or
entrusted to him during his employment with an Employer or an entity controlled
by an Employer or which were paid for by an Employer or an entity controlled by
an Employer, it being explicitly understood and agreed that all such books,
records, lists, documents, and other similar property are and shall remain the
property of an Employer or an entity controlled by an Employer.
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11.3 REMEDIES. The following provisions shall apply to the provisions
set forth in Section 11.1 or 11.2:
(a) In the event of a violation by the Participant of any
covenant contained in this Article XI or entered into pursuant to this
Plan, the Participant shall forfeit his right to the Accrued Benefit, and
the amount of any previous payments of the Accrued Benefit shall be paid
to the Company within 90 days of the Company's issuing a notice of the
violation.
(b) Without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the
Participant of the covenants contained in this Article XI or an agreement
entered into pursuant hereto it is expressly agreed that such other
remedies cannot fully compensate the Employers for such a violation and
that the Employers shall be entitled to injunctive relief (including
temporary restraining orders after reasonable notice prior to application
therefor) to prevent any such violation or continuing violation thereof,
and the Participant hereby consents to the granting of such relief
(including temporary restraining orders after reasonable notice prior to
application therefor) by any court of competent jurisdiction.
(c) It is the intent and understanding of the Company and the
Participant that if in any action before any court or agency legally
empowered to enforce the covenants contained in this Article XI or an
agreement entered into pursuant hereto any term, restriction, covenant,
or promise contained therein is found to be unreasonable and accordingly
unenforceable, then such term, restriction, covenant, or promise shall be
deemed modified to the extent necessary to make it enforceable by such
court or agency.
(d) The covenants contained in this Article XI or an agreement
entered into pursuant hereto shall continue in effect pursuant to, and to
the extent consistent with, their terms notwithstanding the termination
of the Participant's employment with the Employer or other termination of
this Plan.
11.4 LIMITATION OF APPLICATION. This Article shall not apply and shall
be null and void upon a Change of Control or in the event of a Termination of
Employment for Good Reason. For purposes of this Article XI, the Employer or
the entity controlled by the Employer shall be limited to those entities for
which the Participant was a common law Employee.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 SUCCESSOR ENTITY. Any successor entity to the Company by merger,
consolidation, purchase or otherwise, shall be substituted hereunder for the
Company and
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the Plan shall be binding upon all successors to and assigns of the Company,
and the Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in
form satisfactory to the Committee, expressly, absolutely and unconditionally
to assume and agree to perform the obligations under this Plan in the same
manner and to the same extent that the Company would be required to perform
it if no such succession or assignment had taken place.
12.2 INDEMNIFICATION. Each Employer shall indemnify and hold
harmless each member of the Board of Directors, the Committee and each
officer and employee of an Employer to whom are delegated duties,
responsibilities, and authority with respect to the Plan against all claims,
liabilities, fines and penalties, and all expenses reasonably incurred by or
imposed upon such delegate or agent (including but not limited to reasonable
attorney fees) which arise as a result of actions or failure to act in
connection with the operation and administration of the Plan to the extent
lawfully allowable and to the extent that such claim, liability, fine,
penalty, or expense is not otherwise paid for by liability insurance.
Notwithstanding the foregoing, an Employer shall not indemnify any person for
any such amount incurred through any settlement or compromise of any action
unless the Employer consents in writing to such settlement or compromise.
12.3 NONALIENATION OF PAYMENT. This Plan shall be binding upon and
inure to the benefit of the Employer, its successors and assigns and the
Participant and the Participant's Spouse's, Beneficiaries, heirs, executors,
administrators and legal representatives. Except as permitted by the
preceding sentence, benefits payable under the Plan shall not be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind, either
voluntary or involuntary, including any such liability which is for alimony
or other payments for the support of a spouse, former spouse or children of
the Participant, or for any other relative of a participant prior to actually
being received by the person entitled to the benefit under the terms of the
Plan; and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge, garnish, execute or levy upon, or otherwise dispose
of any right to benefits payable hereunder, shall be void. No Employer shall
in any manner be liable for, or subject to the debts, contracts, liabilities,
engagements or torts of any person entitled to benefits hereunder.
12.4 TAXATION PRIOR TO RECEIPT. If the Participant or Beneficiary
is subject to taxation with respect to all or any portion of the Accrued
Benefit prior to the calendar year in which the Participant or Beneficiary
otherwise receives such portion, the Employer shall, at the written request
of the Participant or Beneficiary accompanied by evidence satisfactory to the
Employer of the correct determination of such tax liability, distribute the
amount of the Accrued Benefit determined to be taxable to the Participant or
a Beneficiary as soon as practicable.
12.5 ALLOCATION TO EMPLOYER. The Committee shall, if necessary,
determine each Employer's allocation of the Retirement or Death Benefit to
which the Participant is
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entitled pursuant to this Plan. If allocation is necessary, the Employer
shall pay such portion of the benefit payable hereunder as may be allocated
to it. Such determination shall be binding on all Participants, Spouses,
Beneficiaries and the Employers. Under no circumstances shall any
Participant or Beneficiary have any right to examine the books and records of
any Employer other than those records of the Committee relating only to the
benefit of the Participant.
12.6 PRIOR BENEFITS. This Plan amends and restates the Executive
Benefit Plan of Varlen Corporation and its Participating Subsidiaries ("Former
Plan"), with respect to any person who is a Participant, and any person who is a
Participant herein or the Beneficiary of a Participant shall have no rights
under or with respect to such Former Plan.
12.7 DEDUCTION OF TAXES FROM AMOUNTS PAYABLE. The Employer may deduct
from the benefit such amount as the Employer, in its sole discretion, deems
proper to protect against liability for the payment of death, succession,
inheritance, income, employment or other taxes, and out of the money so deducted
the Employer may discharge any such liability and pay the amount remaining to
the Participant or the Beneficiary, as the case may be.
12.8 FACILITY OF PAYMENT. If a Participant or Beneficiary is declared
an incompetent or is a minor and if a conservator, guardian or other person
legally charged with the Participant's care has been appointed, any benefits to
which such Participant or Beneficiary is entitled shall be payable to such
conservator, guardian or other person legally charged with the Participant's
care. The decision of the Committee in such matters shall be final, binding and
conclusive upon the Employer and upon each Employee, Participant, Spouse,
Beneficiary, and every other interested or concerned person or party. Neither
an Employer nor the Committee shall be under any duty to see to the proper
application of such payments. All benefits under the Plan shall be paid to the
person entitled thereto ("Payee") either by a check which shall be endorsed
personally by the Payee or, if the Payee makes a written request on a form
approved by the Committee, by a deposit in the personal savings or checking
account of the Payee; provided that if any such deposit shall be made in error
or in excess of the amount due, the Payee shall be liable to return any such
payment or excessive portion of any payment.
12.9 MITIGATION OF EXCISE TAX. If any amount payable under this
Plan (without the application of this Section 12.9), either alone or together
with other payments to the Participant from the Company or an Affiliate,
would constitute a "parachute payment" (as defined in Section 280G of the
Code and regulations thereunder), such payment shall be reduced to the
largest amount that will result in no portion of the amount payable under
this Plan being subject to excise tax under Section 4999 of the Code or being
disallowed as a deduction under Section 280G of the Code. The determination
of whether any reduction in the amount payable is to apply shall be made by
the Participant in good faith after consultation with the Company, and such
determination shall be conclusive and binding on the Company. The Company
shall cooperate in good faith with the Participant in making such
determination and in providing the necessary information for this purpose.
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The foregoing provisions of this Section 12.9 shall apply with respect to any
person only if after reduction for any applicable federal excise tax imposed
by Section 4999 of the Code and federal income tax imposed by the Code, the
payment to such person under this Plan would be less than the amount of the
payment under this Plan as reduced, if applicable, under the foregoing
provisions of the Plan and after reduction for only federal income taxes.
12.10 EFFECT OF RETURN OF BENEFIT CHECKS. Each person entitled to
benefits under this Plan shall furnish the Committee with the address to which
his benefit checks shall be mailed. If any benefit check mailed by regular
United States mail to the last address appearing on the Committee's records is
returned because the addressee is not found at that address, the mailing of
benefit checks shall stop. Thereafter, if the Committee receives written notice
of the proper address of the person entitled to receive such benefit checks and
is furnished with evidence satisfactory to the Committee that such person is
living, all amounts then due shall be forwarded to such person.
12.11 SMALL PENSIONS. Notwithstanding any other provision of this Plan,
if the Lump Sum value of a Retirement Benefit or Death Benefit does not exceed
$10,000, the Committee, in its discretion, may immediately make full payment of
such in a Lump Sum.
12.12 CONTRACT OF EMPLOYMENT. Nothing contained herein shall be
construed to constitute a contract of employment between an Employer and any
Employee or Participant.
12.13 SOURCE OF PAYMENT. All payments under this Plan shall be from the
general funds of the Employers, and no special or separate, fund shall be
established and no other segregation of assets shall be made to assure payment.
No Participant shall have any right, title, or interest whatever in or to any
investments which the Employer may make to aid the Employer in meeting its
obligations hereunder. Nothing contained in this Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between an Employer and any Participant.
To the extent that any person acquires a right to receive payments from the
Employer hereunder, such right shall be no greater than the right of an
unsecured creditor of the Employer.
12.14 LIMITATION ON LIABILITY. No Employer nor any agent or
representative of any Employer who is an employee, officer, or director of an
Employer in any manner guarantees the payments to be made under this Plan
against loss or depreciation, and to the extent not prohibited by federal law,
none of them shall be liable (except for his own gross negligence or willful and
material misconduct), for any act or failure to act, done or omitted in good
faith, with respect to the Plan. No Employer shall be responsible for any act
or failure to act of any agent appointed to administer the Plan.
12.15 ENFORCEMENT OF PLAN. It is the intent of the Company that the
Participant not be required to incur the expenses associated with the
enforcement of his rights under this Plan by litigation or other legal
action, or be bound to negotiate any settlement of his
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rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Participant hereunder. Accordingly, if it is finally
determined by a court or other entity of competent jurisdiction that the
Company has failed to comply with any of its obligations under this Plan or
in the event that the Company or any other person takes any action to declare
this Plan void or unenforceable, or institutes any litigation, arbitration or
other legal account designed to deny, diminish or to recover from the
Participant the benefits entitled to be provided to the Participant
hereunder, and that Participant has complied with all or his obligations
under this Plan, the Company irrevocably authorizes the Participant from time
to time to retain counsel of his choice, at the expense of the Company, but
only to the extent such expense is reasonable and it is determined by the
court or arbiter before whom the matter is pending that the Participant is as
likely as not to prevail on the merits, to represent the Participant in
connection with the initiation or defense of any litigation, arbitration, or
other legal action, whether such action is by or against the Company or any
director, officer, shareholder or other person affiliated with the Company,
in any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Participant's entering into an attorney-client relationship
with such counsel, and in that connection the Company and the Participant
agree that a confidential relationship shall exist between the Participant
and such counsel. The reasonable fees and expenses of counsel selected from
time to time by the Participant, as hereinabove provided, shall be paid or
reimbursed to the Participant by the Company on a regular, periodic basis
upon presentation by such counsel in accordance with its customary practices.
Any legal expenses incurred by the Company by reason of any dispute between
the parties as to the enforceability of or the terms contained in this Plan,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from the Participant for such expenses. The rights
extended hereunder which would apply to a Participant shall be equally
applicable to a Beneficiary.
12.16 NO OBLIGATIONS TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Participant shall not be required to mitigate damages
or the amount of any payment provided for under this Plan by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Plan be reduced by any compensation earned by the Participant as the result
of employment by another employer after the termination of the Participant's
employment, or otherwise.
(b) The provisions of this Plan, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Participant's existing rights, or rights which would accrue solely
as a result of the passage of time, under any benefit plan, incentive plan or
securities plan, employment agreement or other contract, plan or arrangement of
the Company or an Affiliate.
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12.17 HEADINGS. The headings of Articles and Sections are included
solely for convenience of reference, and if there is any conflict between such
headings and the text of this Plan, the text shall control.
12.18 INVALIDITY OF CERTAIN PROVISIONS. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed and
enforced as if such provisions, to the extent invalid or unenforceable, had not
been included.
12.19 LAW GOVERNING. The Plan shall be construed and enforced according
to the laws of the State of Illinois (other than its laws respecting choice of
law) to the extent not preempted by the Act.
Executed this ______ day of ______, 1990.
VARLEN CORPORATION
By:
___________________________
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CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") dated January 31, 1999, is
between Richard L. Wellek, (the "Consultant) and Varlen Corporation
("Company").
Background
On January 30, 1999, Consultant is voluntarily retiring from the Company as
its Chief Executive Officer. Effective January 31, 1999, the Company desires
to retain the Consultant to provide consulting services to the Company.
Therefore, Consultant and the Company agree as follows:
1. SCOPE OF WORK.
Consultant will perform the consulting services described in Schedule 1 for
the Company and any of its affiliates (the "Services").
2. COMPENSATION.
The Company will pay Consultant a consulting fee in the amount and on the
terms specified in Schedule 2. The Company shall reimburse Consultant for
the reasonable expenses he may incur in connection with rendering Services
under this Agreement. Such expenses shall be submitted to the Vice
President, Finance and be consistent with the Company's expense
reimbursement procedures and policies applied to officers of the Company.
3. MANNER OF PERFORMANCE.
Consultant represents that he has the requisite expertise, ability and
legal right to render the Services and will perform the Services in a
professional and efficient manner. Consultant will abide by all laws,
rules and regulations that apply to the performance of the Services.
Consultant will comply with the Company's policies and procedures with
respect to the Services he performs.
4. CONFIDENTIALITY.
Consultant agrees that, following his retirement and during the term of
this Agreement and thereafter, he will not communicate or disclose,
directly or indirectly, personally or through agents, to any person,
agency, firm, corporation, association or any other entity, or use in any
manner not authorized in writing by the Company, any information of a
secret, proprietary or confidential nature related to the business or
operations of the Company or its affiliates. Information of a secret,
proprietary or confidential nature referred to above shall include, but not
be limited to, the Company's or its affiliates' method of training
employees, assigning work, quality control, budgeting and purchasing,
facility operation and management, and any financial information pertaining
to the Company's businesses, including, but not limited to, strategic
plans, present and past
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customers, the prices and terms of existing agreements, the names of
prospective customers or acquisition targets with whom the Company or
its affiliates is negotiating or has negotiated and the method of
calculating acquisitions.
Consultant shall promptly notify the Company in the event Consultant is
subpoenaed, asked to be interviewed or asked to testify in a hearing or
legal proceeding involving or in any way related to the Company or its past
or present affiliates.
5. ATTORNEY/CLIENT PRIVILEGE.
While employed by the Company, conversations may have taken place within
the context of the attorney/client relationship. During the term of this
Agreement, Consultant may have numerous conversations with the Company or
its past or present affiliates, employees, directors, agents,
representatives and attorneys relating to certain proposed and actual
strategies, contracts, business transactions, advice, claims and lawsuits.
The attorney/client privilege regarding all such advice and discussions
belongs to the Company and may only be waived by the Company. Consultant
understands that he is not authorized to describe or disclose the content
of any advice or discussions of that nature without the permission of the
Company.
6. CONFLICTS OF INTEREST.
On the date of signing this Agreement, Consultant represents that he has no
relationship with any third party, including competitors of the Company or
its affiliates, which would present a potential conflict of interest with
the rendering of the Services, or which would prevent Consultant from
carrying out terms of this Agreement or which would present a significant
opportunity for the disclosure of confidential information. Consultant
will advise the Company of any such relationships that arise during the
term of this Agreement. The Company will then have the option to terminate
this Agreement without further liability to Consultant, except to
compensate him for Services actually rendered prior to such termination.
7. RELATIONSHIPS WITH OTHERS.
A. During the term of this Agreement, Consultant agrees not to compete
whether as employer, employee, agent, proprietor, owner, partner,
contractor, stockholder (other than as the holder of less than five percent
(5%) of the stock of a corporation the securities of which are traded in
the United States of America or in another country on a national securities
exchange or in the over-the-counter or other comparable market), director
or otherwise, with the Company or an entity controlled by the Company or in
which the Company or an entity controlled by the Company is substantially
engaged at any time on or after the date of this Agreement; provided that
this covenant shall not require Consultant to divest himself of any
interest or involvement in an enterprise held by Consultant or existing
prior to such time as the Company or an entity controlled by the Company
shall have begun, or begun active consideration of, engaging in the same or
similar businesses as those conducted by such enterprise.
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B. During the term of this Agreement, Consultant agrees not to induce or
attempt to persuade any employee of the Company or an entity controlled by
the Company to terminate such person's employment relationship in order to
enter into employment competitive with the Company or an entity controlled
by the Company.
8. INDEPENDENT CONTRACTOR.
Effective January 31, 1999, Consultant is an independent contractor, not an
employee of the Company. Nothing in this Agreement shall render Consultant
an employee of the Company. Consultant assumes any and all liabilities
regarding Section 1706 of the Tax Reform Act of 1986 and Section 414(n) of
the Internal Revenue Code of 1986.
9. OWNERSHIP OF DEVELOPMENTS.
All written materials and other works which may be subject to copyright and
all patentable and unpatentable inventions, discoveries, and ideas
(including, but not limited to, any computer software) which are made,
conceived or written by Consultant during the term of this Agreement, and
for 90 days after it expires, and which are based upon the Services
performed by Consultant for the Company or its affiliates ("Developments")
shall become the Company's property. Consultant agrees to hold all
Developments confidential in accordance with paragraph 4 of this Agreement.
10. DISCLOSURE AND TRANSFER OF DEVELOPMENTS.
Consultant will disclose promptly to the Company each Development and, upon
the Company's request and at the Company's expense, Consultant will assist
the Company, or anyone it designates, in filing patent or copyright
applications in any country in the world. Each copyrightable work, to the
extent permitted by law, will be considered a work made for hire and the
authorship and copyright of the work shall be in the Company's name.
Consultant will execute all papers and do all things which may be necessary
or advisable, in the opinion of the Company, to process such applications
and to vest in the Company or its designee, all the right, title and
interest in and to the Developments. If for any reason Consultant is
unable to effectuate a full assignment of any Development, Consultant will
transfer to the Company, or its designee, its transferable rights, whether
they be exclusive or nonexclusive, or as a joint inventor or partial owner
of the Development.
11. DISCLOSURES TO THE COMPANY.
If during the term of this Agreement, Consultant discloses any
copyrightable works, inventions, discoveries or ideas to the Company which
were conceived or written prior to his employment relationship with the
Company or this Agreement or which are not based upon the Services
performed by Consultant for the Company under employment relationship or
this Agreement, the Company will
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have no liability to Consultant because of the Company's use of such
works, inventions, discoveries or ideas.
12. TERM.
The term of this Agreement shall be the period beginning January 31, 1999,
and ending January 30, 2001.
13. WAIVER AND RELEASE
Except for any claim by Consultant made pursuant to the Indemnification
Agreement described in paragraph 17 of this Agreement, and in consideration
of the payments under this Agreement, Consultant releases and forever
discharges the Company, its subsidiaries, directors, officers, employees,
agents and successors and assigns from all claims, actions, suits, debts
and demands in law or in equity which he may have had or may have now or in
the future, or which Consultant's heirs, executors and administrators
hereafter may have against the Company relating to all matters up to the
date of this Agreement arising from and during Consultant's employment with
the Company. Consultant agrees not to file charges or a lawsuit to assert
such claims and further agrees that Consultant will not permit any such
claims to be filed on his behalf. The foregoing includes, but is not
limited to, claims arising under the Age Discrimination in Employment Act,
Title VII of the Civil rights Act of 1964, the Equal Pay Act, or any
federal, state, or local laws prohibiting employment discrimination, the
Delaware Wage Payment and Collection Act and claims for breach of contract.
Consultant understands, acknowledges and agrees that:
a. He has been given a full twenty-one (21) days within which to
consider this Agreement before executing it.
b. He was advised and hereby is advised in writing to consider the
terms of this Agreement and consult with an attorney of his
choice prior to executing this Agreement.
c. Consultant has a full seven (7) days following his execution of
this Agreement to revoke this Agreement and has been and hereby
is advised in writing that this Agreement shall not become
effective or enforceable until the revocation period has expired.
d. Consultant understands that rights or claims under the Age
Discrimination in Employment Act of 1967 (29 U.S.C.Section b 21,
ET.SEQ.) that may arise after the date of the Agreement is
executed are not waived.
14. TERMINATION.
Paragraphs 4, 5, 13 and 15 shall survive the termination of this Agreement.
Even before the expiration of the term of this Agreement as set forth in
paragraph 12, the Company may terminate this Agreement upon the occurrence
of any of the following events:
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a. Material Breach;
b. The death of Consultant;
c. Consultant's continued disability, if the nature or duration of
such disability would prevent Consultant from performing the
Services under this Agreement;
d. Consultant's failure to perform as specifically required under
this Agreement and such failure continues unwaived for a period
of seven (7) days following the delivery by the Company to the
Consultant of a written notice specifying such failure to
perform.
The term "Material Breach" means:
(i) Consultant's willful failure to follow the lawful, good faith
instructions of the Company's board of directors, president or
designated Company officer or representative with respect to
Services under this Agreement after receipt of written notice of
such instructions (other than a failure to follow such
instructions that result from (A) Consultant's temporary
incapacity because of physical or mental disability or (B) force
majeure or other similar causes beyond the reasonable control of
Consultant that render his performance temporarily impossible);
or
(ii) Any violation of the provisions set forth in paragraphs 4, 5, 7,
9, 10 or 13.
If the Consultant's engagement is terminated by the Company in accordance
with this paragraph, Consultant shall not be entitled to any compensation
under this Agreement after the date of such termination.
15. PHOTOGRAPHS.
Consultant shall permit the perpetual use and distribution of photographs
or videotapes of Consultant taken during his employment or the term of this
Agreement for any lawful purpose.
16. NOTICES.
All notices under this Agreement shall be in writing and shall be deemed
delivered when the Company or Consultant is served personally or notice is
sent by overnight mail which provides confirmation of delivery.
17. INDEMNIFICATION.
The Company agrees that the terms and conditions of the Indemnification
Agreement dated June 17, 1996, between the Company and Consultant (copy
attached and labeled Schedule 3) shall remain in effect and survive the
termination of Consultant's employment with the Company, and such terms and
conditions
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also shall apply to any Services which Consultant provide to the Company
under this Agreement.
18. GENERAL.
No assignment by Consultant of this Agreement or any sums due under it will
be binding on the Company without the Company's prior written consent.
This Agreement may not be changed or terminated orally by or on behalf of
either party. In the event of the actual or threatened breach of any of
the terms of paragraphs 4, 5, 7, 9 or 10, the Company will have the right
to specific performance and injunctive relief. The rights granted by this
paragraph are in addition to all other remedies and rights available at law
or in equity. This Agreement shall be construed according to the laws of
Illinois for contracts made within that state.
19. NON-WAIVER.
Any provision of this Agreement may be waived by the party for whose
benefit it is made, but no waiver shall be effective unless it is in
writing and signed by an authorized representative of the waiving party.
Richard L. Wellek Varlen Corporation
/s/ Richard L. Wellek By: /s/ Raymond A. Jean
- -------------------------- ---------------------
Raymond A. Jean
Title: President and Chief Executive
Officer
Address: 2587 Stowe Court Address: 55 Shuman Blvd., Suite 500
Northbrook, IL 60062 Naperville, IL 60563
Telephone: 847/480-1766 Telephone: 630/420-0400
Fax: 847/480-1795 Fax: 630/420-2964
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SCHEDULE 1
Description of Services
Consultant, as and when requested by the Company, will cooperate and provide
the Company with such Services as the Company or its authorized
representatives may from time to time require.
The Consultant agrees that on and after the effective date he will cooperate
with the Company in defense of any claims that may be made against the
Company or its affiliates to the extent that such claims may relate to
services performed by Consultant for the Company or other areas of which the
Consultant may have knowledge.
Consultant agrees to give his best effort and skill in the performance of the
Services (including such of the Services as may be required for, or on behalf
of, any subsidiaries, affiliates, divisions or other businesses of the
Company that may previously have existed or may now or hereafter exist).
Consultant shall be available to render Services up to twenty percent (20%)
of normal business hours of his time at the request of the Company according
to its timetable, during such hours that can reasonably be arranged to be
mutually convenient, at the Company's principal place of business, by
telephone and at such other places as shall reasonably be requested by the
Company for the Consultant to render Services under this Agreement. The
Company agrees to provide Consultant with timely notice of its need for such
Services as soon as it is aware of any schedule for matters which may require
the Services of Consultant.
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SCHEDULE 2
Fee Arrangements
In consideration for the Services provided under this Agreement, Consultant
will receive a fee paid biweekly at a rate of $250,000 per year.
-----------
initials
-----------
initials
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SCHEDULE 3
AGREEMENT
This Agreement, made and entered into this 17th day of June, 1996
("Agreement"), by and between Varlen Corporation, a Delaware corporation
("Company"), and Richard L. Wellek ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they
are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its
subsidiaries from certain liabilities. Although the furnishing of such
insurance has been a customary and widespread practice among United
States-based corporations and other business enterprises, the Company
believes that, given current market conditions and trends, such insurance may
be available to it in the future only at higher premiums and with more
exclusions. At the same time, directors, officers, and other persons in
service to corporations or business enterprises are being increasingly
subjected to expensive and time-consuming litigation relating to, among other
things, matters that traditionally would have been brought only against the
Company or business enterprise itself, and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
such persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such Persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to
serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
Bylaws of the Company and any resolutions adopted pursuant thereto, and shall
not be deemed a substitute therefore, nor to diminish or abrogate any rights
of Indemnitee thereunder; and
WHEREAS, the By-laws and the Delaware director indemnification statute
each is nonexclusive, and therefore contemplates that contracts may be
entered into with respect to indemnification of directors, officers and
employees; and
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WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on
behalf of, such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. SERVICES by INDEMNITEE. Indemnitee agrees to serve as a
director and/or officer of the Company. Indemnitee may at any time and for
any reason resign from such position (subject to any other contractual
obligation or any obligation imposed by operation of law), in which event the
Company shall have no obligation under tins Agreement to continue Indemnitee
in such position. This Agreement shall not be deemed an employment contract
between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee
specifically acknowledges that Indemnitee's employment with the Company (or
any of its subsidiaries), if any, is at will, and the Indemnitee may be
discharged at any time for any reason, with or without cause, except as may
be otherwise provided in any written employment contract between Indemnitee
and the Company (or any of its subsidiaries), other applicable formal
severance policies duly adopted by the Board, or, with respect to service as
a director or officer of the Company, by the Company's Certificate of
Incorporation, By-laws, and the General Corporation Law of the State of
Delaware. The foregoing notwithstanding, this Agreement shall continue in
force after Indemnitee has ceased to serve as a director and/or officer of
the Company.
Section 2. INDEMNIFICATION - GENERAL. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
amended from time to time. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against all Expenses, judgments, penalties,
fines and amounts paid in settlement (including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
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Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or a participant in any threatened, pending or completed Proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against all
Expenses (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses) actually and
reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company; PROVIDED,
HOWEVER, that, if applicable law so provides, no indemnification against
such Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to
the Company unless and to the extent that the Court of Chancery of the State
of Delaware, or the court in which such Proceeding shall have been brought or
is pending, shall determine that such indemnification may be made.
Section 5. PARTIAL INDEMNIFICATION. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a party to (or a participant in) and is successful, on the
merits or otherwise, in defense of any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf
in connection therewith. If Indemnitee is not wholly successful in defense of
such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section
and without limitation, the termination of any claim, issue or matter in such
a Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter. If Indemnitee is
entitled under any provision of this agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, penalties, fines
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually and
reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, but not, however, for the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion to which Indemnitee is entitled.
Section 6. INDEMNIFICATION FOR ADDITIONAL EXPENSES.
(a) The Company shall indemnify Indemnitee against any and all
Expenses and, if requested by Indemnitee, shall (within seven (7) business
days of such request) advance such Expenses to Indemnitee, which are incurred
by Indemnitee in connection with any action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or by-law of the Company now or hereafter in
effect; or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
(b) Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a witness in
any Proceeding to which Indemnitee
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is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
Section 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within seven (7) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Notwithstanding the
foregoing, the obligation of the Company to advance Expenses pursuant to this
Section 7 shall be subject to the condition that, if when and to the extent
that the Company determines that Indemnitee would not be permitted to be
indemnified under applicable law, the Company shall be entitled to be
reimbursed, within thirty (30) days of such determination, by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore
paid; PROVIDED, HOWEVER, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to
be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any advance of Expenses until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed).
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee
and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company
shall, promptly upon receipt of such a request for indemnification, advise
the Board in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be
made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change of Control shall not have
occurred, (A) by a majority vote of the Disinterested Directors (as
hereinafter defined), even though less than a quorum of the Board, or (B) if
there are no such Disinterested Directors or, if such Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board, a copy
of which shall be delivered to Indemnitee or (C) if so directed by the Board,
by the stockholders of the Company; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be
made within seven (7) days after such determination. Indemnitee shall
cooperate with the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including providing
to such person, persons or entity upon reasonable advance request any
documentation or information which is not
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privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the
Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Indemnitee shall give written notice
to the Company advising it of the identity of the Independent Counsel so
selected. In either event, Indemnitee or the Company, as the case may be,
may, within 10 days after such written notice of selection shall have been
given, deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection; PROVIDED, HOWEVER, that such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 17 of
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court
has determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of
Chancery of the State of Delaware for resolution of any objection which shall
have been made by the Company or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom all objections are so resolved
or the person so appointed shall act as Independent Counsel under Section
8(b) hereof. The Company shall pay any and all reasonable fees and expenses
of Independent Counsel incurred by such Independent Counsel in connection
with acting pursuant to Section 8(b) hereof, and the Company shall pay all
reasonable fees and expenses incident to the procedures of this Section 8(c),
regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in
such capacity (subject to the applicable standards of professional conduct
then prevailing).
(d) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability. The Company shall
not be liable for any amount paid by the Indemnitee in settlement of any
Proceeding that is not defended
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by the Company, unless the Company has consented to such settlement, which
consent shall not be unreasonably withheld.
Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the person or
persons or entity making such determination shall presume that Indemnitee is
entitled to indemnification or advancement of expenses under this Agreement
if Indemnitee has submitted a request for indemnification or the advancement
of expenses in accordance with Section 8(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption. Neither the failure of the
Company (including its board of directors or independent legal counsel) to
have made a determination prior to the commencement of any action pursuant to
this Agreement that indemnification is proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including its board of directors or independent
legal counsel) that Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law; PROVIDED, HOWEVER, that such
60-day period may be extended for a reasonable time, not to exceed an
additional thirty (30) days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further,
that the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such
determination to the stockholders for their consideration at an annual
meeting thereof to be held within seventy five (75) days after such receipt
and such determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good
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faith and in a manner which he reasonably believed to be. in or not opposed
to the best interests of the Company or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct
was unlawful.
(d) RELIANCE AS SAFE HARBOR. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good Faith if
Indemnitee's action is based on the records or books of account of the
Company or relevant enterprise, including financial statements, or on
information supplied to Indemnitee by the officers of the Company or relevant
enterprise in the course of their duties, or on the advice of legal counsel
for the Company or relevant enterprise or on information or records given or
reports made to the Company or relevant enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Company or relevant enterprise. The provisions of this
Section 9(d) shall not be deemed to be exclusive or to limit in any way the
other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
(e) ACTIONS OF OTHERS. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Company or relevant
enterprise shall not be imputed to Indemnitee for purposes of determining the
right to indemnification under this Agreement.
Section 10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 7 of this Agreement, (iii) no determination
of entitlement to indemnification shall have been made pursuant to Section
8(b) of this Agreement within 90 days after receipt by the Company of the
request for indemnification, (iv) payment of indemnification is not made
pursuant to Section 5 or 6 of this Agreement within ten (10) days after
receipt by the Company of a written request therefor, or (v) payment of
indemnification is not made within ten (10) days after a determination has
been made that Indemnitee is entitled to indemnification, Indemnitee shall be
entitled to an adjudication by the Court of Chancery of the State of Delaware
of his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 10(a); PROVIDED, HOWEVER, that the
foregoing clause shall not apply in respect of a proceeding brought by
Indemnitee to enforce his rights under Section 5 of this Agreement.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred, in
any judicial proceeding or arbitration commenced pursuant to this Section 10,
the Company shall have the burden of proving that Indemnitee is not entitled
to indemnification or advancement of Expenses, as the case may be.
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(c) If a determination shall have been made pursuant to Section
8(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 10, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary
to make Indemnitee's statement not materially misleading, in connection with
the request for indemnification, or (ii) a prohibition of such indemnification
under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all expenses (of the types described in the
definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such judicial adjudication
or arbitration shall be appropriately prorated. The Company shall indemnify
Indemnitee against any and all Expenses and, if requested by Indemnitee,
shall (within ten (10) days after receipt by the Company of a written request
therefor) advance such expenses to Indemnitee, which are incurred by
Indemnitee in connection with any action brought by Indemnitee for
indemnification or advance of Expenses from the Company under this Agreement
or under any directors' and officers' liability insurance policies maintained
by the Company, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advancement of Expenses or insurance
recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
Section 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit
or restrict any right of Indemnitee under this Agreement in respect of any
action taken or omitted by such Indemnitee in his Corporate Status prior to
such amendment, alteration or repeal. To the extent that a change in the
General Corporation Law of the State of Delaware, whether by statute or
judicial decision, permits greater indemnification or advancement of Expenses
than would be afforded currently under the Company's By-Laws and this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy
by this Agreement the greater benefits so afforded by such change. No right
or remedy herein conferred is intended to be exclusive of any other right or
remedy, and every other right and remedy shall be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right or
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remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
or agents of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person
serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents
as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance expenses
hereunder to Indemnitee who is or was serving at the request of the Company
as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of (a) 10 years after the date that Indemnitee
shall have ceased to serve as a director and/or officer of the Company (or of
any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served at the request of the
Company); or (b) the final termination of any Proceeding then pending in
respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 10 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors and assigns
and shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
Section 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that is not itself invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby, (b)
such provision or provisions shall be deemed reformed to the extent necessary
to conform to applicable law and to give the maximum effect to the intent of
the parties hereto; and (c) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be
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invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested thereby.
Section 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Except as provided in Section 6(a) of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under
this Agreement with respect to any Proceeding brought by Indemnitee (other
than a Proceeding by Indemnitee to enforce his rights under this Agreement),
or any claim therein prior to a Change in Control, unless the bringing of
such Proceeding or making of such claim shall have been approved by the Board
of Directors.
Section 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
Section 16. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part
of this Agreement or to affect the construction thereof.
Section 17. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated
under the Securities Exchange Act of 1934 (the "Act"), whether or not the
Company is then subject to such reporting requirement; PROVIDED, HOWEVER,
that, without limitation, such a Change in Control shall be deemed to have
occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner"
(as defined in Rule l3d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities without the prior approval
of at least two-thirds of the members of the Board in office immediately
prior to such person attaining such percentage interest; (ii) there occurs a
proxy contest, or the Company is a party to a merger, consolidation, sale of
assets, plan of liquidation or other reorganization not approved by at least
two-thirds of the members of the Board then in office, as a consequence of
which members of the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter, or (iii)
during any period of two consecutive years, other than as a result of an
event described in clause (a)(ii) of this Section 17, individuals who at the
beginning of such period constituted the Board (including for this purpose
any new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the Board.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee, fiduciary or agent of the Company or of
any other corporation, partnership, joint
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venture, trust, employee benefit plan or other enterprise which such person
is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Effective Date" means June 17, 1996.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or
preparing to be a witness in, or otherwise participating in, a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Company or Indemnitee in any matter material to either such party, or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual,
threatened or completed proceeding, whether brought by or in the right of the
Corporation or otherwise and whether civil, criminal, administrative or
investigative, in which Indemnitee was, is, may be or will be involved as a
party or otherwise, by reason of the fact that Indemnitee is or was a
director or officer of the Company, by reason of any action taken by him or
of any inaction on his part while acting as director or officer of the
Company, or by reason of the fact that he is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise; in each case whether
or not he is acting or serving in any such capacity at the time any liability
or expense is incurred for which indemnification or advancement of expenses
can be provided under this Agreement; except one (i) initiated by an
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights
under this Agreement or (ii) pending on or before the Effective Date.
Section 18. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order
to induce Indemnitee to serve
11
<PAGE>
as a director and/or officer of the Company, and the Company acknowledges
that Indemnitee is relying upon this Agreement in serving as a director
and/or officer of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
Section 19. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to
any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder. The failure of Indemnitee to so
notify the Company shall not relieve the Company of any obligation which it
may have to the Indemnitee under this Agreement or otherwise.
Section 21. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, or (ii) mailed
by certified or registered mail with postage prepaid, on the third business
day after the date on which it is so mailed:
(a) If to Indemnitee to:
Richard L. Wellek
2587 Stowe Court
Northbrook, IL 60062
(b) If to the Company to:
Varlen Corporation
Attn: Vicki L. Casmere
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
Section 22. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts
paid or to be
12
<PAGE>
paid in settlement and/or for Expenses, in connection with any claim relating
to an indemnifiable event under this Agreement, in such proportion as is
deemed fair and reasonable in light of all of the circumstances of such
Proceeding in order to reflect (i) the relative benefits received by the
Company and Indemnitee as a result of the event(s) and/or transaction(s)
giving cause to such Proceeding; and/or (ii) the relative fault of the Company
(and its directors, officers, employees and agents) and Indemnitee in
connection with such event(s) and/or transaction(s).
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among
the parties shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware, without regard to its conflict of
laws rules. Except with respect to any arbitration commenced by Indemnitee
pursuant to Section 10 (a) of this Agreement, the Company and Indemnitee
hereby irrevocably and unconditionally (i) agree that any action or
proceeding arising out of or in connection with this Agreement shall be
brought only in the Chancery Court of the State of Delaware (the "Delaware
Court"), and not in any other state or federal court in the United States of
America or any court in any other country, (ii) consent to submit to the
exclusive jurisdiction of the Delaware Court for purposes of any action or
proceeding arising out of or in connection with this Agreement, (iii)
appoint, to the extent such party is not a resident of the State of Delaware,
irrevocably RL&F Service Corp., One Rodney Square, 10th Floor, 10th and King
Streets, Wilmington, Delaware 19801 as its agent in the State of Delaware as
such party's agent for acceptance of legal process in connection with any
such action or proceeding against such party with the same legal force and
validity as if served upon such party personally within the State of
Delaware, (iv) waive any objection to the laying of venue of any such action
or proceeding in the Delaware Court, and (v) waive, and agree not to plead or
to make, any claim that any such action or proceeding brought in the Delaware
Court has been brought in an improper or otherwise inconvenient forum.
Section 24. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: VARLEN CORPORATION
/s/ Carol Synal By: /s/ Raymond A. Jean
- ------------------------- ---------------------------
Name: Carol Synal Name: Raymond A. Jean
Title: Executive Vice President & Chief
Operating Officer
Richard L. Wellek
/s/ Vicki L. Casmere /s/ Richard L. Wellek
- ------------------------- ------------------------------
Name: Vicki L. Casmere
13
<PAGE>
VARLEN CORPORATION 1998 Annual Report
The
Paths
Toward
Growth
[Photo] - Front Cover -- On the left-hand side of the cover is a
picture of railroad tracks and on the right hand side is a
picture of an asphalt road.
<PAGE>
1998 FINANCIAL
HIGHLIGHTS
VARLEN CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<TABLE>
<CAPTION>
1998(a) 1997(a) 1996(a)
- --------------------------------------------------------------------------------------
FOR THE YEAR
<S> <C> <C> <C>
Net Sales ................................... $ 646,672 $ 522,254 $ 409,475
Operating Profit (b) ........................ 88,248 63,193 47,188
Net Earnings ................................ 41,242 25,651 17,857
Net Earnings as a Percent of Sales .......... 6.4% 4.9% 4.4%
Earnings Before Interest, Taxes,
Depreciation and Amortization ........... $ 103,964 $ 79,257 $ 59,669
Cash Flow From Operations ................... 70,716 48,399 31,106
Return on Average Stockholders' Equity ...... 18.7% 17.2% 17.1%
Return on Invested Capital .................. 14.2% 10.5% 9.6%
Capital Expenditures ........................ $ 38,650 $ 18,776 $ 18,193
Depreciation and Amortization ............... 25,990 24,474 19,098
- --------------------------------------------------------------------------------------
AT YEAR END
Total Employees ............................. 3,758 3,177 2,850
Working Capital ............................. $ 74,794 $ 74,024 $ 69,461
Net Property, Plant and Equipment ........... 144,706 124,180 124,580
Total Debt .................................. 94,903 104,910 186,626
Stockholders' Equity ........................ 240,920 198,792 109,986
Total Debt as a Percent of Total Capitalization 28.3% 34.5% 62.9%
- --------------------------------------------------------------------------------------
PER SHARE DATA
Basic Earnings Per Share .................... $ 2.45 $ 1.93 $ 1.65
Diluted Earnings Per Share .................. 2.38 1.54 1.21
Dividends Declared .......................... 0.19 0.19 0.19
Stockholders' Equity ........................ 14.18 11.94 10.18
- --------------------------------------------------------------------------------------
</TABLE>
(a) Throughout this report the years ended January 31, 1999, 1998 and 1997 are
referred to as 1998, 1997 and 1996, respectively. The per share data reflect
a 5 for 4 stock split effected in the form of a stock dividend in 1998, a 3
for 2 stock split effected in the form of a stock dividend in 1997 and a 10%
stock dividend in 1996.
(b) Before corporate and net interest expenses.
1998
SEGMENT
RESULTS
NET SALES OPERATING PROFIT
by Segment by Segment
[Chart] [Chart]
/ / Vehicular Products / / Vehicular Products
53.5% 59.1%
/ / Railroad Products / / Railroad Products
40.5% 36.3%
/ / Petroleum Analyzers / / Petroleum Analyzers
6.0% 4.6%
[Photo] Inside the Front Cover - On the bottom of the foldout page are two
pie graphs, one on the left hand side depicting the 1998 net sales by
segment of the Registrant and the one on the right hand side
depicting the 1998 operating profit by segment of the Registrant.
Engineered Products that Help Keep the World Moving
<PAGE>
RAILROAD PRODUCTS
[Photo] Inside the Front Cover -- At the top of the page under the
"Railroad Products" heading is a picture of two hydraulic
cushioning devices, a rail anchor attached to a section of rail, a
tapered roller bearing and an hvac unit.
PRIMARY
MARKETS
Locomotive and railcar
manufacturers, railroads and
railcar maintenance facilities,
lessors, and track maintenance
contractors. Global markets.
PRIMARY
PRODUCTS
RAILCARS
- Tapered roller bearings
- Hydraulic cushioning
- Draft gears
- Buffers
- Draw gears
- Discharge gates
LOCOMOTIVES
- HVAC systems
- Draft gears
- Dynamic braking components
- Tapered roller bearings
- Valves
- Remanufactured crankshafts
and camshafts
RAILROAD TRACK FASTENER
SYSTEMS
MANUFACTURING
AND
RECONDITIONING
LOCATIONS
Little Rock, AR
Chicago, IL
Lafayette, IN
Montmorenci, IN
Atchison, KS
McPherson, KS
Louisville, KY
Sparks, NV
Camp Hill, PA
Petersburg, VA (2)
Oak Creek, WI
Prostejov, Czech Republic
Ploermel, France
Halberstadt,Germany
Neitersen, Germany
VEHICULAR
[Photo] Inside the Front Cover -- At the top of the page under the
"Vehicular Products" heading is an aluminum truck engine component,
a truck hub, a truck dashboard, a one-way clutch, a transmission
component and a steering wheel component.
Heavy-duty trucks and over-the-
road trailer manufacturers -
domestic and international.
ALUMINUM PERMANENT
MOLD AND DIE CASTINGS
- Axle hubs
- Suspension components
- Transmission housings
- Spring brake flanges and
pistons
STRUCTURAL MOLDED PLASTIC
COMPONENTS
- Instrument panels
- Sleeper cab accessories
- Door sill assemblies
MANUFACTURING
AND
RECONDITIONING
LOCATIONS
Bryson City, NC
Cashiers, NC
Monroe, NC
Clackamas, OR
Portland, OR
<PAGE>
ENGINEERED
PRODUCTS
THAT HELP
KEEP THE
WORLD
MOVING
PRODUCTS
[Photo]
PRIMARY MARKETS
Original equipment automotive
manufacturers and tier one
suppliers. Aftermarket transmission
rebuilders. Parts are used on
cars and light trucks. Domestic
and international markets.
PRIMARY
PRODUCTS
Automatic transmission
reaction plates
Means-TM- one-way clutches
Steering column components
Transmission components
Precision stamped metal
components and weldments
MANUFACTURING
AND
RECONDITIONING
LOCATIONS
Melvindale, MI
Saginaw, MI
Vassar, MI
PETROLEUM ANALYZERS
[Photo] Inside the Front Cover -- At the top of the page under the "Petroleum
Analyzers" heading are two petroleum analyzers.
PRIMARY
MARKETS
Instrumentation to improve yield,
certify products and monitor
regulatory standards. Used by oil
refineries, petrochemical plants,
petroleum transporters, and large
users of distillate products. Global
markets.
PRIMARY
PRODUCTS
Automated laboratory quality
control instruments
On-line process analyzers
Manual and semi-automatic
physical property analyzers
Portable optoelectronic analyzers
Certification samples
Petroleum testing services
MANUFACTURING
AND
RECONDITIONING
LOCATIONS
Bellwood, IL
Marlborough, MA
San Antonio, TX
Lauda, Germany
[PHOTO] Inside the Front cover -- On the right hand side of the page is a
picture of an asphalt road.
<PAGE>
TO OUR FELLOW STOCKHOLDERS AND ASSOCIATES
IN 1998 YOUR COMPANY
HAD ANOTHER EXCELLENT YEAR -
A RECORD YEAR:
- Net earnings increased to $41.2 million, up 60.8%.
- Diluted earnings per share increased 54.5% to a record $2.38.
- Sales increased to a record $646.7 million, up 23.8%.
- International (non-U.S.) sales rose to $137.3 million -- now 21.2%
of total revenues.
- Earnings before interest, taxes, depreciation and amortization (EBITDA) rose
to a record $104.0 million.
- Returns on equity and invested capital reached 18.7% and 14.2%, respectively
-- it was the highest level in company history for ROIC.
- In November, we distributed a 5-for-4 stock split -- the fifth stock
dividend in the last six years.
THE PAST THAT SHAPED FUTURE GROWTH
In the early 1990's, we set out to transform Varlen to become a leader in niche
transportation markets. And transform it we did! We shed businesses that did not
fit the strategy and reinvested the resources in businesses that complemented
our existing engineering, manufacturing and marketing expertise. So far in this
decade, 22 transactions have been executed -- 10 dispositions and 12
acquisitions -- ranging from small product line add-ons, to the leading domestic
railroad bearing business. We built a stable of strong brand names and
proprietary products serving global transportation markets.
While sharpening our strategic focus, we were enhancing our manufacturing
and product technologies. We reconfigured factories and adopted cellular
production and other lean manufacturing practices. We redesigned processes to
improve first pass-yield and passionately pursued process capability.
Investments in state-of-the-art production equipment also helped boost
productivity.
On the technology front, we substantially increased our engineering
resources -- human as well as software and test equipment. This allowed us to
bolster the range of innovative, value-added products and services that
increased our content per vehicle.
Most significantly, we learned to do a better job of satisfying customers,
and they are giving us high marks. This is having a positive effect on our
"bottom line" report cards -- new orders and long-term supply agreements.
Equally important, we are working with customers on many joint projects that
should enhance our growth.
Despite the challenges of this transformation, 1998 capped the best
five-year period in Varlen's history (as shown on the next page). We
outperformed our strong transportation markets and aggressively funded growth
initiatives in those markets. Today, these "growth engines" are a significant
source of our competitive advantage, and they have positioned Varlen to continue
to grow faster than its end-markets.
[PHOTO] Page #1 -- On the top, right hand side of the page is a picture
of the Registrant's President and Chief Executive Officer and also
the Chairman of the Board.
Raymond A. Jean, President
and Chief Executive Officer (left)
and Richard L. Wellek,
Chairman of the Board
DICK WELLEK'S VARLEN TENURE WAS 27 YEARS. FIFTEEN OF THESE YEARS WERE SPENT AS
CHIEF EXECUTIVE OFFICER. TO SAY "VARLEN IS WHAT IT IS TODAY BECAUSE OF DICK
WELLEK" IS AN UNDERSTATEMENT. HE HAD THE FORESIGHT AND COURAGE TO BEGIN THE
TRANSFORMATION THAT CONTINUES TO THIS DAY.
VARLEN'S DIRECTORS, MANAGEMENT AND EMPLOYEES ARE GRATEFUL TO DICK FOR ALL
HE CONTRIBUTED TO THE COMPANY.
WE WISH HIM MANY YEARS OF HAPPINESS, KNOWING THAT IT IS NOT IN HIS NATURE TO
RETIRE FROM AN ACTIVE LIFESTYLE. WE ALSO LOOK FORWARD TO HIS CONTINUED COUNSEL
AS CHAIRMAN.
Varlen Corporation 1
<PAGE>
TO OUR FELLOW STOCKHOLDERS AND ASSOCIATES (CONTINUED)
<TABLE>
<CAPTION>
STRONG FIVE-YEAR PERFORMANCE
(In thousands, except per
share data and percentages) 1998 1993 5-YEAR CAGR*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $646,672 $291,908 17.2%
Operating Profit 88,248 29,834 24.2%
Net Earnings 41,242 10,766 30.8%
Diluted Earnings per Share 2.38 .84 23.2%
EBITDA 103,964 37,734 22.5%
Shareholder Return 219 100 16.9%
</TABLE>
*Compound Annual Growth Rate.
GROWTH ENGINES SPUR INTERNAL EXPANSION
We finished 1998 with even greater conviction about our opportunities and the
potential of our growth engines in the railroad products, vehicular products and
petroleum analyzer segments:
- For Varlen's railroad business, your company is uniquely positioned in
international markets. This is particularly true in Europe, where we
expect the rail freight renaissance will be a source of real growth.
The trends behind European growth include privatization, a lowering of
the borders, greater environmental awareness, and adoption of AAR
(Association of American Railroads) technology. As the railroads are
privatized, this creates an entrepreneurial spirit in the freight
business -- and a determination to get a larger share of the intercity
freight. With four manufacturing plants and excellent brands acquired in
1997, your company staked out a strong position. We also are aggressively
pursuing abundant aftermarket opportunities.
- Varlen's heavy-duty truck OEM (original equipment manufacturer) customers
are driven by two key trends -- the need to reduce the weight of their
vehicles and improving driver comfort to help increase retention. Our
"lightweight solutions" -- aluminum and plastic components -- respond to
these trends and enabled us to double our content per Class 8 truck over the
last five years. In the most recent past, our growth has handily
outperformed the industry. In 1997, the truck industry was up 12%; we were
up 30%. Last year while the industry gained 18%, we grew by 33%. We develop
value-added products with high engineering content, and also work diligently
with our large OEM customers in their product development process to
incorporate "lightweight solutions." New programs in development, with
existing and new customers, should increase our content about 10% in 1999.
- The transformation in the way we serve the automotive market
has paralleled Varlen's overall progress. We have moved
from being a "stamper" without proprietary products to a value-added
manufacturer with many patents and a significant proprietary product: the
Means-TM- one-way clutch. This innovative, patented product, used in
automatic transmissions, has tremendous potential because of its superior
performance characteristics: increased durability, reliability, improved
shift feel quality and, in most applications, reduced cost. Customer
interest is keen. During the fourth quarter, the production tooling for a
third program was released. We now have active development programs with
domestic, European and Japanese nameplates under various stages of
development and testing. Should a number of these prove successful, the
sales potential is well in excess of $100 million annually by 2003.
- Varlen's petroleum analyzer business continues to benefit from a
spectroscopic technology acquired in late 1997. This technology is enabling
us to more rapidly develop portable, laboratory, and on-line instruments,
and extends our reach into the custody transfer market.
There is tremendous excitement within Varlen for these growth initiatives,
and they are the source for considerable optimism. We have, after all,
identified unique positions and offer something distinctive.
2 Varlen Corporation
<PAGE>
ACQUISITIONS OFFER OPPORTUNITIES
With our strong balance sheet, we continue to seek out companies that enhance
our market strategies and contribute to earnings. We focus on companies that
extend our product offerings, process technology, or market penetration so that
they can be more easily integrated with existing businesses.
An excellent example of this is our January 1999 acquisition of Dynamic
Corporation, a leading manufacturer of "dynamic braking" components for
locomotives. Dynamic complements our existing Varlen business engaged in heat
transfer that designs and produces heating, ventilating, and air conditioning
systems. We believe that sharing engineering capabilities will add value to both
businesses.
OUTLOOK FOR ANOTHER STRONG YEAR
We finished 1998 with a full head of steam, and the momentum continues into
1999. North American railcar, locomotive, and heavy-duty truck backlogs remain
robust, demand for our rail components in Europe is strong, and automotive
production rates continue at high levels. We should have a record first quarter,
and barring any economic shocks, we feel very positive about the full year as
well.
As hard as we drive for growth, we continue to focus on reducing
manufacturing costs. This included closing two small manufacturing facilities
near the end of 1998. Cost reduction used to be seen as shrinkage -- an annual
ritual you use to meet plan. Now we see it as a way to grow -- by keeping Varlen
price competitive in our served markets. We continue to "raise the bar" in the
pursuit of quality and productivity gains.
VARLEN'S PEOPLE MAKE IT SUCCESSFUL
In 1998, perhaps more than ever before, we counted on talented, passionate
people to drive us forward. And drive you did! Day in and day out, with
unflagging determination, you turned late raw material deliveries into timely
shipments, and unusual problems into innovative solutions. Thank you.
To the new employees who joined us with Dynamic: Welcome to the Varlen
family! We know you'll enjoy being part of a strong and growing company.
[PHOTO] Page #3--On the top, right hand side of the page is a picture of
the Registrant's Vice President, General Counsel and Secretary,
Vice President, Business Development and Vice President, Finance
and Chief Financial Officer.
Vicki L. Casmere, Vice President, General Counsel and Secretary (left)
William J. Rotenberry, Vice President, Business Development and Richard A.
Nunemaker, Vice President, Finance and Chief Financial Officer.
We began the new fiscal year on February 1, 1999 with a change in command.
Ray Jean, Varlen's chief operating officer since 1993, succeeded Dick Wellek,
who retired after 15 years as chief executive officer. This succession had been
carefully planned for over a year to provide a smooth transition and to ensure
that Varlen's upward momentum would not be interrupted. We are fully committed
to continue to enhance shareholder value by building on Varlen's strengths.
Varlen's best years are still ahead of it.
We deeply appreciate the support of our directors, stockholders,
customers, and suppliers. Their commitment has enabled us to reach this point
and is critical to our reaching new goals.
/s/ Richard L. Wellek
- --------------------
Richard L. Wellek
Chairman
/s/ Raymond A. Jean
- --------------------
Raymond A. Jean
President and Chief Executive Officer
March 8, 1999
Varlen Corporation 3
<PAGE>
REVIEW OF OPERATIONS
A YEAR OF GROWTH
MISSION
Varlen's primary objective is to increase the long-term value of its
stockholders' investment. This will be achieved by building upon our employees'
creativity and their commitment to serving customers better and more efficiently
than our competitors do in the markets where Varlen chooses to compete.
Varlen will invest resources in selected transportation markets where it has,
or can obtain, a leadership position; we will redeploy resources from markets
where we cannot. We will continue to enhance our global presence. Varlen's
engineered products for the niche markets in which it participates are
characterized by differentiable process technology employed in their
manufacture and/or superior performance attributes. Our dedication to
continuous improvement will be unrelenting.
Boosted by strong operating performance and robust markets, Varlen enjoyed
another record year. Both transportation related segments -- Railroad Products
and Vehicular Products -- delivered better sales and operating profits. This was
the result of new product introductions, closer contact with a larger customer
base, and investments in process improvements to enhance production capability
and lower costs.
During the year, we accelerated investments in our operations to ensure we
continue to deliver new products with the highest quality at the lowest cost.
About $39 million was invested in 1998 -- more than double the amount spent in
the prior year. In addition to internal product development, we acquired Dynamic
Corporation in January 1999. Dynamic's expertise in designing and manufacturing
heat transfer products will help increase our content per locomotive.
OUR STRATEGIES TO INCREASE GROWTH
We have three major growth engines that will drive our organic growth:
international railroad opportunities, lightweight solutions for heavy-duty
trucks and trailers, and the Means-TM- one-way clutch for automatic
transmissions.
Varlen has the strength and capabilities to capitalize on these growth
engines: its market leadership, strong brand recognition, engineering and
systems capabilities, competitive cost structure, and strong relations with our
customer partners. We also intend to continue to make acquisitions that add to
our product line or improve our base of technology.
Here are the specific strategies we will use to capitalize on each of our
growth engines.
[Graphic] Page #4 -- At the bottom of the page is a graph of Net Sales,
Net Earnings and Diluted E.P.S. each for each year of the five
years ending January 31, 1999.
4 Varlen Corporation
<PAGE>
[PHOTO] Page #5 -- On the far right side of the page is a picture of two
person's examining a wheel hub.
Varlen companies team with customers to promote idea sharing and quick
response to their needs.
INCREASED GROWTH THROUGH
PARTNERING WITH CUSTOMERS
EUROPEAN RAILROAD MARKET Several North American railcar builders now have
a presence in Europe. They are finding Varlen an experienced partner, with a
manufacturing and support network in this market for nearly five years. This
means we can supply shock control equipment with the same focus on speed,
quality and low cost those customers appreciate from our U.S. operations.
Our ties with European rail customers continue to strengthen.
Privatization of European rail operations is becoming a reality. As an example,
the German federal railroad divided into five distinct operating companies on
January 1, 1999, as a significant step toward privatization. This European rail
renaissance is creating many opportunities for Varlen to supply a greater range
of products and services.
NORTH AMERICAN RAILROAD MARKET Freight traffic in North America continued
to increase in 1998, creating demand for new freight cars and aftermarket
applications. While the average freight car is more than 20 years old, the need
to replace aging stock is only a part of the call for new railcars. For our
railroad customers, productivity enhancements are the more important driver --
because new railcars are more efficient to load and unload, or have higher
freight capacity than older units.
Varlen continues to work closely with its original equipment manufacturer
(OEM) customers to ensure we stay on top of their product development
priorities. This includes designing products that enhance productivity, such as
heavier axle load bearings and drawbar devices that raise the railcar payload
capacity, cushioning devices that minimize freight damage, and car location and
health monitoring products.
VEHICULAR PRODUCTS Varlen provides proprietary products and aluminum
casting and plastic component design support for Class 8 truck and trailer
builders. We work with them to develop more value-added products as a way to
strengthen our partnership. Recently, by working
[Graphic] Page #5 -- At the bottom of the page is a graph of Earnings
Before Interest, Taxes, Depreciation and Amortization and another
one of Book Value Per Share, each for each year of the five years
ending January 31, 1999.
Varlen Corporation 5
<PAGE>
REVIEW OF OPERATIONS
INCREASED GROWTH THROUGH
NEW PRODUCTS
more closely with a trailer suspension manufacturer, we participated in
developing a complete lightweight axle and suspension system for their trailers.
Several truck OEMs have established manufacturing capabilities in Mexico.
To ensure low cost and timely delivery of components, Varlen has launched a
project to build a Mexican casting and hub assembly plant to support our
customers' operations. We also recently opened a distribution facility in
Ontario to better serve two of our customers' operations in Canada.
While close customer relationships result in incremental sales gains,
occasionally the benefits are more dramatic. For example, we have had a
long-standing relationship with a truck manufacturer who recently acquired
another truck brand. As a result, Varlen has been actively engaged in
substituting aluminum components for heavier steel components in the "new" truck
line -one that had not carried our products in the past.
Demand for automobiles and light trucks overall grew slightly in 1998. The
rising popularity of light trucks and sport utility vehicles (SUVs) is good for
Varlen, as these vehicles have our highest dollar content. We work with
automotive manufacturers to develop new transmission and steering components to
improve vehicle performance.
We continue to work very closely with the major automobile manufacturers
in designing our patented Means-TM- one-way clutch into automatic transmissions
for
[PHOTO]
Partnering with customers
has enabled Varlen to
increase its content per
truck to record levels.
[Graphic] Page #6 -- At the bottom of the page is a diagram of a
truck cab which describes, and also highlights, the location of the
Registrant's components. To the left of the diagram in the middle
of the page is a picture of an asphalt road.
1. Grab Handle Brackets
2. Spring Brake Flanges
3. Rear Suspension Casting
4. Drive Axle Hub
5. Sleeper Cabinetry
6. Door Panels
7. Fuel Tank Brackets
8. Fuel Water Separators
9. Steer Axle Hubs
10. Cab Supports
11. Front Suspension Castings
12. Name Plates
Hood Ornaments
13. Pedal Assemblies
Transmission Housings
14. Door Sill Assemblies
15. Instrument Panels
16. Visor Mounting Brackets
6 Varlen Corporation
<PAGE>
[PHOTO] Page #7 -- At the top of the page is a picture of a person using a
petroleum analysis product.
Varlen's focus on innovation and rapid product
development spurs internal growth.
existing and new vehicle platforms in development. Our customers are
seeking increased performance at a lower cost, and our one-way clutch technology
has strengthened our relations with these customers.
NEW PRODUCTS
Aligning our product development efforts with customer needs and market trends
contributed to Varlen's ability to outperform its markets.
RAILROAD PRODUCTS New railcar products, such as our GEN2000 wheel
bearing and QUIK-DRAW-Registered Trademark- drawbar device, were developed to
satisfy customer needs for heavier railcar loading and greater train
efficiency. For locomotives, we developed new heating, ventilating and air
conditioning products that meet more stringent customer demands. Our recently
acquired dynamic braking offering compliments the traditional friction brake
shoe for locomotives, making a more cost-effective total braking system.
These products were developed with a common purpose -- to help railroads
increase their operational effectiveness.
Many of our products are used in demanding applications. These items often
are replaced or refurbished several times during the life of an average railcar
or locomotive. We continue to develop new aftermarket refurbishment products and
services for this less cyclical portion of the market, which represents about
45% of our railroad segment sales.
[Graphic] Page #7 -- At the bottom of the page is a diagram of a light truck
which describes, and also highlights, the location of the
Registrant's components.
Varlen has benefited from the increasing popularity of sport utility vehicles
and light trucks, which contain the company's highest content per automotive
vehicle.
1. One-way Clutch
2. Clutch Plates
3. Separator Plates
4. Dust Shields
5. Seat Brackets
6. Jounce Bumpers
7. Shift Gates
8. Lockshoe Blanks
9. Shift Levers
10. Steering Column Support
Brackets
11. Detent Levers
12. Water Pump Impellers
13. Water Pump Backing Plates
14. Water Outlet Connections
15. ABSRings/Brackets
16. Shift Fork Assemblies
17. Exciter Rings
Varlen Corporation 7
<PAGE>
REVIEW OF OPERATIONS
INCREASED GROWTH THROUGH ACQUISITIONS
Varlen also continued to invest in its StarTrak L.L.C. railcar health
monitoring system. The purpose of StarTrak is to monitor railcar operating
health in near real-time. This system can communicate an individual railcar's
status, via satellite, to maintenance supervisors on the Internet. The ability
to monitor the status and to track the location of railcars provides railroads
with improved scheduling efficiency and equipment monitoring. This should result
in a potentially significant boost in productivity.
VEHICULAR PRODUCTS Over the past five years, Varlen experienced more than
21% compound annual sales growth to the heavy-duty truck market -- all through
internal product development. Our engineers work closely with truck
manufacturers in North America, and increasingly in Europe. They design
lightweight aluminum structural castings to help reduce truck weights, which
allow trucks to carry more revenue-generating payload weight.
Our engineers also work with customers to design plastic interior
components to enhance driver comfort. In addition, we developed PreSet-TM-
trailer hubs, which are less complicated to assemble and reduce the incidence of
defects in the final truck assembly process. Increasingly, many of our
lightweight aluminum truck products are considered standard, rather than offered
to truck buyers as optional products.
[GRAPHIC] Page #8 -- At the bottom of the page is a diagram of a locomotive
which describes, and also highlights, the location of the Registrant's
components. To the left of the diagram in the middle of the page is a
picture of railroad tracks.
Varlen's growth strategy combines internal growth with that from strategic
acquisitions. The Company's most recent of its twelve acquisitions this decade
provides dynamic braking components for locomotives.
1. Recirculating Toilets 12. Under Floor HVAC System
2. Electric Cab Heaters 13. Sidewall Heaters
3. Mirrors and Windshield Wings 14. Cab Awnings
4. Warning Beacons 15. Bell Ringers and Cartridges
5. Cab Air Conditioners 16. Thermionic Drain Valves
6. Refrigerators and Ice Chests 17. Coalescing Filter Elements
7. Timers 18. Check Valves
8. Dynamic Braking Grid 19. Cooling Water Drain Valves
9. Sanding Equipment and Control Panel
10. Sun Visors 20. Filter Housing
11. Cab Ventilators 21. Roller Bearings
22. Draft Gear and Yoke
Varlen Corporation 8
<PAGE>
[PHOTO] Page #9--At the top of the page is a picture of a person testing a
component of the Registrant's dynamic breaking component.
Varlen utilizes acquisitions to enhance its position
in niche markets and to further stimulate growth.
The Means-TM- one-way clutch is a significant factor in our automotive
business growth. It is a patented automatic transmission clutch component with
superior performance characteristics: greater durability than existing clutches,
a smoother gear shift, and is more cost effective than most other clutches. We
are working with automotive manufacturers to develop this clutch for current
vehicle platforms, as well as models to be introduced up to and after 2003. By
developing the one-way clutch and other proprietary automotive products, such as
steering column components and torque converter applications that use the
one-way clutch technology, Varlen continues to increase its content of
engineered, value-added, products.
ACQUISITIONS
During this decade, Varlen sold 10 operations to help focus on its core
businesses, and made 12 acquisitions to expand and grow. This resulted in a more
focused company and helped accelerate our growth rate. Over the last five years,
Varlen sales had a 17% compound annual growth rate, with acquisitions accounting
for about 8%.
The low amount of leverage on our balance sheet, combined with our history
of delivering excellent cash flow ($104 million of earnings before interest,
taxes, depreciation, and amortization -- EBITDA -- in 1998), give us a solid
financial position to fund continued growth through acquisitions.
[graphic] Page #9 -- At the bottom of the page is a diagram of a rail car
which describes, and also highlights, the location of the
Registrant's components.
Varlen's sales to the railroad industry increased to its highest level in 1998.
The majority of the dollar increase in sales comes from components for rail
cars.
1. Draft Gear
2. Tapered Roller Bearings
3. Gravity Discharge Gate
Varlen Corporation 9
<PAGE>
REVIEW OF OPERATIONS
INCREASED GROWTH THROUGH GLOBALIZATION
RAILROAD PRODUCTS Railroad growth in Europe will be driven by privatization,
reduced border controls, longer hauls, and the environmental concerns raised by
increased truck traffic. In the U.S., about 39% of all freight is shipped by
rail. In contrast, only about 14% of all freight in Europe is shipped by rail.
About 32% of Varlen's total rail sales are international, predominately in
Europe. We believe the company holds the number one share position in the
European freight car shock control market. As European railroad operators focus
more on growth and profitability, we believe the substantial freight share gains
they realize will spur demand for more efficient equipment.
Although production ramp-up of critical buffer components at our Czech
Republic plant took longer than expected, European sales grew by 42%in 1998 over
the prior year. We also gained certification in 1998 of our Camp Hill test
facility -- now the only facility in North America approved to certify European
railroad equipment. European rail infrastructure and equipment spending rose in
1998 and continues to gain momentum. We are well positioned to take advantage of
this market strength.
VEHICULAR PRODUCTS Varlen has begun the process of developing a new
casting and hub assembly plant in Mexico to support customer assembly plants
located there. Our engineers continue to work closely with the truck
manufacturers -- in North America and increasingly in Europe and Japan -- to
design lightweight aluminum structural castings and plastic interior components.
Today, we are producing suspension castings for a European truck manufacturer,
have shipped aluminum hubs to a Japanese manufacturer for pre-launch testing,
and have several other programs in development.
PETROLEUM ANALYZERS Petroleum analyzer sales were up slightly in 1998,
with more than 70% of revenues from international markets. This sales gain was
noteworthy in light of the severely depressed oil industry, as well as the
number of oil company consolidations that put a hold on capital equipment
spending. However, sales of gasoline and aviation fuel continue to grow in most
parts of the world, so that refineries -our major customer group -- continue to
operate at high levels. With recently introduced in-line, spectroscopic
instruments, and a more concerted effort to capture downstream applications on a
worldwide basis, we are cautiously optimistic about 1999.
[photo] Page #10 -- On the left-hand side of the page is a picture of two men
standing next to some rail cars.
Varlen's increasing worldwide presence moderates cyclicality while enhancing
its capabilities to service an increasingly international customer
[photo] Page #10 -- On the bottom of the page is a globe depicting the location
of the Registrant's manufacturing and reconditioning locations.
10 Varlen Corporation
<PAGE>
OPERATING OBJECTIVES
Staying close to our customers, developing partnering opportunities, and
responding with new product solutions are key to Varlen's growth. Becoming a
truly global supplier is important as our customers increasingly expand their
international operations and seek partners who can support them. Varlen
continues to make the investments needed to remain responsive to our customers'
changing and growing needs. We measure the achievement of our growth strategies
through increased Varlen content per vehicle and the extent to which we
outperform the underlying markets we serve.
INCREASE CONTENT PER VEHICLE We increase our content per railcar and
locomotive through new product introductions, acquisitions to supplement
current offerings, and a focus on satisfying the needs of end-users:
railroads, private railcar owners and leasing companies. Our strategy for
adding heavy-duty truck content continues to be replacing heavy steel
components with our lightweight aluminum and plastic components and
assemblies. Varlen's automotive market strategy is to provide technologically
advanced components to improve vehicle performance at a lower cost.
OUTPERFORM OUR MARKETS Estimated North American freight rail supply aggregate
sales grew 9% in 1998, while Varlen's Railroad Products sales increased 26%.
Heavy-duty truck production was up 18% during the year; Varlen outperformed and
realized a 33% increase in sales. North American light vehicle production was
essentially flat in 1998, while Varlen's sales in this area grew 9%.
By focusing on core businesses where we have a history of success, we
can use our competitive advantages and growth engines to continue
outperforming our markets. We have great confidence in this approach, and our
outlook for the future has never been brighter.
[photo] Page #11 -- On the right hand side of the page is a picture of a man
examining a raw material under a microscope.
Technology and process capability are at the core of Varlen's productivity
initiatives.
Varlen Corporation 11
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data and percentages) 1998 1997* 1996* 1995* 1994*
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Earnings Data:
- ---------------------------------------------------------------------------------------------------------------------------
Net sales ................................................. $646,672 $522,254 $409,475 $386,987 $341,521
-----------------------------------------------------------
Earnings before income taxes .............................. 71,477 45,481 31,831 34,706 25,854
Income tax expense ........................................ 30,235 19,830 13,974 15,097 11,092
-----------------------------------------------------------
Net earnings .............................................. $ 41,242 $ 25,651 $ 17,857 $ 19,609 $ 14,762
===========================================================
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit as a percent of sales ........................ 26.1% 24.8% 24.5% 25.0% 23.7%
Net earnings as a percent of sales ........................ 6.4% 4.9% 4.4% 5.1% 4.3%
- ---------------------------------------------------------------------------------------------------------------------------
Effective tax rate ........................................ 42.3% 43.6% 43.9% 43.5% 42.9%
- ---------------------------------------------------------------------------------------------------------------------------
Per share data:
Basic ................................................. $ 2.45 $ 1.93 $ 1.65 $ 1.77 $ 1.34
Diluted ............................................... 2.38 1.54 1.21 1.30 1.02
Cash dividends declared ................................... 0.19 0.19 0.19 0.18 0.18
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares--basic ................... 16,858 13,316 10,846 11,080 11,014
Weighted average number of shares--diluted ................. 17,300 17,194 17,021 17,243 17,099
- ---------------------------------------------------------------------------------------------------------------------------
SUMMARY OF FINANCIAL CONDITIONS
(In thousands, except per share data and percentages) 1998 1997* 1996* 1995* 1994*
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- ---------------------------------------------------------------------------------------------------------------------------
Total assets .............................................. $475,524 $419,101 $393,878 $230,874 $220,186
Working capital ........................................... 74,794 74,024 69,461 67,044 57,713
Ratios:
Current assets to current liabilities ................. 1.7/1 2.0/1 2.1/1 2.5/1 2.1/1
Average inventory turnover ............................ 7.8 6.9 6.8 7.2 6.7
Average accounts receivable turnover .................. 8.2 7.9 7.9 8.4 8.2
- ---------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment ......................... $144,706 $124,180 $124,580 $ 69,675 $ 59,636
Capital expenditures ...................................... 38,650 18,776 18,193 23,427 14,701
Depreciation .............................................. 20,389 19,136 15,373 11,819 11,885
- ---------------------------------------------------------------------------------------------------------------------------
Debt:
Senior debt ............................................. $ 94,903 $104,910 $117,626 $ 4,485 $ 3,855
Senior debt as a percent of total capitalization ........ 28.3% 34.5% 39.7% 2.6% 2.5%
Total debt .............................................. $ 94,903 $104,910 $186,626 $ 73,485 $ 72,855
Total debt as a percent of total capitalization ......... 28.3% 34.5% 62.9% 42.9% 48.0%
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity ...................................... $ 240,920 $198,792 $109,986 $ 97,953 $ 79,031
Stockholders' equity per share ............................ 14.18 11.94 10.18 8.86 7.16
Return on average stockholders' equity .................... 18.7% 17.2% 17.1% 21.4% 20.5%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The per share data and weighted average number of shares outstanding reflect a
5 for 4 stock split effected in the form of a stock dividend in 1998, a 3 for 2
stock split effected in the form of a stock dividend in 1997 and 10% stock
dividends in both 1996 and 1995.
12 Varlen Corporation
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1999 (1998) AS COMPARED TO THE YEAR ENDED
JANUARY 31, 1998 (1997)
OVERVIEW
The Company designs, manufactures and markets products used in the manufacture
of transportation equipment (railroad products and vehicular products segments)
and petroleum analyzers (petroleum analyzers segment). Previously the Company
reported its railroad products and vehicular products segments as a single
segment named transportation products. The demand for the Company's products is
affected by domestic as well as international economic conditions. The Company's
manufacturing operations have a significant fixed cost component. Accordingly,
during periods of changing product demand, the profitability of many of the
Company's operations may change proportionately more than revenues of such
operations.
OPERATIONS
The Company's sales for fiscal 1998 were $646.7 million, up $124.4 million or
23.8% from sales of $522.3 million in 1997. Sales increased in all business
segments as a result of increased demand, broader product offerings, and for the
railroad products segment, also as a result of acquisitions. The railroad
products and vehicular products segments had significant sales increases while
the petroleum analyzer segment experienced only a moderate increase in sales.
Net earnings for the year were $41.2 million, up 60.8% from $25.7 million in
1997. Diluted earnings per share were $2.38 in 1998, up 54.5% from the $1.54 per
share in the prior year. Operating profit increased in the railroad products and
vehicular products segments following the trend in revenues but was lower in the
petroleum analyzer segment.
RAILROAD PRODUCTS
Railroad products revenues increased 25.5% to $261.7 million in 1998, as
compared to $208.5 million in 1997. The revenue increase resulted primarily from
strong industry demand for railcars and locomotives and to a much lesser degree
from European acquisitions completed in late 1997. Additionally, new products
contributed to the revenue increase. Operating profit was $32.0 million (12.2%
of segment sales) compared to $20.5 million (9.9% of segment sales) during 1997.
Operating profit increased proportionally more than sales primarily due to the
results of cost reduction efforts and greater facility throughput. Selling
prices were down in certain products but flat in others. During the fourth
quarter of 1998, pretax charges of $2.3 million were incurred for closing a
domestic facility and performing certain environmental remediation activities.
This was partially offset by a pretax gain of $1.1 million from a defined
benefit pension plan curtailment and settlement. The operating margin for this
segment would have been 12.7% excluding the net charge. The effects of foreign
currency translation were not significant in this or any other business segment.
VEHICULAR PRODUCTS
Vehicular products revenues increased 25.3% to $345.8 million in 1998 compared
to $275.9 million in 1997. Increased revenues resulted from new products,
particularly the Means-TM- one-way clutch, new customers, and strong industry
demand for over-the-road trucks and trailers. Industry demand for light vehicles
was flat in 1998 as a result of a several-week strike by General Motors in the
summer of 1998. Demand for the Company's products for use on both light vehicles
and heavy-duty vehicles exceeded industry demand. Operating profit in 1998 was
$52.2 million (15.1% of segment sales) compared to $37.9 million (13.8% of
segment sales) in 1997. Operating profit increased more than revenues as a
result of new products, greater facility throughput, and the effects of cost
reduction efforts. Selling prices were substantially unchanged but were lower on
selected products.
PETROLEUM ANALYZERS
Sales in the petroleum analyzers segment for 1998 increased to $39.2 million
compared to $37.9 million in 1997. The increase in revenues in this segment
occurred as a result of new products offset partially by geographic sales
weaknesses in Asia and South America. Operating profit of $4.0 million (10.3% of
segment sales) in 1998 declined from the previous year's $4.7 million (12.5% of
segment sales). This resulted from the Company continuing to invest in research,
development, and distribution expenses despite lower than anticipated sales
volumes.
COST OF SALES
Consolidated gross margin was 26.1% in 1998 compared to 24.8% in 1997. Gross
margin increased in all business segments. In the railroad products and
vehicular products segments, the increase resulted from improved facility
throughput and cost reductions including lower steel costs at most operating
locations. In the petroleum analyzer segment, the gross margin increased
principally from a shift in product mix as well as improved throughput in one
facility.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses in 1998 were $90.8 million (14.0%
of sales) compared to $74.9 million (14.3% of sales) in 1997. The increase in
1998 expenditures was primarily due to higher expenses to support significantly
increased revenues. As a percent of sales, selling, general and administrative
expenses declined in the vehicular products segment to provide operating profit
leverage from higher sales. At the railroad products segment, selling, general
and administrative expenses increased as a percent of sales. However, excluding
the net facility and pension adjustments discussed above, selling, general and
administrative expenses declined as a percent of 1998 sales in this segment. In
the petroleum analyzer segment, selling, general, and administrative expenses
Varlen Corporation 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
increased as a result of higher research, development, and selling expenses.
INTEREST EXPENSE AND INCOME TAXES
Gross interest expense for 1998 was $7.3 million compared to $9.5 million for
the prior year's period. This resulted from a combination of lower outstanding
average debt and lower average rates in 1998 compared to 1997. Interest income
increased in 1998 due to higher temporary investments as the Company generated
cash in excess of its needs during most of the year.
Income taxes were provided at an effective rate of 42.3% in 1998 and 43.6% in
1997. The higher than statutory federal rate reflects non-deductible goodwill
amortization, higher taxes on foreign operations, and state income taxes.
FOURTH QUARTER
Sales for the fourth quarter of 1998 were $165.1 million, up from the $137.0
million reported in 1997. Sales were up substantially in the railroad products
and vehicular products segments reflecting similar strengths as discussed for
the full year. In the petroleum analyzers segment, sales decreased reflecting
decreased customer demand late in the year when the segment traditionally
experiences seasonally stronger sales.
Net earnings were $9.6 million or $.56 per diluted share in 1998's fourth
quarter compared to $7.5 million or $.43 per diluted share in the year-ago
period. Operating profit and the related operating margin percentage were up
significantly in the vehicular products segment reflecting improvements similar
to those described for the full year. For the railroad products segment,
operating profit was flat in 1998 compared to 1997 as a result of the net
facility and pension adjustments previously discussed. Excluding these items,
operating profit increased and the related operating margin percentage was flat
year-to-year in this segment. In the petroleum analyzers segment, operating
profit declined reflecting lower sales; however, the operating margin percentage
improved versus 1997. The effective income tax rate in the fourth quarter of
1998 was 41.6% compared to 42.6% in the 1997 quarter.
CAPITAL RESOURCES AND LIQUIDITY
During the three-year period ended January 31, 1999, the Company generated
$242.9 million of cash flow defined as earnings before interest, taxes,
depreciation and amortization ("EBITDA"). As of January 31, 1999, the Company's
working capital was $74.8 million, its total assets were $475.5 million, its
total debt was $94.9 million and stockholders' equity was $240.9 million. EBITDA
was 16.0 times the net interest expense for the year.
Investing activities during the three-year period ended January 31, 1999,
included capital expenditures of $75.6 million. These capital expenditures were
primarily for machinery and equipment to support new products and to improve
productivity and efficiency. At January 31, 1999, the Company had $13.3 million
of commitments to purchase machinery and equipment.
To support its investing activities, the Company has a term loan and
revolving credit agreement which was entered into in 1996 and expires on July
19, 2002. The term loan portion of this facility ($90 million) was used to
finance a large acquisition in 1996. The $80 million revolving credit facility
will be used by the Company as the principal source of acquisition funding. At
January 31, 1999, the Company had no borrowings outstanding under this portion
of the facility. The percentage of debt to total capitalization at January 31,
1999, was 28.3% down from 34.5% at January 31, 1998. Cash and short-term
investments were $11.6 million at the end of fiscal 1998 compared to $6.2
million at the end of fiscal 1997. The Company believes that internally
generated funds will be sufficient to satisfy its anticipated working capital
needs, capital expenditures and scheduled debt repayments.
YEAR 2000
GENERAL: The Year 2000 problem concerns the inability of information systems or
embedded computer chips to properly recognize and process date-sensitive
information beginning January 1, 2000. The Company's top management recognizes
the importance of the Year 2000 issue and has given it a high priority. Since
the Company operates its businesses in a decentralized manner, each business
unit has been required to develop a Year 2000 plan to become fully compliant.
The Company's approach to conduct its Year 2000 project includes the key steps
of planning, assessment, remediation, implementation, testing, and contingency
planning. In addition, the Company has utilized its internal audit resources to
monitor the progress of the Year 2000 project. Overall, the Company believes
that the project is proceeding on schedule and that all appropriate actions have
or will be taken to maintain business continuity.
READINESS: The Company's Year 2000 project has focused on eight risk areas
as noted in the table below:
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------
RISK AREAS TECHNOLOGIES/SYSTEMS
- ------------------------------------------------------------------------------------------
Business Computer Systems Financial, human resource, purchasing, engineering,
manufacturing, sales and marketing systems
- ------------------------------------------------------------------------------------------
Manufacturing, Warehousing, Manufacturing execution systems, shop floor controls
Servicing Equipment (PLC's, CNC/NC, robots, assembly line systems, cell
controllers)
- ------------------------------------------------------------------------------------------
Technical Infrastructure Workstations, mainframes, servers, operating systems,
voice, data, video (local & long distance, WAN's, LAN's)
- ------------------------------------------------------------------------------------------
End-User Computing Personal computers
- ------------------------------------------------------------------------------------------
Customers, Agents, Suppliers, Systems which interface to other customers including the
Service Providers after-market buyers and other OEM's; EDI interfaces
- ------------------------------------------------------------------------------------------
Environmental Operations Fire, security, electrical power control, emission and
waste controls, automatic lighting
- ------------------------------------------------------------------------------------------
Dedicated R&D Test Facilities CAD/CAE/CAM systems, third party analytical systems for
engineering; research and development technologies,
product testing
- ------------------------------------------------------------------------------------------
The Organization's Products Computer hardware and software utilized in the
organization's products
- ------------------------------------------------------------------------------------------
</TABLE>
14 Varlen Corporation
<PAGE>
Within these risk areas, the Company's business units are currently at
varying stages of readiness and are primarily working through the remediation,
implementation and testing stages. Business systems are being updated through a
combination of approaches including modification, version upgrading, and
replacement. Other equipment with embedded chips or processors is being
evaluated with the assistance of the equipment manufacturers. Those systems and
processes considered most critical to maintaining business continuity are being
given priority. The Company believes that its Year 2000 project is currently
about 85% complete with each business unit at 60% or greater. The business units
will be completing their respective projects at various dates with the latest
slated for completion by October 1999.
Another component of the Year 2000 project is the readiness of key third
parties that conduct business with the Company. Efforts have been taken to
reasonably assess their readiness through questionnaires, interviews and other
means. The Company believes that it has completed 85% of this third party
assessment and evaluation process.
COSTS: It is currently estimated that the total cost of the Company's Year
2000 compliance project will approximate $2,000,000 (cumulative over several
years) and will be funded with cash flows from operations. Of this amount, the
Company expects to spend approximately $870,000 from January 31, 1999 through
the end of the project. Both of these cost amounts include certain hardware and
software costs associated with the replacement of systems that will be
capitalized. In total, these costs are not expected to be substantially
different from the normal costs typically incurred for system development,
enhancement and implementation. While some external assistance has been utilized
throughout this project, the work has primarily been performed using internal
resources.
RISK ASSESSMENT/CONTINGENCY PLANNING: At this time, the Company believes its
most reasonably likely worst case scenario would include (i) a key material
vendor or service provider could experience problems with delivery of materials,
components, or services; and (ii) the failure of infrastructure services
provided by government agencies and other third parties (e.g. electricity,
phone, transportation, Internet services, etc.). As noted above, the Company is
evaluating the Year 2000 compliance status of its key third party vendors to
identify potential risks for contingency planning purposes. As of this date, the
Company's contingency planning has been limited since the focus has been on the
remediation, implementation, and testing phases. The Company anticipates that
appropriate contingency plans will be prepared throughout 1999 as determined to
be necessary.
The estimates and conclusions of this Year 2000 discussion contain
forward-looking statements and are based on management's best estimates of
future events. Risks to completing the project include the ability to
discover and correct Year 2000 problems, the continued availability of
certain internal and external resources, and the ability of suppliers and
customers to bring their systems into compliance. These and other unforeseen
factors could have a material adverse effect on results of operations or the
Company's financial condition.
MARKET RISK
The Company's primary market risks are associated with changes in foreign
currency exchange rates and interest rates. The Company is also exposed to
changes in the prices of commodities used in its manufacturing operations,
however, commodity price risk is not material. The Company mitigates its foreign
currency exchange rate risk principally through the establishment of local
production facilities in the markets it serves. It also monitors its foreign
currency exposure in each country and implements strategies to respond to
changing economic environments.
Interest rate market risk arises from the Company's $90.0 million of floating
rate term loan debt, of which $20.0 million is currently hedged to provide fixed
rates. Assuming a hypothetical 10% increase in interest rates as of January 31,
1999, the estimated reduction in future net earnings would not be material. The
Company monitors interest rate trends and may utilize derivative instruments
such as interest rate swaps to mitigate this risk. The Company does not utilize
derivatives for speculative purposes.
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which revises standards on accounting for
derivative instruments and hedging transactions. This standard is effective
beginning in the Company's 2000 fiscal year. The impact of the adoption of SFAS
No. 133 has not been fully determined.
At the beginning of fiscal 1998, the Company adopted the Financial Accounting
Standards Board Standard No. 130, "Reporting Comprehensive Income." This
Standard expands current disclosures and had no impact on the Company's reported
financial position, results of operations, or cash flows.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which promulgated standards for identifying
operating segments and aggregating them into reportable business segments. In
response to this pronouncement, the Company has disclosed information for three
business segments: railroad products, vehicular products, and petroleum
analyzers.
YEAR ENDED JANUARY 31, 1998 (1997) AS COMPARED TO THE YEAR ENDED
JANUARY 31, 1997 (1996)
The Company's sales for fiscal 1997 were $522.3 million, up $112.8 million or
27.5% from sales of $409.5 million in 1996. Sales increased in the vehicular
products segment
Varlen Corporation 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
due to increased demand and broader product offerings and increased in the
railroad products segment primarily due to acquisitions. Sales in the petroleum
analyzer segment declined primarily as a result of the disposition of a non-core
business in mid 1996.
Net earnings for the year were $25.7 million up 43.6% from $17.9 million in
1996. Diluted earnings per share were $1.54 in 1997 up 27.3% from the $1.21 per
share in the prior year. Earnings per share increased by a lower percentage than
net earnings as a result of higher non-convertible debt interest in 1997.
Operating profit increased in both the vehicular products and railroad products
segments but was lower in the petroleum analyzer segment following the trend in
revenues.
Vehicular products revenues increased 26.8% to $275.9 million as compared to
$217.6 million in 1996. Sales of heavy-duty truck and trailer products increased
as a result of increased industry demand as well as increased company product
content per truck produced by the industry. The increased content resulted from
sales of added products to existing as well as new customers. Sales of
automotive components increased as a result of higher customer demand for light
truck components as well as introduction in mid year of a new product, the
one-way clutch, used in automotive transmissions. During the second half of
1997, both end markets served by this segment had particularly strong demand for
the Company's products. Operating profit in 1997 was $37.9 million (13.7% of
segment sales) compared to $27.3 million (12.5% of segment sales) during 1996.
Following the trend in sales, operating profit increased in both end markets.
Operating profit on heavy-duty truck and trailer products increased more rapidly
than sales as a result of leverage on the fixed cost component in this area and
cost reductions. Automotive components operating profit increased during the
year but at a slower rate than revenues as development costs for prospective
models of the one-way clutch product were expensed without the benefit of
related revenues.
Railroad products revenues increased 42.4% to $208.5 million as compared to
$146.4 million in 1996. The increase resulted from acquisitions, while revenues
at existing businesses were flat. During 1997, the Company benefited from a
large domestic acquisition made in mid 1996 which contributed an entire year's
revenue in 1997 as well as several smaller international acquisitions. The
railroad industry had particularly strong demand for the Company's products
during the second half of 1997. Operating profit in 1997 was $20.5 million (9.9%
of segment sales) compared with $10.1 million (6.9% of segment sales) in 1996.
Operating profit followed the trend of sales with acquisitions accounting for
the entire earnings increase. The effects of foreign currency exchange rates
were not material.
Sales in the petroleum analyzers segment for 1997 decreased to $37.9
million compared to $45.5 million in 1996. The decrease in revenues in this
segment occurred as a result of the sale of a non-strategic business in July
1996 which accounted for $8.6 million of the decrease. The petroleum analyzer
business had slightly higher revenues for the full year despite weaker sales
in the first half of the year and an 8% negative impact as a result of
foreign currency exchange rates. In the fourth quarter of 1997, sales of
petroleum analyzers exceeded the prior year quarter as a result of higher
customer demand. Operating profit for the petroleum analyzers segment
decreased to $4.7 million (12.5% of segment sales) from $9.8 million (21.5%
of segment sales) in the prior year's period. Operating profit declined in
1997 as a result of the $3.7 million pre-tax gain on the sale of a
non-strategic business in July 1996 and $1.2 million of operating profit from
this business prior to sale. Operating profit of the remaining petroleum
analyzer business was slightly lower in 1997 than the prior year as a result
of $.5 million of negative effects of foreign currency translation
adjustments.
Consolidated gross margin was 24.8% in 1997 compared to 24.5% in 1996. Gross
margin increased in all three business segments. The increase in the vehicular
products segment resulted from improved throughput in the second half of the
year and cost reductions, including selected reductions in raw material costs.
The increase in the railroad products segment resulted from the integration of
prior year acquisitions and cost reductions. Selling prices in these segments
were flat to slightly down. In the petroleum analyzers segment, the gross margin
improvement resulted from the sale of a non-core business in 1996. The gross
margin of remaining products was unchanged.
Selling, general and administrative expenses in 1997 were $74.9 million
(14.3% of sales) compared to $63.6 million (15.5% of sales) in 1996. The
increase in 1997 expenditures was the result of acquisitions as well as higher
expenses to support significantly increased revenues. As a percent of sales,
selling, general and administrative expenses declined in the railroad products
segments to provide operating profit leverage from higher sales but were up
slightly in the vehicular products segment as a result of increased development
costs for the one-way clutch product. At the petroleum analyzers segment,
selling, general and administrative expenses increased as a percent of sales
primarily due to the sale in 1996 of a non-core business.
Gross interest expense for 1997 was $9.5 million compared to $9.4 million for
the prior year's period. Interest on non-convertible senior debt increased in
1997 as higher senior debt was outstanding during 1997 than in 1996 due to a
significant acquisition in mid-1996. Interest on convertible subordinated debt
declined in 1997 due to conversion of this debt to equity during the third
quarter of 1997. Interest rates were unchanged year to year on average. Interest
income declined in 1997 due to lower temporary investments.
Income taxes were provided at an effective rate of 43.6% in 1997 and 43.9% in
1996. The higher than statutory federal rate reflects non-deductible goodwill
amortization, higher taxes on foreign operations, and state income taxes as well
as the effects of a disposition in 1996.
16 Varlen Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Varlen Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ....................................................................... $646,672 $522,254 $409,475
Cost of sales ................................................................ 477,935 392,584 309,027
--------------------------------------
Gross profit .................................................................... 168,737 129,670 100,448
Selling, general and administrative expenses .................................. 90,763 74,887 63,607
--------------------------------------
Earnings from operations......................................................... 77,974 54,783 36,841
Interest expense .............................................................. (7,309) (9,536) (9,402)
Interest income ............................................................... 812 234 662
Gain on sale of business ...................................................... -- -- 3,730
--------------------------------------
Earnings before income taxes .................................................... 71,477 45,481 31,831
Income tax expense ............................................................ 30,235 19,830 13,974
--------------------------------------
Net earnings .................................................................... $ 41,242 $ 25,651 $ 17,857
--------------------------------------
--------------------------------------
Basic earnings per share ........................................................ $ 2.45 $ 1.93 $ 1.65
--------------------------------------
--------------------------------------
Diluted earnings per share ...................................................... $ 2.38 $ 1.54 $ 1.21
--------------------------------------
--------------------------------------
Weighted average number of shares--basic ......................................... 16,858 13,316 10,846
--------------------------------------
--------------------------------------
Weighted average number of shares--diluted ....................................... 17,300 17,194 17,021
--------------------------------------
--------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Other Total
Additional non-owner stock- Compre-
Common paid-in Retained changes Treasury holders' hensive
(IN THOUSANDS, EXCEPT PER SHARE DATA) stock capital earnings in equity stock equity income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1996 .......................... $ 541 $ 29,634 $ 67,306 $1,437 $ (965) $ 97,953
Issuance of common stock under options ............... 1 226 (48) -- 88 267
Amortization of deferred stock compensation .......... -- -- 205 -- -- 205
Cash received on stock subscriptions ................. -- -- 233 -- -- 233
Stock dividend ....................................... 34 7,613 (11,764) -- 4,117 --
Cash dividends ($.19 per share) ...................... -- -- (2,084) -- -- (2,084)
Purchase of treasury stock ........................... -- -- -- -- (3,240) (3,240)
Net earnings ......................................... -- -- 17,857 -- -- 17,857 $17,857
Currency translation adjustments--unrealized .......... -- -- -- (1,199) -- (1,199) (1,199)
Additional minimum pension liability ................. -- -- -- (6) -- (6) (6)
----------------------------------------------------------- -------
BALANCE AT JANUARY 31, 1997 .......................... 576 37,473 71,705 232 -- 109,986 $16,652
Issuance of common stock under options ............... 8 1,190 -- -- -- 1,198 -------
-------
Amortization of deferred stock compensation .......... -- -- 197 -- -- 197
Cash received on stock subscriptions ................. -- -- 322 -- -- 322
Deferred incentive stock purchase plan ............... -- 291 (291) -- -- --
3 for 2 stock split .................................. 443 -- (443) -- -- --
Conversion of convertible debentures ................. 305 66,859 -- -- -- 67,164
Cash dividends ($.19 per share) ...................... -- -- (2,639) -- -- (2,639)
Net earnings ......................................... -- -- 25,651 -- -- 25,651 $25,651
Currency translation adjustments--unrealized .......... -- -- -- (3,017) -- (3,017) (3,017)
Additional minimum pension liability ................. -- -- -- (70) -- (70) (70)
----------------------------------------------------------- -------
BALANCE AT JANUARY 31, 1998 .......................... 1,332 105,813 94,502 (2,855) -- 198,792 $22,564
Issuance of common stock under options ............... 15 2,512 -- -- -- 2,527 -------
-------
Amortization of deferred stock compensation .......... -- -- 113 -- -- 113
Cash received on stock subscriptions ................. -- -- 211 -- -- 211
Deferred incentive stock purchase plan ............... 13 (641) (195) -- -- (823)
5 for 4 stock split .................................. 339 -- (339) -- -- --
Cash dividends ($.19 per share) ...................... -- -- (3,292) -- -- (3,292)
Net earnings ......................................... -- -- 41,242 -- -- 41,242 $41,242
Currency translation adjustments--unrealized .......... -- -- -- 2,028 -- 2,028 2,028
Additional minimum pension liability ................. -- -- -- 122 -- 122 122
----------------------------------------------------------- -------
BALANCE AT JANUARY 31, 1999 .......................... $ 1,699 $ 107,684 $132,242 $ (705) $ -- $240,920 $43,392
----------------------------------------------------------- -------
----------------------------------------------------------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
Varlen Corporation 17
<PAGE>
CONSOLIDATED BALANCE SHEETS
Varlen Corporation and Subsidiaries
<TABLE>
<CAPTION>
JANUARY 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ...................................................................... $ 11,618 $ 6,206
Accounts receivable, less allowance for doubtful accounts of $1,946 and $1,808 ................ 87,974 70,972
Inventories:
Raw materials ............................................................................... 21,665 22,343
Work in process ............................................................................. 24,444 19,094
Finished goods .............................................................................. 14,516 17,360
--------- --------
60,625 58,797
--------- --------
Deferred and refundable income taxes .......................................................... 8,884 7,268
Other current assets ........................................................................... 9,302 6,924
--------- --------
Total current assets ............................................................................. 178,403 150,167
--------- --------
Property, plant and equipment:
Land ........................................................................................... 4,521 4,404
Buildings ...................................................................................... 44,711 41,564
Machinery and equipment ........................................................................ 205,991 170,564
--------- --------
255,223 216,532
Less accumulated depreciation .................................................................. 110,517 92,352
--------- --------
144,706 124,180
--------- --------
Goodwill and other intangible assets, less accumulated
amortization of $27,297 and $21,637 ............................................................ 149,338 140,675
Investments and other assets ..................................................................... 3,077 4,079
--------- --------
$475,524 $419,101
--------- --------
--------- --------
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt ........................................................... $ 260 $ 195
Accounts payable ............................................................................... 50,521 33,026
Accrued expenses ............................................................................... 46,394 38,763
Income taxes payable ........................................................................... 6,434 4,159
--------- --------
Total current liabilities ........................................................................ 103,609 76,143
--------- --------
Long-term debt ................................................................................... 94,643 104,715
Deferred income taxes ............................................................................ 15,153 14,679
Other liabilities................................................................................. 21,199 24,772
Commitments and contingent liabilities ........................................................... -- --
Stockholders' equity:
Preferred stock, par value $1.00 per share; authorized
500 shares, issuable in series; none issued .................................................. -- --
Common stock, par value $.10 per share; authorized
40,000 shares; issued: 16,987 and 16,653 ..................................................... 1,699 1,332
Additional paid-in capital ..................................................................... 107,684 105,813
Retained earnings .............................................................................. 132,242 94,502
Other non-owner changes in equity .............................................................. (705) (2,855)
--------- --------
Total stockholders' equity ....................................................................... 240,920 198,792
--------- --------
$475,524 $419,101
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
18 Varlen Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Varlen Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................. $ 41,242 $ 25,651 $ 17,857
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation ................................................................. 20,389 19,136 15,373
Amortization ................................................................. 5,601 5,338 3,725
Deferred income taxes ........................................................ (989) (792) 1,165
Gain on sale of business ..................................................... -- -- (3,730)
Change in assets and liabilities net of effects from
purchased and sold businesses:
Accounts receivable, net .............................................. (15,157) (10,054) 1,572
Inventories ........................................................... (310) (2,813) 245
Refundable income taxes ............................................... -- 2,496 (2,515)
Other current assets .................................................. (2,202) (1,207) (44)
Accounts payable ...................................................... 16,737 6,675 3,047
Accrued expenses ...................................................... 4,906 1,163 (9,623)
Income taxes payable .................................................. 2,251 2,303 1,954
Other noncurrent assets ............................................... 1,872 (3,612) 899
Other noncurrent liabilities .......................................... (3,624) 4,115 1,181
--------------------------------------
Total adjustments ..................................................... 29,474 22,748 13,249
--------------------------------------
Net cash provided by operating activities .................................... 70,716 48,399 31,106
--------------------------------------
Cash flows from investing activities:
Fixed asset expenditures ..................................................... (38,650) (18,776) (18,193)
Cost of purchased businesses, net of cash acquired and other
long-term investments ..................................................... (14,024) (12,869) (154,926)
Sale of businesses ........................................................... -- -- 21,118
(Purchase) sale of investments ............................................... (1,925) -- 4,469
Disposals and other changes in property, plant and equipment ................. 1,133 777 243
--------------------------------------
Net cash used in investing activities ...................................... (53,466) (30,868) (147,289)
--------------------------------------
Cash flows from financing activities:
Proceeds from debt ............................................................ 102 63 111,083
Payments of debt .............................................................. (10,093) (12,737) (9,551)
Issuance of common stock under option plans ................................... 1,026 705 95
Cash received on stock subscriptions .......................................... 211 322 233
Purchase of treasury stock..................................................... -- -- (3,240)
Cash dividends paid ........................................................... (3,292) (2,639) (2,084)
--------------------------------------
Net cash (used in) provided by financing activities ......................... (12,046) (14,286) 96,536
--------------------------------------
Effect of exchange rate changes on cash ......................................... 208 (172) (135)
--------------------------------------
Net increase (decrease) in cash and cash equivalents ........................... 5,412 3,073 (19,782)
Cash and cash equivalents at beginning of year ................................. 6,206 3,133 22,915
--------------------------------------
Cash and cash equivalents at end of year ....................................... $ 11,618 $ 6,206 $ 3,133
--------------------------------------
--------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Varlen Corporation 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VARLEN CORPORATION AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of Varlen Corporation and all of its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated.
(b) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with a maturity of three months or less from the date
of purchase to be cash equivalents.
(d) INVENTORIES: Inventories are stated at the lower of cost or market. Cost
of inventories is determined using the last-in, first-out (Lifo) method for
67% and 70% of inventories, at January 31, 1999 and 1998, respectively. The
first-in, first-out (Fifo) method is used for all remaining inventories. If
the Fifo method of determining inventory costs had been used for all
inventories, inventories would have increased approximately $1,727,000 and
$1,839,000 at January 31, 1999 and 1998, respectively.
(e) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. The useful lives of buildings range from 10 to 45
years and the useful lives of machinery and equipment range from 3 to 12 years.
(f) LONG-LIVED ASSETS: Goodwill is amortized on a straight-line basis over a
period of 15 to 40 years. The carrying amount of goodwill and other long-lived
assets is evaluated annually to determine if adjustment to the amortization or
depreciation period or to the unamortized balance is warranted. Such evaluation
is based principally on the expected utilization of long-lived assets and the
projected undiscounted cash flows of the operations to which the long-lived
assets are deployed. Other intangible assets are amortized on a straight-line
basis over their useful lives.
(g) EARNINGS PER SHARE: Basic earnings per share is computed on the basis of
the weighted average number of common shares outstanding during the period.
The computation of diluted earnings per share includes common equivalent
shares arising from stock incentive plans using the treasury stock method and
the weighted average number of shares that would have been issued upon
conversion of the convertible debentures including the effect on net earnings
for the reduction in the after-tax interest expense on the converted
debentures.
(h) FOREIGN CURRENCY TRANSLATION: Foreign currency financial statements of
foreign operations where the local currency is the functional currency are
translated using exchange rates in effect at period end for assets and
liabilities and average exchange rates during the period for results of
operations. Related translation adjustments are reported as a component of
Stockholders' Equity. Gains and losses from foreign currency transactions are
included in earnings.
(i) NEW ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("Statement") No. 133
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments be recognized as either assets or
liabilities in the balance sheet and that derivative instruments be measured at
fair value. This statement also requires changes in the fair value of
derivatives to be recorded each period in current earnings or comprehensive
income, depending on the intended use of the derivatives. This statement is
effective for the Company's first quarter 2000 reporting. The impact of the
adoption of this Statement has not been fully determined.
(j) DERIVATIVE FINANCIAL INSTRUMENTS: The Company currently uses interest
rate swaps to transfer or reduce the risk of interest rate volatility. The
amount to be paid or received from interest rate swaps is charged or credited
to interest expense over the lives of the interest rate swap agreements.
2. OVERVIEW OF THE COMPANY
The Company designs, manufactures and markets products used in the manufacturing
of components for locomotives, railcars and track fasteners in its Railroad
Products segment, components for automobiles, light and heavy duty trucks in its
Vehicular Products segment and petroleum analyzers in its Petroleum Analyzers
segment. The individual companies included in each reportable segment were
aggregated based on the similarity of the products manufactured, production
processes, types of customers, distribution methods and economic factors
impacting the companies in each segment. The demand for the Company's products
is affected by domestic as well as international economic conditions.
3. ACQUISITIONS
In January 1999, the Company purchased Dynamic Corporation, a privately held,
leading manufacturer of dynamic braking components for locomotives. This
acquisition was financed with cash on hand.
In November 1997, the Company purchased the Petrospec-Registered
Trademark- product line of portable laboratory and process petroleum
analyzers from Boston Advanced Technologies, Inc., for which it had been the
exclusive worldwide distributor of these products. In October 1997, the
Company purchased the railroad divisions of Ringfeder GmbH located in Germany
and Hanacke Zelzarny a Perovny, a.s. located in the Czech Republic. These
entities are suppliers to the Company's German railcar cushioning device
maker Karl Georg Bahntechnik GmbH which was purchased effective in December
1996. These acquisitions
20 Varlen Corporation
<PAGE>
were financed with cash on hand and through the Company's existing credit
facility.
In June 1996, the Company, a wholly-owned subsidiary of the Company and
Brenco, Incorporated ("Brenco"), a manufacturer and reconditioner of specialized
tapered roller bearings for the railroad industry with headquarters in Virginia,
entered into an acquisition agreement for the purchase of all of Brenco's
outstanding common stock for $16.125 per share. As a result of the tender offer
which expired on July 18, 1996, the Company owned approximately 96% of the
outstanding common stock of Brenco. On August 23, 1996, the remaining
non-tendered shares were canceled and converted into the right to receive
$16.125 per share, making Brenco a wholly-owned subsidiary of the Company. The
total purchase price for the common stock of Brenco was approximately $165
million in cash and was financed with a $190 million credit facility from the
Company's existing bank group plus cash on hand.
These acquisitions have been accounted for by the purchase method of
accounting with the excess of the purchase price over the fair value of the net
assets acquired amortized over a period of 15 to 40 years. The operating results
of the businesses acquired have been included in the accompanying consolidated
results of operations from the respective dates of acquisition.
4. DISPOSITIONS
On November 8, 1996, the Company sold Brenco's Rail Link, Inc. subsidiary ("Rail
Link"), a railroad switching services and short-line railroad operator to
Genesee & Wyoming, Inc. The earnings of Rail Link since its acquisition through
its date of sale, along with the gain on its sale, are excluded from earnings.
The earnings of Rail Link have been recorded as adjustments to the carrying
amount of its assets with the gain on its sale treated as an adjustment of the
Brenco purchase price allocation.
On July 30, 1996, the Company sold the laboratory appliance division of its
Precision Scientific, Inc. subsidiary, a manufacturer of research laboratory
appliances for approximately $12.0 million in cash net of selling costs. This
sale resulted in a gain of $3.7 million ($2.1 million after-tax) or $.12 per
diluted share. Net sales from this company for 1996 through the date of sale
were approximately $8.6 million.
5. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------
Cash paid during the year for:
Interest ............................. $ 6,981 $ 9,183 $ 9,168
===========================
Income taxes (net) ................... $26,122 $15,032 $ 13,409
===========================
Purchase of businesses:
Fair value of assets acquired ........ $15,358 $15,350 $ 207,784
Cash paid, net of cash acquired....... (14,024) (12,869) (154,926)
- ---------------------------------------------------------------------
Liabilities assumed .................. $ 1,334 $ 2,481 $ 52,858
===========================
- ---------------------------------------------------------------------
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair value of the Company's financial instruments at
year end are as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Term loan ...................... $90,000 $90,000 $100,000 $100,000
Industrial revenue bonds
and other debt ............... 4,643 4,788 4,715 4,676
------------------------------------
Total long-term debt ........... $94,643 $94,788 $104,715 $104,676
====================================
- ---------------------------------------------------------------------
</TABLE>
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable and current maturities of long-term debt are reasonable
estimates of their fair value. The term loan is borrowed at current market rates
and thus reflects its fair value. The fair value of industrial revenue bonds and
other debt are estimated using discounted cash flow analysis and market rates
for similar financial instruments.
7. LONG-TERM DEBT
Long-term debt at year end is comprised of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Term loan ...................................... $90,000 $100,000
Industrial revenue bonds and other debt ........ 4,903 4,910
- ----------------------------------------------------------------------
94,903 104,910
Less current portion ........................... (260) (195)
===================
Long-term debt ................................. $94,643 $104,715
===================
- ----------------------------------------------------------------------
</TABLE>
In July 1996, the Company entered into a $190 million term loan and
revolving credit agreement (the "Agreement") which replaced its $80 million
revolving credit facility. This Agreement was obtained to facilitate the
Brenco acquisition as well as future acquisitions. The Agreement is in the
form of two facilities. Facility "A" is a term loan of $110 million and
facility "B" is a revolving credit facility with an $80 million capacity. The
term loan comes due on July 19, 2002 and requires escalating quarterly
principal payments which began in October 1996. The revolving credit facility
requires no prepayments and comes due on July 19, 2002 with two optional
one-year extensions. The Agreement provides for interest at one of three
market interest rates selected by the Company plus an applicable margin which
is dependent upon the market interest rate chosen and the relationship of
debt to cash flow. The highest interest rate under the Agreement was the
prime rate with maximum commitment fees of 3/8 of 1% on the unused portion of
the line of credit. Pursuant to the Agreement, the Company has two interest
rate swap agreements which mature in the fiscal third quarter of 1999. The
swap agreements effectively convert $20 million of its term-loan from
variable interest rate debt to fixed interest rate debt with an average fixed
interest rate of 6.7% at January 31, 1999. While the Company is exposed
Varlen Corporation 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
VARLEN CORPORATION AND SUBSIDIARIES
to credit loss on its interest rate swaps in the event of non-performance by
the counterparties to such swaps, management believes such non-performance is
unlikely to occur given the financial resources of the counterparties. The
average interest rate on all of the Company's debt during 1998 was
approximately 6.8%.
The Agreement contains provisions which require the Company to maintain a
specified level of net worth and comply with various financial ratios and
includes, among other provisions, restrictions on leases, investments,
dividend payments and the incurrence of additional indebtedness. At January
31, 1999, $51,548,000 was available for cash dividends and equity repurchases
under these provisions.
Industrial revenue bonds, due in 2004, and other notes payable are secured by
the property, plant and equipment purchased with the proceeds of such debt.
Interest on the bonds is paid at rates ranging from 6.8% to 7.0%.
In September 1997, the Company completed the call of its 6.5% Convertible
Subordinated Debentures Due 2003. Substantially all of the debentures were
voluntarily converted into approximately 5,728,000 shares of Common Stock of the
Company including conversions occurring just prior to the call for redemption.
Scheduled repayments of long-term debt in each of the next five years are
$16,260,000, $22,154,000, $26,148,000, $26,751,000 and $0. The term loan
repayments due in the next twelve months are classified as long-term on the
consolidated balance sheets as the Company has the ability and intent to
refinance these repayments under its revolving credit facility.
8. CONTINGENT LIABILITIES, COMMITMENTS AND OTHER
The Company and its subsidiaries are subject to various claims and involved in
litigation arising in the ordinary course of business. Litigation is subject to
many uncertainties, and the outcome of individual matters is not predictable
with assurance. It is reasonably possible that the final resolution of some of
these matters may require the Company or its subsidiaries to make expenditures,
and in a range of amounts that cannot currently be reasonably estimated. The
Company is not aware, however, of any such matters that will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.
Certain of the Company's subsidiaries are involved in environmental
remediation activities resulting from past operations. It is reasonably
possible that the final costs of the activities may require such subsidiaries
to make expenditures in excess of established reserves. However, management
believes that any resulting adjustments should not materially affect the
Company's consolidated results of operations or consolidated financial
position.
The Company and its subsidiaries occupy various manufacturing and office
facilities and use certain equipment under operating lease arrangements. Total
rent expense under such agreements amounted to approximately $4,047,000 in 1998,
$3,051,000 in 1997 and $2,401,000 in 1996. At January 31, 1999, the aggregate
minimum future rental commitments under the non-cancelable leases with terms in
excess of one year were approximately $8,616,000. Amounts due annually in each
of the next five years are $2,370,000, $1,742,000, $1,128,000, $678,000 and
$436,000.
Accrued expenses at January 31, 1999 and January 31, 1998 include $16,518,000
and $13,184,000, respectively, for certain accrued employee benefits. Research
and development costs charged to earnings were $10,938,000 in 1998, $7,970,000
in 1997 and $9,540,000 in 1996.
9. INCOME TAXES
Earnings before income taxes were derived from the following sources (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------
Domestic ............................... $67,398 $42,936 $31,590
Foreign ................................ 4,079 2,545 241
-------------------------
Total ................................ $71,477 $45,481 $31,831
=========================
- --------------------------------------------------------------------
Income tax expense consists of the following (in thousands):
- --------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------
Current:
Federal .............................. $24,956 $16,245 $10,857
State and local ...................... 4,343 2,977 2,095
Foreign .............................. 1,736 1,568 602
-------------------------
Total .............................. 31,035 20,790 13,554
Deferred:
Federal .............................. (1,423) (1,232) 463
State and local ...................... (79) 4 (299)
Foreign .............................. 702 268 256
-------------------------
Total .............................. (800) (960) 420
-------------------------
Income tax provision ................... $30,235 $19,830 $13,974
=========================
- --------------------------------------------------------------------
</TABLE>
Deferred tax assets and liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1999 January 31, 1998
- --------------------------------------------------------------------
ASSET LIABILITY Asset Liability
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable .......... $ 781 $ -- $ 751 $ --
Inventories .................. 1,338 676 912 671
Operating losses ............. 1,419 -- 658 --
Foreign tax credits .......... 1,782 -- 1,213 --
State income taxes ........... -- 389 -- 271
Fixed assets ................. -- 16,420 -- 16,572
Pension ...................... -- 661 531 --
Vacation pay ................. 1,615 -- 1,520 --
Workers' compensation ........ 1,128 -- 816 --
Warranty ..................... 3,270 -- 3,702 --
Deferred compensation ........ 2,688 -- 1,933 --
Employee health and welfare .. 304 -- 798 --
Intangible assets ............ -- 6,500 -- 6,688
Retiree health and welfare ... 2,385 -- 2,125 --
Domestic facility closure .... 864 -- -- --
Other ........................ 3,888 599 4,166 463
------------------------------------
Subtotal ..................... 21,462 25,245 19,125 24,665
Valuation allowance .......... (2,486) -- (1,871) --
------------------------------------
Total ........................ $18,976 $25,245 $17,254 $24,665
====================================
- -------------------------------------------------------------------
</TABLE>
22 Varlen Corporation
<PAGE>
The valuation allowance relates principally to net operating losses of
foreign subsidiaries and excess unused foreign tax credits. The use of such
losses and credits in reducing future tax liabilities is subject to substantial
limitations.
During 1998, the valuation allowance was increased $569,000 to reflect excess
unused foreign tax credits and $46,000 to offset the benefit of current
operating losses of a foreign subsidiary.
Income tax expense differs from the amount of income tax determined by
applying the statutory federal rate to pre-tax income because of the following
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
Income tax provision at
statutory federal tax rate ..... $25,017 $15,918 $ 11,141
State income taxes
(net of federal benefit) ....... 2,786 2,098 1,146
Foreign operations ............... 963 911 774
Goodwill amortization ............ 1,081 996 909
Other ............................ 388 (93) 4
----------------------------
Income tax provision ............. $30,235 $19,830 $13,974
============================
- ----------------------------------------------------------------
</TABLE>
At January 31, 1999, the Company had remaining net operating loss
carryforwards of $3,500,000 which will not expire, including loss
carryforwards subject to the valuation allowance discussed above. These arose
principally as a result of the acquisition of foreign operations and will
reduce income taxes payable to the extent of future taxable income from those
operations. Foreign tax credit carryovers of $1,782,000, subject to the
valuation allowance discussed above, expire in 2002 through 2004.
10. COMPUTATION OF EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings
per share for the years ended January 31, 1999, 1998 and 1997 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
Net earnings--basic ................ $41,242 $25,651 $17,857
Decrease in interest expense,
net of income taxes, for the
assumed conversion of the
convertible debentures .......... -- 900 2,736
---------------------------
Adjusted net earnings--diluted ..... $41,242 $26,551 $20,593
===========================
Average shares outstanding--basic .. 16,858 13,316 10,846
Dilutive effect of stock options .. 442 599 449
Conversion of convertible
debentures ...................... -- 3,279 5,726
---------------------------
Average shares outstanding--diluted 17,300 17,194 17,021
===========================
Basic earnings per share .......... $ 2.45 $ 1.93 $ 1.65
===========================
Diluted earnings per share ........ $ 2.38 $ 1.54 $ 1.21
- ----------------------------------------------------------------
</TABLE>
11. PENSION AND OTHER POSTRETIREMENT PLANS
Effective January 31, 1999, the Company adopted Statement No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
The information for 1998, 1997 and 1996 has been presented in conformity with
the requirements of Statement No. 132.
The Company maintains a variety of postretirement plans, including pension
plans, covering substantially all employees, and supplemental retirement plans,
covering executives. Defined benefit plans cover the majority of union employees
and are based on an amount per year of service formula and also certain
non-union employees based on an average compensation formula. Substantially all
salaried employees are covered by defined contribution plans. The Company makes
contributions to the plans in accordance with legal funding regulations and
amortizes past service cost over the average remaining service life of active
employees.
Under the Varlen Corporation Profit Sharing and Retirement Savings Plan,
employee deferrals of compensation may be made and the Company will match up to
25% of the first 6% deferred by each employee. Additionally, discretionary
amounts of not less than 2% of eligible salaries and wages are contributed by
the Company. Under the Brenco Supplemental Pension Plan, a defined contribution
plan, employee deferrals of compensation may be made of up to 20% of eligible
pay with the Company providing additional annual contributions to participant's
accounts of 5% of eligible pay.
Certain of the Company's subsidiaries maintain benefit plans which provide
their employees postretirement medical and life insurance benefits. Eligibility
for the plans range from employees retiring at age 55 with a minimum of 5 years
of service to employees retiring at age 65 with a minimum of 15 years of
service.
The funded status of the Company's plans as of January 31, 1999 and 1998 and
a reconciliation with amounts
Varlen Corporation 23
<PAGE>
recognized in the Consolidated Balance Sheets are provided below (in
thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DEFINED OTHER
BENEFIT PLANS BENEFIT PLANS
- ----------------------------------------------------------------
January 31, January 31,
1999 1998 1999 1998
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected Benefit Obligation,
Beginning of Year ......... $33,260 $28,935 $5,848 $4,957
Service Cost ................ 1,424 1,297 359 281
Interest Cost ............... 2,251 2,089 429 348
Plan Amendments ............. 458 73 40 --
Settlement .................. (4,452) -- -- --
Curtailments ................ (1,756) -- -- --
Actuarial (Gain) Loss ....... 927 1,759 (117) 323
Benefits Paid ............... (1,293) (893) (44) (61)
---------------------------------
Projected Benefit Obligation,
End of Year ............... $30,819 $33,260 $6,515 $5,848
==================================
CHANGE IN PLAN ASSETS
Plan Assets at Fair Value,
Beginning of Year ......... $28,874 $22,706 $ 197 $ 227
Actual Return on Plan Assets 1,424 5,354 (17) (30)
Employer Contributions ...... 1,857 1,720 37 31
Settlements ................. (4,415) -- -- --
Benefits Paid ............... (1,293) (906) (37) (31)
----------------------------------
Plan Assets at Fair Value,
End of Year ............... $26,447 $28,874 $ 180 $ 197
==================================
RECONCILIATION OF ACCRUED
PENSION COSTS
Funded Status of the Plans .. $(4,372) $(4,386) $(6,335) $(5,651)
Amount Contributed
After Measurement Date ... 27 2 -- --
Unrecognized Net (Gain) Loss (1,858) (3,346) 547 647
Unrecognized Prior
Service Cost .............. 1,159 807 (214) (280)
Minimum Liability Adjustment -- (249) -- --
Unrecognized Net Transition
Obligation ................ 332 431 -- --
----------------------------------
Accrued Pension Cost ........ $(4,712) $(6,741) $(6,002) $(5,284)
==================================
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS
Prepaid Benefit Cost ........ $ 1,998 $ 1,516 $ -- $ --
Accrued Benefit Liability ... (6,735) (8,505) (6,002) (5,284)
Intangible Asset ............ 25 99 -- --
Accumulated Other
Comprehensive Income ...... -- 149 -- --
----------------------------------
Net Amount Recognized ....... $(4,712) $(6,741) $(6,002) $(5,284)
==================================
- ----------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $5,955,000, $4,679,000 and $0,
respectively, as of January 31, 1999 and $5,458,000, $4,248,000 and $0,
respectively, as of January 31, 1998.
During 1998, Brenco terminated benefits under its defined benefit plan to
a majority of participants and recognized a curtailment gain and settlement
loss of $1,756,000 and $606,000, respectively, for the year ended January 31,
1999. The majority of participants have received a lump sum payout as of
January 31, 1999.
Effective January 1, 1999, the benefits under the Brenco Supplemental
Pension Plan, a defined contribution plan, were changed to mirror the
benefits offered under the Varlen Corporation Profit Sharing and Retirement
Savings Plan. On or about May 1, 1999, all assets of the Brenco Supplemental
Pension Plan will be transferred into the Varlen Corporation Profit Sharing
and Retirement Savings Plan, and the Brenco Supplemental Pension Plan will be
terminated.
Net periodic benefits expense included in the Consolidated Statements of
Earnings is composed of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DEFINED BENEFIT PLANS
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service Cost .......................... $1,424 $1,297 $ 888
Interest Cost ......................... 2,251 2,089 1,273
Expected Return on Plan Assets ........ (2,490) (1,922) (1,626)
Curtailment Gain ...................... (1,756) -- --
Settlement Loss ....................... 606 -- --
Net Amortization Costs and Other ...... 67 108 615
------------------------
Net Defined Benefit Pension Expense ... $ 102 $1,572 $1,150
========================
Net Multi-Employer Defined Benefit
Pension Expense ..................... $ 775 $ 623 $ 494
=======================
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER BENEFIT PLANS
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service Cost .......................... $ 359 $ 281 $ 227
Interest Cost ......................... 429 348 302
Expected Return on Plan Assets ........ (11) (13) 6
Net Amortization Costs and Other ...... (15) (25) (42)
-----------------------
Net Other Benefit Plan Expense ........ $ 762 $ 591 $ 493
=======================
Defined Contribution Plan Expense ..... $4,635 $4,092 $2,873
=======================
- ----------------------------------------------------------------
</TABLE>
The weighted average rate assumptions used in determining expenses and
benefit obligations were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DEFINED BENEFIT PLANS OTHER BENEFIT PLANS
- ------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate ..... 7.00% 7.25% 7.50% 7.00% 7.25% 7.75%
Expected Return
on Plan Assets .. 9.00 9.00 9.00 9.00 9.00 9.00
Rate of Compensation
Increase ........ 5.00 5.00 5.00 NA NA NA
- ------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the benefit
obligations for pre-age 65 employees is 8% in 1999, declining to 5.5% by the
year 2003 and thereafter. For post-age 65 employees the health care cost
trend rate is level at 5.5% starting in 1999 and thereafter. The effect of
changing the health care cost trend rate by one-percentage point for each
future year is as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
One-Percentage-Point One-Percentage-Point
Increase Decrease
- ------------------------------------------------------------------
<S> <C> <C>
Effect on total of service
and interest cost
components ........... $ 103 $ (82)
Effect on accumulated
postretirement benefit
obligation ........... $1,017 $(801)
- ------------------------------------------------------------------
</TABLE>
24 Varlen Corporation
<PAGE>
12. STOCK INCENTIVE PLANS
The Company had four stock option plans in effect during 1998. One of the stock
option plans expired on March 31, 1990 as to future grants. Under the four
plans, either Incentive Stock Options or Non-qualified Stock Options can be
granted, as determined by the Compensation Committee of the Company's Board of
Directors (the "Committee"). In addition, the 1998 plan provides for the
issuance of stock appreciation rights, restricted stock and performance awards.
Non-qualified Stock Options can be granted for terms of up to 10 years and with
an option price that is less than the market value of the Company's common stock
on the date of grant, but if less than market value, then not less than book
value; such option price may not be less than 50% of market value under the 1989
plan and not less than 85% of market value under the 1993 plan. Non-qualified
stock options can be granted for terms of up to 10 years and with an option
price that is not less than market value under the 1998 plan. Incentive Stock
Options can be granted for terms of up to 10 years and with an option price that
is not less than the market value of the Company's Common Stock on the date of
grant. A summary of the changes in outstanding stock options, including options
granted under prior plans is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 736,327 $ 8.14 717,198 $7.46 580,275 $6.81
Granted ................. 160,656 28.35 144,375 10.62 161,954 9.87
Exercised ............... (177,126) 5.90 (103,768) 6.67 (15,152) 6.30
Expired or terminated ... (13,322) 14.28 (21,478) 9.33 (9,879) 8.74
--------------------------------------------------------
Options outstanding
at year end ........... 706,535 $13.21 736,327 $8.14 717,198 $7.46
========================================================
Options exercisable at
year end .............. 351,441 $ 8.21 381,060 $6.61 371,251 $5.89
========================================================
Options available for
grant at year end 689,398 211,900 334,798
======== ======= =======
Weighted-average fair
value of options
granted during
the year ......... $10.31* $3.91* $4.55*
======= ====== ======
- ----------------------------------------------------------------------------------
</TABLE>
* Determined using the Black-Scholes valuation model.
The Company also has two stock compensation plans which have been in
effect since 1993. The Directors Incentive Stock Grant Plan provides for the
automatic annual award of $12,000 in shares of Common Stock at par value to
each director who is not an employee of the Company or $6,000 in shares of
Common Stock if the director takes office after the six month anniversary of
the previous annual meeting of the Company. An aggregate of 51,033 shares of
Common Stock are available for grant under this plan of which 23,203 have
been granted. The Deferred Incentive Stock Purchase Plan provides for an
offer to selected officers and other key employees, as determined by the
Committee, of rights to purchase Common Stock of the Company at a price
determined by the Committee which cannot be less than (1) book value at the
grant date for executive officers or (2) the lesser of book value or $3.00
below market price on the date of the grant for other key employees.
Quarterly deposits are made by the participant over a five-year period toward
the purchase price of the shares, which are issued to the participant upon
receipt of the final payment under the plan. An aggregate of 340,313 rights
are available for grant under this plan, of which 32,812 are outstanding at
$8.63 per right. The weighted average fair value of these rights is $3.72 per
right as determined using the Black-Scholes valuation model. There are 51,416
rights available for grant at January 31, 1999.
The Company has adopted the disclosure-only provisions of Statement No.
123. Compensation expense recognized in income in 1998, 1997 and 1996 for
stock-based employee compensation awards under APB 25 totaled approximately
$324,000, $405,000 and $393,000, respectively. If the Company had elected to
recognize compensation expense for its stock-based compensation plans
consistent with the methods prescribed by Statement No. 123, net earnings and
net earnings per share would have been changed to the pro forma amounts shown
below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings ............... As reported $41,242 $25,651 $17,857
Pro forma $40,889 $25,458 $17,767
Basic earnings per share.... As reported $ 2.45 $ 1.93 $ 1.65
Pro forma $ 2.43 $ 1.91 $ 1.64
Diluted earnings per share.. As reported $ 2.38 $ 1.54 $ 1.21
Pro forma $ 2.36 $ 1.54 $ 1.21
- --------------------------------------------------------------------
</TABLE>
The following table summarizes the weighted average remaining contractual
life and weighted average exercise price of options outstanding at January
31, 1999 and the weighted average exercise price of options exercisable at
January 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WGTD. AVG NUMBER
NUMBER REMAINING WGTD. AVG. EXERCISABLE WGTD. AVG.
OUTSTANDING CONTRACTUAL EXERCISE AT YEAR EXERCISE
RANGE OF EXERCISE PRICES AT YEAR END LIFE PRICE END PRICE
- -----------------------------------------------------------------------------------------
$3 to $10 .......... 387,985 5.1 $ 8.13 301,849 $ 7.81
$10 to $17 ......... 161,331 8.1 10.65 49,592 10.67
$17 to $24 ......... 7,800 9.7 23.38 -- --
$24 to $31 ......... 149,419 9.2 28.63 -- --
------- -------
706,535 351,441
------- -------
------- -------
- -----------------------------------------------------------------------------------------
</TABLE>
The fair value of stock options used to compute the pro forma net earnings
and net earnings per share disclosures is the estimated present value at grant
date using the Black-Scholes option-pricing model with the following weighted
average assumptions used for 1998, 1997 and 1996: dividend yield of 1.5%;
expected volatility of 24.6%; risk free interest rates ranging from 5.1% to
7.1%; and an expected life of seven years, five years for The Deferred Incentive
Stock Purchase Plan.
Varlen Corporation 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
VARLEN CORPORATION AND SUBSIDIARIES
13. INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Information relating to the Company's segments is as follows (in thousands):
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING IDENTIFIABLE CAPITAL DEPRECIATION/
NET SALES PROFIT ASSETS EXPENDITURES AMORTIZATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Vehicular products ............................... $345,832 $52,190 $167,800 $26,819 $11,071
Railroad products ................................ 261,673 32,012* 251,082 10,909 12,788
Petroleum analyzers .............................. 39,167 4,046 39,424 825 1,581
-----------------------------------------------------------------------------
646,672 88,248 458,306 38,553 25,440
Corporate ........................................ -- (10,274) 17,218 97 550
Net interest expense ............................. -- (6,497) -- -- --
-----------------------------------------------------------------------------
Total ............................................ $646,672 $71,477 $475,524 $38,650 $25,990
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997
Vehicular products ............................... $275,894 $37,928 $138,219 $13,077 $10,463
Railroad products ................................ 208,503 20,538 230,836 5,388 11,919
Petroleum analyzers .............................. 37,857 4,727 38,944 192 1,339
-----------------------------------------------------------------------------
522,254 63,193 407,999 18,657 23,721
Corporate ........................................ -- (8,410) 11,102 119 753
Net interest expense ............................. -- (9,302) -- -- --
-----------------------------------------------------------------------------
Total ............................................ $522,254 $45,481 $419,101 $18,776 $24,474
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996
Vehicular products ............................... $217,562 $27,265 $112,423 $14,055 $ 9,127
Railroad products ................................ 146,437 10,142 235,994 3,573 7,416
Petroleum analyzers .............................. 45,476 9,781** 34,695 431 1,731
-----------------------------------------------------------------------------
409,475 47,188 383,112 18,059 18,274
Corporate ........................................ -- (6,617) 10,766 134 824
Net interest expense ............................. -- (8,740) -- -- --
-----------------------------------------------------------------------------
Total ............................................ $409,475 $31,831 $393,878 $18,193 $19,098
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*INCLUDES A $2.3 MILLION PRE-TAX CHARGE FOR DOMESTIC FACILITY CLOSURE AND
RELATED COSTS PARTIALLY OFFSET BY A $1.1 MILLION PRE-TAX ACCOUNTING GAIN
FROM PENSION PLAN CHANGES.
**INCLUDES A $3.7 MILLION PRE-TAX GAIN ON THE SALE OF A DIVISION.
<TABLE>
<CAPTION>
Information relating to the Company by geographic area is as follows (in
thousands):
- -------------------------------------------------------------------
NET NET IDENTIFIABLE
SALES EARNINGS ASSETS
- --------------------------------------------------------------------
<S> <C> <C> <C>
1998
Domestic Operations .............. $590,752 $50,077 $421,015
European Operations .............. 55,920 2,411 54,509
-------- ------- --------
646,672 52,488 475,524
Corporate and net interest expense -- (11,246) --
-------- ------- --------
Total ............................ $646,672 $41,242 $475,524
-----------------------------
-----------------------------
1997
Domestic Operations .............. $477,820 $35,432 $370,727
European Operations .............. 44,434 1,453 48,374
-----------------------------
522,254 36,885 419,101
Corporate and net interest expense -- (11,234) --
-----------------------------
Total ............................ $522,254 $25,651 $419,101
-----------------------------
-----------------------------
1996
Domestic Operations .............. $381,993 $27,321* $366,051
European Operations .............. 27,482 187 27,827
-----------------------------
409,475 27,508 393,878
Corporate and net interest expense -- (9,651) --
-----------------------------
Total ............................ $409,475 $17,857 $393,878
-----------------------------
-----------------------------
- ----------------------------------------------------------------
</TABLE>
*INCLUDES A $2.1 MILLION AFTER-TAX GAIN ON THE SALE OF A DIVISION.
Export sales from the Company's United States operations were 10%, 11% and
10%, respectively, of consolidated net sales in 1998, 1997 and 1996.
Sales to one customer by a company in the vehicular products segment
aggregated 19% of consolidated net sales in 1998 and 15% in each of 1997 and
1996. In addition, sales of one product to customers of the vehicular
products segment aggregated 16%, 12% and 12% of consolidated net sales in
1998, 1997 and 1996, respectively. Sales of two products to customers of the
railroad products segment were 14%, 14% and 10% of one product and 12%, 9%
and 9% of another product of consolidated net sales in 1998, 1997 and 1996,
respectively.
14. STOCKHOLDERS' EQUITY
On September 28, 1998, the Company's Board of Directors declared a
five-for-four stock split effected in the form of a stock dividend payable on
November 17, 1998 to stockholders of record on October 30, 1998. The dividend
resulted in the issuance of approximately 3.4 million new shares of Common
Stock. All share and per share amounts have been restated to reflect the
stock dividend.
On September 29, 1997, the Company's Board of Directors declared a
three-for-two stock split effected in the form of a stock dividend payable on
November 18, 1997 to stockholders of record on October 31, 1997. The dividend
resulted in the issuance of approximately 5.5 million new shares of Common
Stock.
26 Varlen Corporation
<PAGE>
On May 29, 1996, the Company's Board of Directors declared a 10% stock
dividend payable on July 15, 1996 to stockholders of record on July 1, 1996.
The dividend resulted in the issuance of approximately 653,000 new shares of
Common Stock and the reissuance of the remaining 328,125 shares of Common
Stock held in treasury.
On January 4, 1996, the Company's Board of Directors authorized the
purchase of up to 500,000 shares of its Common Stock or the equivalent amount
of its 6 1/2 percent convertible subordinated debentures by the Company. As
of January 31, 1999, 181,000 shares (before restatement for the stock
dividends) of the Company's Common Stock were purchased under this
authorization and recorded as treasury shares, at cost.
Retained earnings includes stock subscriptions receivable of $169,000,
$380,000 and $464,000 at January 31, 1999, 1998 and 1997, respectively.
15. STOCK PURCHASE RIGHTS
On June 18, 1996, the Company's Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right on each outstanding share
of Common Stock of the Company. The Rights are designed to assure that all of
the Company's shareholders receive fair and equal treatment in the event of
any proposed takeover of the Company and to guard against partial tender
offers, open market accumulations and other tactics designed to gain control
of the Company without paying all shareholders a control premium. The Rights
do not prevent a takeover, but encourage anyone seeking to acquire the
Company to negotiate with the Company's Board of Directors prior to
attempting a takeover.
Each Right entitles shareholders to buy one one-thousandth of a share of
newly created Series A Junior Participating Preferred Stock of the Company at
an exercise price of $72.00. The Rights can be exercised if a person or group
acquires 15% or more of the Company's Common Stock or announces a tender
offer for 15% or more of the Common Stock. The Company's Board is entitled to
redeem the Rights at one cent per Right at any time before any such person
hereafter acquires 15% or more of the outstanding Common Stock.
If a person acquires 15% or more of the Company's outstanding Common
Stock, each Right entitles its holder to purchase, at the Right's exercise
price, a number of shares of the Company's Common Stock having a market value
at that time of twice the Right's exercise price. Rights held by the 15%
holder become void and cannot be exercised to purchase shares at the bargain
purchase price.
If the Company is acquired in a merger or other business combination
transaction after a person acquires 15% or more of the Company's Common
Stock, each Right entitles its holder to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common
shares having a market value at that time of twice the Right's exercise price.
16. COMPREHENSIVE INCOME
The components of other comprehensive income in the Consolidated Statements
of Stockholders' Equity are as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Currency translation adjustments .......... $2,583 $(3,667) $(1,582)
Income taxes .............................. 555 (650) (383)
---------------------------------
Net currency translation adjustment 2,028 (3,017) (1,199)
---------------------------------
Minimum pension liability ................. 177 (98) (8)
Income taxes .............................. 55 (28) (2)
---------------------------------
Net minimum pension liability ........... 122 (70) (6)
---------------------------------
Other comprehensive income ............... $2,150 $(3,087) $(1,205)
---------------------------------
---------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The components of other non-owner changes in equity (net of tax) in the
Consolidated Balance Sheets are as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustment ......... $ (705) $(2,733)
Minimum pension liability adjustment ............ -- (122)
--------------------------------
Accumulated other comprehensive income .......... $ (705) $(2,855)
--------------------------------
--------------------------------
- -------------------------------------------------------------------------------
</TABLE>
17. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following information is presented in thousands of dollars, except per share
amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ....................... 1998 $164,615 $152,399 $164,554 $165,104
1997 123,975 125,471 135,830 136,978
Gross profit .................... 1998 43,343 39,665 42,841 42,888
1997 29,405 30,397 33,882 35,986
Net earnings .................... 1998 11,036 9,727 10,843 9,636
1997 5,009 5,438 7,675 7,529
Basic earnings
per share .................... 1998 0.66 0.58 0.64 0.57
1997 0.47 0.50 0.51 0.45
Diluted earnings
per share .................... 1998 0.63 0.56 0.63 0.56
1997 0.34 0.36 0.41 0.43
- --------------------------------------------------------------------------------
</TABLE>
QUARTERLY MARKET AND
DIVIDEND INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
-----------------------------------------------
Fiscal Quarter HIGH LOW High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First ...................... 30.80 19.70 12.26 9.74
Second ..................... 31.20 24.20 17.26 12.00
Third ...................... 26.20 17.20 25.46 15.66
Fourth ..................... 30.13 22.25 24.20 18.60
- --------------------------------------------------------------------------------
</TABLE>
The Company paid a $.05 quarterly dividend in both 1998 and 1997. The Company
estimates its number of shareholders of Common Stock, $.10 par value, is
approximately 3,300 as of January 31, 1999, which includes approximately 400
shareholders of record and 2,900 who hold shares in "nominee" or "street" name.
Varlen Corporation 27
<PAGE>
REPORT BY MANAGEMENT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
VARLEN CORPORATION:
Management is responsible for the consolidated financial statements which
have been prepared by the Company in accordance with generally accepted
accounting principles applied on a consistent basis. The financial statements
necessarily include amounts based on judgments and estimates by management as
required by the accounting process. Management also prepared the other
financial information in this document.
The Company's system of internal accounting control, which is applied by
operating and financial managers, has been designed to provide reasonable
assurance that assets are safeguarded, that transactions are executed and
recorded in accordance with management's established policies and procedures,
and that accounting records are adequate for preparation of financial
statements and other financial information. The design, monitoring and
revision of internal accounting control systems involve, among other things,
management's judgment with respect to the relative cost and expected benefits
of specific control measures.
Varlen's internal audit function reviews the accounting records, financial
controls and practices periodically based on risk assessment to determine
compliance with corporate policies. The consolidated financial statements
have been audited by Deloitte & Touche LLP, independent auditors appointed by
the Board of Directors. Their responsibility is to audit the Company's
consolidated financial statements in accordance with generally accepted
auditing standards and to express their opinion with respect to the
statements being presented fairly in conformity with generally accepted
accounting principles.
The Audit Committee, which is composed solely of outside directors, meets
with and reviews the activities of corporate financial management and the
independent auditors to ascertain that each is properly discharging its
responsibility. The independent auditors and management have unrestricted
access to the Audit Committee, which meets periodically to review accounting,
auditing, internal control and financial reporting matters.
RAYMOND A. JEAN RICHARD A. NUNEMAKER
President and Vice President, Finance and
Chief Executive Officer Chief Financial Officer
March 8, 1999
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
VARLEN CORPORATION, NAPERVILLE, ILLINOIS:
We have audited the accompanying consolidated balance sheets of Varlen
Corporation and subsidiaries as of January 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Varlen Corporation and
subsidiaries as of January 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended January 31, 1999, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
March 8, 1999
28 Varlen Corporation
<PAGE>
BOARD OF DIRECTORS
RAYMOND A. JEAN, age 56
*President and Chief Executive Officer
Director of Lindberg Corporation
ERNEST H. LORCH, age 66 n s
Senior Chairman of the Board
*Of Counsel to Whitman Breed
Abbott & Morgan, Attorneys
Director of Tyler Corporation
L. WILLIAM MILES, age 65 n
*Vice President for Administration,
Fairfield University, Connecticut
GREG A. ROSENBAUM, age 46 n
*President, Palisades Associates, Inc.
JOSEPH J. ROSS, age 53 l s
*Chairman, President and Chief Executive
Officer of Federal Signal Corporation
THEODORE A. RUPPERT, age 68 l
*Sole proprietor, Village Development;
Chairman, Chief Executive Officer,
President and Director of Glaize
Development and Director of
Pioneer Bank and Trust
RICHARD L. WELLEK, age 60 s
*Chairman of the Board
Retired Chief Executive Officer
* Principal Occupation
l Member Audit Committee
n Member Compensation Committee
s Member Nominating and Organization Committee
OFFICERS
RAYMOND A. JEAN, age 56
Chief Executive Officer (1999) and
President (1997); Executive Vice President
and Chief Operating Officer (1993);
Group Vice President (1988-1992);
B.S. Engineering Physics, University of
Maine; M.B.A. University of Chicago
GEORGE W. HOFFMAN, age 58
Vice President (1990); President of
Keystone Industries (1984); Executive
Vice President of Operations of Keystone
Industries (1979-1984);
B.S. Chemical Engineering, University
of Pittsburgh
RICHARD A. NUNEMAKER, age 50
Vice President, Finance and Chief
Financial Officer (1991); Vice President,
Controller (1987); B.S. Accountancy;
M.A.S. University of Illinois, C.P.A.
VICKI L. CASMERE, age 41
Vice President, General Counsel
and Secretary (1996); Corporate
Counsel of Caremark Inc. (1992-1996),
Vice President (1994);
B.S. Finance, University of Illinois;
J.D. The John Marshall Law School
WILLIAM J. ROTENBERRY, age 44
Vice President, Business Development
(1998); Vice President, Business
Development, Scotsman Industries (1996-
1998); Director of Corporate Development,
Joslyn Corporation (1990-1996);
B.S. Marketing, Bradley University;
J.D. DePaul University;
M.B.A. Northwestern University
GENERAL INFORMATION
TRANSFER AGENT
Harris Trust & Savings Bank
311 West Monroe Street, 14th Floor
P.O. Box A3504
Chicago, Illinois 60690
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
SHARES LISTED
Varlen Corporation common stock is
traded on the Nasdaq Stock Market under
the symbol VRLN.
INFORMATION CONTACT
Richard A. Nunemaker
Vice President, Finance and Chief
Financial Officer
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
(630) 420-0400
ANNUAL MEETING
The Annual Meeting of Stockholders
will be held at 10 a.m. (local time)
Wednesday, May 26, 1999 at the
Radison Hotel Lisle-Naperville,
3000 Warrenville Road, Lisle, Illinois 60532.
VARLEN WORLD WIDE WEB SITE
HTTP://WWW.VARLEN.COM
SAFE HARBOR PROVISION
This Annual Report contains outlook and other forward-looking statements
which are not historical facts. These forward-looking statements are based
upon certain assumptions about a number of important factors. While the
Company believes that its assumptions are reasonable, it cautions that there
are inherent difficulties in predicting these factors, that they are subject
to change at any time and that any such change could cause actual events and
the Company's actual results to differ materially from those predicted or
projected in its forward-looking statements. Among the factors that could
cause actual results to differ materially are: the growth and size of the
markets in which the Company operates; the demand for the products of the
Company and those that incorporate Company products and other market
acceptance risks; the presence in the Company's market of competitors with
greater financial resources, and the impact of competitive products and
pricing; actual product purchases under existing purchase agreements and the
loss of any significant customers; general market conditions; the ability of
the Company to develop new products; capacity and supply constraints or
difficulties; the ability of the Company to maintain and improve the
productivity and efficiency of operations and reduce costs; availability of
resources; litigation results; the results of the Company's financing
efforts; the effect of the Company's accounting policies; and the effects of
general economic, trade, legal, regulatory, social and economic conditions.
In addition, from time to time the Company may engage in certain
extraordinary transactions, such as a significant acquisition or divestiture,
which could also cause actual events and the Company's actual results to
differ materially from those predicted or projected in its forward-looking
statements. Other risk factors may be detailed from time to time in the
Company's Securities and Exchange Commission filings. The Company assumes no
obligation to update its forward-looking statements or advise of changes in
the assumptions and factors on which they are based.
FORM 10-K AND PROXY STATEMENT
Stockholders may obtain a copy of the most recent Form 10-K and Proxy
Statement as filed by the Company with the SEC without charge by addressing a
written request to Richard A. Nunemaker, Vice President, Finance and Chief
Financial Officer, Varlen Corporation at the corporate office.
<PAGE>
[LOGO]
Varlen Corporation
55 Shuman Blvd., P.O. Box 3089
Naperville, Illinois 60566-7089
(630) 420-0400
VARLEN WORLDWIDE
RAILROAD PRODUCTS
- ---------------------------
[logo]
Acieries de Ploermel
[logo]
Brenco, Incorporated
[Logo]
Chrome Crankshaft Company of Illinois
[Logo]
Dynamic Corporation
[Logo]
Eisenbahntechnik Halberstadt
[Logo]
Karl Georg Bahntechnik GmbH
[Logo]
Keystone Railway Equipment Company
[Logo]
"KG" Ringfeder Bahntechnik GmbH
[Logo]
Prime Manufacturing Corporation
[Logo]
Unit Rail Anchor Company, Inc
[Logo]
Wakomp s.r.o.
PETROLEUM ANALYZERS
- ---------------------------
VARLEN INSTRUMENTS INC.
MANUFACTURERS OF:
[Logo]
Alcor
[Logo]
Herzog
[Logo]
PetroSpec
[Logo]
Precision Scientific
VEHICULAR PRODUCTS
- ---------------------------
Consolidated Metco, Inc.
[Logo]
Means Industries, Inc.
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
The following table sets forth certain information with respect to the
principal significant subsidiaries of the Registrant. All of the voting
securities of each subsidiary are owned by the Registrant (or a wholly owned
subsidiary of the Registrant) and its financial statements are included in
the consolidated financial statements of the Registrant.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ----------------
<S> <C>
Acieries de Ploermel France
Brenco, Incorporated Virginia
Chrome Crankshaft Co. Delaware
Chrome Crankshaft Company of Illinois Illinois
Consolidated Metco, Inc. Delaware
Dynamic Corporation Indiana
Eisenbahntechnik Halberstadt GmbH Germany
Karl Georg Bahntechnik GmbH Germany
Keystone Industries, Inc. Delaware
KG Ringfeder Bahntechnik GmbH Germany
Means Industries, Inc. Michigan
Means Technology Corporation Cayman Islands
Quality Bearing Service of Arkansas, Inc. Virginia
Quality Bearing Service of Kentucky, Inc. Virginia
Quality Bearing Service of Nevada, Inc. Virginia
Quality Bearing Service of Virginia, Inc. Virginia
Prime Manufacturing Corporation Delaware
Unit Rail Anchor Company, Inc. Delaware
Varlen Instruments Inc. Delaware
Walter Herzog GmbH Germany
Wakomp s.r.o. Czech Republic
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Varlen Corporation:
We consent to the incorporation by reference in the Registration Statements
of Varlen Corporation and subsidiaries on Form S-8, File No. 33-55132; Form
S-8, File No. 33-60995; Form S-3, File No. 333-33909; Form S-8, File No.
333-45673; and Form S-8, File No. 333-68469 of our reports dated March 8,
1999 appearing in and incorporated by reference in this Annual Report on Form
10-K of Varlen Corporation and subsidiaries for the year ended January 31,
1999.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 20, 1999
<PAGE>
Exhibit 24
VARLEN CORPORATION
Power of Attorney
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
of Varlen Corporation (the "Company") does hereby irrevocably constitute and
appoint Richard A. Nunemaker, his attorney-in-fact and agent to sign and
execute in his name and on his behalf, in any and all capacities in which he
may be required to sign, an Annual Report of the Company on Form 10-K under
the Securities and Exchange Act of 1934 for the fiscal year ended January 31,
1999, to be filed with the Securities and Exchange Commission, and any
amendments, revisions or supplements thereto, including any exhibits,
schedules and documents in connection therewith and any other instruments
necessary or incidental thereto, all as fully and to the same effect as he
might or could do in person if present and acting, and does hereby ratify and
confirm all that his attorney-in-fact shall do or cause to be done incident
to or in connection with the foregoing or by virtue of the foregoing.
IN WITNESS WHEREOF, each of the undersigned has duly executed this Power
of Attorney this 6th day of April 1999.
/s/ Ernest H. Lorch /s/ L. William Miles
- ------------------------------ ------------------------------
Ernest H. Lorch, L. William Miles,
Senior Chairman of the Board and Director
Director
/s/ Greg A. Rosenbaum /s/ Joseph J. Ross
- ------------------------------ ------------------------------
Greg A. Rosenbaum, Joseph J. Ross,
Director Director
/s/ Theodore A. Ruppert /s/ Richard L. Wellek
- ------------------------------ ------------------------------
Theodore A. Ruppert, Richard L. Wellek,
Director Chairman of the Board and
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 11,618
<SECURITIES> 0
<RECEIVABLES> 87,974
<ALLOWANCES> 0
<INVENTORY> 60,625
<CURRENT-ASSETS> 178,403
<PP&E> 255,223
<DEPRECIATION> 110,517
<TOTAL-ASSETS> 475,524
<CURRENT-LIABILITIES> 103,609
<BONDS> 94,643
0
0
<COMMON> 1,699
<OTHER-SE> 239,221
<TOTAL-LIABILITY-AND-EQUITY> 475,524
<SALES> 646,672
<TOTAL-REVENUES> 646,672
<CGS> 477,935
<TOTAL-COSTS> 477,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,309
<INCOME-PRETAX> 71,477
<INCOME-TAX> 30,235
<INCOME-CONTINUING> 41,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,242
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.38
</TABLE>