(804) 697-1297 01900.048
[email protected]
July 29, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Brenco, Incorporated (0-6839)
Definitive Proxy Materials
Dear Sir or Madam:
Enclosed on behalf of Brenco, Incorporated (the "Company") for filing
in electronic format pursuant to Rule 14a-6(b) and Regulation S-T are the
following definitive proxy materials in the form such materials are being
mailed to shareholders of the Company today, July 29, 1996:
1. Schedule 14A Information Sheet;
2. Letter to Shareholders from the Chairman;
3. Proxy Statement;
4. Exhibit A - Plan of Merger (excerpted from the previously filed
Acquisition Agreement);
5. Exhibit B - Opinion of Wheat, First Securities, Inc.; and
6. Form of Proxy Card.
<PAGE>
As indicated in the transmittal letter accompanying the Preliminary
Proxy Materials filed on July 11, 1996, no fee is due in connection with
the filing of the enclosed proxy materials as a result of the offset of the
amount of any such fees against amounts previously paid in connection with
this transaction.
Sincerely yours,
Jean Penick Watkins
108/663
Enclosures
cc: The NASDAQ Stock Market
Mr. Jacob M. Feichtner
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14 a-11(c) or 240.14a-12
BRENCO, INCORPORATED
(Name of Registrant as Specified In Its Charter)
...........................................................................
..Jacob M. Feichtner
Executive Vice President and Secretary
Brenco, Incorporated
(Name of Person(s) Filing Proxy Statement)
...........................................................................
..
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2),
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies:
Common stock, par value $1.00 per share
(2) Aggregate number of securities to which transaction applies:
3,470,529 (estimate of maximum number of shares that may be cashed
out in the merger to which the proxy statement relates)
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $16.125
(4) Proposed maximum aggregate value of transaction: $55,962,280
(5) Total fee paid: None due. At the time of the filing on June 20,
1996, of a Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") by BAS, Inc.. ("Purchaser") and Varlen Corporation, in
connection with Purchaser's offer to purchase all outstanding
shares of common stock, par value $1.00 per share (the "Shares"),
of Brenco, Incorporated (the "Company"), a fee of $31,535.49
(including $100 paid for the related Schedule 13D filing fee) was
paid, based on the total number of outstanding shares of the
Company (other than those already owned by an affiliate of
Purchaser). The fee attributable to the maximum number of shares
that may be cashed out in the merger to which the preliminary proxy
statement relates would be $11,192, which has been previously paid
as part of the Schedule 14D-1 filing and is therefore entitled to
be offset as set forth below.
<PAGE>
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $31,535.49
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1
(3) Filing Party: BAS, Inc., Grantley Corporation and Varlen
Corporation.
(4) Date Filed: June 20, 1996
<PAGE>
BRENCO, INCORPORATED
July 29, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Brenco, Incorporated (the "Company") to be held on August 23, 1996, as
set forth in the attached Notice of Special Meeting of Shareholders. At
this meeting you will be asked to consider and vote upon the approval and
adoption of a Plan of Merger dated as of July 26, 1996, pursuant to which
BAS, Inc. ("Purchaser"), a Virginia corporation and a wholly-owned
subsidiary of Varlen Corporation, a Delaware corporation ("Varlen"), will
be merged with and into the Company with the Company as the surviving
corporation. This action is proposed in accordance with the terms of the
Acquisition Agreement dated June 15, 1996, among Purchaser, Varlen and the
Company (the "Merger Agreement"). Details of the proposed merger and other
important information are contained in the accompanying Proxy Statement.
The merger is the second and final step in the acquisition of the
Company by Varlen and Purchaser pursuant to the terms of the Merger
Agreement. The first step provided for in the Merger Agreement was a
tender offer by Purchaser for all the outstanding shares of the Common
Stock, par value $1.00 per share of the Company (the "Shares"). Upon
expiration of the tender offer on July 18, 1996, Purchaser purchased
9,339,986 Shares (approximately 91.5% of the outstanding Shares) for
$16.125 in cash per Share.
In the merger, the Company's remaining shareholders (other than
Varlen, Purchaser or any direct or indirect subsidiary of Varlen or
Purchaser) will receive the same consideration paid in the tender offer,
$16.125 in cash, without any interest, for each Share owned, and thereafter
they will have no equity interest in the Company.
Your Board of Directors, after careful consideration, has unanimously
approved the Merger Agreement and the Plan of Merger and determined that
the tender offer and the merger are fair to and in the best interests of
the Company and its shareholders. In addition, in connection with its
approval of the transaction with Varlen and Purchaser, the Board of
Directors of the Company received a written opinion dated June 15, 1996
from the Company's financial advisor, Wheat, First Securities, Inc.
("Wheat"), to the effect that, as of the date of such opinion, and based
upon its review and analysis and subject to the limitations set forth
therein, the $16.125 per Share price to be received by the holders of
Shares (other than Varlen, Purchaser or any direct or indirect subsidiary
of Varlen or Purchaser) in the tender offer and the merger was fair, from a
financial point of view, to such holders. The full text of the written
opinion dated June 15, 1996 of Wheat, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is
attached as Exhibit B to the enclosed Proxy Statement and should be read in
its entirety. Your Board of Directors recommends that you vote FOR the
approval and adoption of the Plan of Merger.
<PAGE>
Approval of the proposed merger requires the affirmative vote of the
holders of more than two-thirds of the outstanding Shares. As a result of
the completion of the tender offer, Purchaser beneficially owns and has the
right to vote at the Special Meeting sufficient Shares to cause the Plan of
Merger to be approved without the affirmative vote of any other
shareholder.
We ask you to read the enclosed material carefully and request
that you complete and return the enclosed proxy as soon as possible. You
may, of course, attend the Special Meeting and vote in person, even if you
have previously returned your proxy.
Sincerely,
Needham B. Whitfield
Chairman of the Board
and Chief Executive Officer
<PAGE>
BRENCO, INCORPORATED
Notice of Special Meeting of Shareholders
to be held on August 23, 1996
To the Shareholders of Brenco, Incorporated:
A special meeting of shareholders of Brenco, Incorporated will be held
at Varlen's executive offices at 55 Shuman Blvd., Suite 500, Naperville,
Illinois, on August 23 1996 at 8:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve a Plan of Merger
dated as of July 26, 1996 ("Plan of Merger") adopted pursuant to and in
accordance with an Acquisition Agreement, dated June 15, 1996 (the "Merger
Agreement"), by and among Brenco, Incorporated, a Virginia corporation (the
"Company"), BAS, Inc., a Virginia corporation ("Purchaser") and a wholly-
owned subsidiary of Varlen Corporation, a Delaware corporation ("Varlen"),
and Varlen pursuant to which: (a) Purchaser will be merged with and into
the Company ("Merger"), the Company will be the surviving corporation and a
wholly owned subsidiary of Varlen; and (b) in the Merger each outstanding
share of the Company's common stock, $1.00 par value per share (the
"Shares"), (other than Shares held by Varlen, Purchaser or any direct or
indirect subsidiary of Varlen or Purchaser) will be converted into the
right to receive $16.125 in cash, without any interest; and
2. To consider and act upon any matters incidental to the foregoing
and to transact such other business as may properly come before the meeting
or any and all adjournments or postponements thereof.
Only holders of record of Shares as of the close of business on July
23, 1996 are entitled to notice of and to vote at the Special Meeting or
any adjournment thereof.
Your attention is respectfully directed to the accompanying Proxy
Statement. We ask you to read it carefully. Whether or not you expect to
attend the meeting in person, please complete and return the enclosed proxy
in the envelope provided. The proxy may be revoked at any time before it
is exercised in the manner described in the Proxy Statement.
BY ORDER OF THE BOARD
OF DIRECTORS
Jacob M. Feichtner
Executive Vice President and Secretary
Please complete and sign the accompanying form of proxy and return it
promptly in the enclosed envelope whether or not you intend to attend
the special meeting.
Please do not send in any certificates for your shares at this time.
<PAGE>
BRENCO, INCORPORATED
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Brenco,
Incorporated, a Virginia corporation (the "Company"), of record as of July
23, 1996 (the "Record Date"), in connection with the solicitation of
proxies from holders of shares of common stock, par value $1.00 per share
(the "Shares"), of the Company by the Board of Directors of the Company for
use at a special meeting (the "Special Meeting") of shareholders of the
Company to consider and vote upon (i) adoption and approval of a Plan of
Merger dated as of July 26, 1996 (the "Plan of Merger") that is proposed
pursuant to an Acquisition Agreement, dated as of June 15, 1996 (the
"Merger Agreement") by and among the Company, BAS, Inc., a Virginia
corporation ("Purchaser") and a wholly owned subsidiary of Varlen
Corporation, a Delaware corporation ("Varlen"), and Varlen, and the
transactions contemplated thereby, including the merger (the "Merger") of
Purchaser with and into the Company pursuant to the Merger Agreement, and
(ii) such other matters as may properly be brought before the Special
Meeting. It is anticipated that the Merger will become effective as soon
as practicable following the approval of the Plan of Merger at the Special
Meeting.
The date of this Proxy Statement is July 29, 1996. This Proxy
Statement and the accompanying form of proxy are being furnished by the
Company and were first mailed on or about July 29, 1996 to shareholders of
record on the Record Date.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender
offer (the "Offer") on June 20, 1996 for all outstanding Shares at a price
of $16.125 per Share, net to the seller in cash, without any interest. The
Offer was made pursuant to an Offer to Purchase dated June 20, 1996 (the
"Offer to Purchase"), the related Letter of Transmittal and the Merger
Agreement. The Offer expired at 12:00 p.m. midnight, New York City time,
on July 18, 1996. Purchaser has accepted for payment 9,339,986 Shares
validly tendered pursuant to the Offer and not withdrawn, representing
approximately 91.5% of the outstanding Shares.
Simultaneously with entering into the Merger Agreement, Varlen and
Purchaser entered into a Shareholder Tender Agreement dated as of June 15,
1996 (the "Shareholder Tender Agreement") with Needham B. Whitfield,
Chairman of the Board and Chief Executive Officer of the Company, Anne
Whitfield Kenny (whose husband, John C. Kenny is a director of the
Company), and certain members of their families (and trusts for the benefit
of such family members), pursuant to which such shareholders agreed to
tender in the Offer all of the Shares owned of record or beneficially by
them. Pursuant to the terms of the Shareholder Tender Agreement, such
shareholders have tendered 2,058,343 Shares, or approximately 20% of the
outstanding Shares and no longer have any equity interest in the Company.
<PAGE>
The Merger will be consummated on the terms and subject to the
conditions set forth in the Merger Agreement and Plan of Merger, as a
result of which at the effective time of the Merger (the "Effective Time")
(i) the Company will continue as the surviving corporation (the "Surviving
Corporation") and will be a wholly owned subsidiary of Varlen and (ii) each
Share issued and outstanding (other than Shares held by Varlen, Purchaser
or any direct or indirect subsidiary of Varlen or Purchaser) will be
converted into the right to receive $16.125 net per Share in cash, without
any interest (the "Merger Consideration").
The Special Meeting will be held at Varlen's executive offices at 55
Shuman Blvd, Suite 500, Naperville, Illinois, at 8:00 a.m., local time, on
August 23, 1996, to consider approval and adoption of the Plan of Merger.
On June 15, 1996, the Board of Directors unanimously determined that
the Offer and the Merger are fair to and in the best interests of the
Company's shareholders.
Wheat, First Securities, Inc., ("Wheat"), financial advisor to the
Company, has delivered to the Board of Directors its written opinion, dated
June 15, 1996, that, as of such date based on various analyses and subject
to the limitations set forth in its opinion, the consideration to be
received by the shareholders of the Company pursuant to the Merger
Agreement is fair to such shareholders from a financial point of view. See
"The Merger - Opinion of the Company's Financial Advisor".
Under the Virginia Stock Corporation Act (the "Virginia Act"), the
affirmative vote of more than two-thirds of the issued and outstanding
Shares, present in person or represented by proxy at the Special Meeting
and entitled to vote thereon, is required to adopt and approve the Merger
Agreement and the Merger. As of the date hereof, Purchaser, together with
another wholly-owned subsidiary of Varlen, beneficially owns in the
aggregate 9,799,986 shares, representing approximately 96% of the shares
outstanding as of the record date, and therefore has sufficient voting
power to adopt and approve the Plan of Merger without the vote of any other
shareholder of the Company. Under the Virginia Act and the Articles of
Incorporation of the Company, no action will be required by shareholders of
the Company (other than Purchaser) to effect the Merger.
Dissenters' rights are not available to shareholders of the Company
under the Virginia Act with respect to the Merger. See "Dissenters'
Rights".
As of the Record Date, there were approximately 1,000 holders of
record of the Shares, with 10,223,940 Shares issued and outstanding.
Holders of record at the close of business on the Record Date are entitled
to one vote per share held on all matters submitted to a vote of
shareholders. The Shares are currently traded in the over-the-counter
market and are quoted in the National Association of Securities Dealers,
Inc. ("NASD") Automated Quotation System ("NASDAQ") National Market System
(the "NMS"). As a result of the consummation of the Offer and the Merger,
the registration of the Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the trading of the Shares on the
NASDAQ NMS, will be terminated.
<PAGE>
TABLE OF CONTENTS
Introduction 1
The Special Meeting 4
Date, Time and Place 4
Purpose of the Meeting 4
Vote Required 4
Solicitation, Revocation and Use of Proxies 4
Certain Information Concerning the Company 5
General 5
Selected Financial Information 6
Certain Company Projections 6
Certain Information Concerning the Purchaser and Varlen 7
General 7
Selected Financial Information 8
The Merger 9
Background of the Merger 9
Recommendation of the Board of Directors;
Reasons for Recommendation 13
Opinion of the Company's Financial Advisor 14
Interests of Certain Persons in the Merger 16
Financing of the Offer and Merger 19
Certain Effects of the Merger 20
Payment of the Merger Consideration 20
The Merger Agreement and Plan of Merger 21
The Merger 21
Federal Income Tax Consequences 24
Accounting Treatment 25
Regulatory Matters 25
Dissenters' Rights 25
Market Price of Shares and Dividends 26
Security Ownership of Certain Beneficial Owners
and Management 27
Independent Public Accountants 28
Other Matters to Come Before Meeting 28
Shareholder Proposals for 1997 Annual Meeting 28
Available Information 28
Incorporation of Certain Documents by Reference 29
Exhibits
Exhibit A Plan of Merger
Exhibit B Opinion of Wheat, First Securities, Inc.
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held at Varlen's executive offices at 55
Shuman Blvd, Suite 500, Naperville, Illinois, at 8:00 a.m., local time, on
August 23, 1996.
Purpose of the Meeting
At the Special Meeting, shareholders will be asked to consider and
vote upon the approval and adoption of the Plan of Merger pursuant to which
the Purchaser will be merged with and into the Company, and the Company
will be the surviving corporation and a wholly owned subsidiary of Varlen.
Vote Required
The Board of Directors has fixed the close of business on the Record
Date for the determination of shareholders entitled to notice of and to
vote at the Special Meeting or any adjournment thereof. Only shareholders
of record at the close of business on the Record Date are entitled to
notice of and to vote at the Special Meeting. Holders of record may cast
one vote per Share either in person or by proxy on each matter to be voted
on at the Special Meeting.
The presence at the Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding Shares will constitute a quorum
for the transaction of business. Approval and adoption of the Plan of
Merger requires the affirmative vote of more than two-thirds of the issued
and outstanding Shares. As of the date hereof, Purchaser, together with
another wholly-owned subsidiary of Varlen, beneficially owns in the
aggregate 9,799,986 Shares, representing approximately 96% of the Shares
outstanding as of the Record Date, and therefore has sufficient voting
power to constitute a quorum at the Special Meeting and to adopt and
approve the Plan of Merger without the presence or vote of any other
shareholder of the Company. In determining whether the Plan of Merger has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against the Plan of Merger.
At the date of this Proxy Statement, the Board of Directors does not
know of any business to be presented at the Special Meeting other than as
set forth in the Notice of Special Meeting accompanying this Proxy
Statement. If any other matters should properly come before the Special
Meeting, it is intended that the Shares represented by proxies will be
voted with respect to such matters in accordance with the judgment of the
persons voting such proxies.
<PAGE>
Solicitation, Revocation and Use of Proxies
Shareholders should sign, date and mail the enclosed Proxy in the
postage-paid envelope provided, whether or not they plan to attend the
Special Meeting. All properly executed proxies that are not revoked will
be voted at the Special Meeting in accordance with the instructions
contained therein. If a shareholder executes and returns a proxy and does
not specify otherwise, the Shares represented by such proxy will be voted
"for" approval and adoption of the Plan of Merger in accordance with the
recommendation of the Board of Directors. A shareholder who has executed
and returned a proxy may revoke it at any time before it is voted at the
Special Meeting by written notice to the Company, by submitting a proxy
bearing a later date or by attending the Special Meeting and voting in
person.
Proxies may be solicited by and on behalf of the Board of Directors.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by mail, the directors, officers, employees and agents of the
Company may solicit proxies from the shareholders of the Company by
personal interview, telephone, telegram or otherwise. Arrangements will
also be made with brokerage firms and other custodians, nominees and
fiduciaries who hold of record Shares for the forwarding of solicitation
materials to the beneficial owners thereof. The Company will reimburse
such brokers, custodians, nominees and fiduciaries for the reasonable out-
of-pocket expenses incurred by them in connection therewith.
CERTAIN INFORMATION CONCERNING THE COMPANY
General. The Company is a Virginia corporation with its principal
executive offices located at One Park West Circle, Midlothian, Virginia
23113, telephone (804) 794-1436. The Company is primarily engaged in the
manufacture, sale and servicing of roller bearings; the manufacture and
sale of automotive forgings; the provision of third party railcar switching
services; and the operation of short-line railroads.
Selected Financial Information. The following table contains a summary
of certain selected financial information with respect to the Company and
its subsidiaries for the fiscal years ended December 31, 1995, December 31,
1994 and December 31, 1993 and for the three-month periods ended March 31,
1996 and March 31, 1995, which has been excerpted and derived from the
audited consolidated financial statements contained in the Company's Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995 and
December 31, 1994, and from unaudited consolidated financial statements
contained in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996. More comprehensive financial information is included
in such reports and other documents filed by the Company with the
Securities and Exchange Commission ("Commission"), and the following
summary is qualified in its entirety by reference to such documents and all
of the financial statements and related notes contained therein.
<PAGE>
BRENCO, INCORPORATED
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
Three Months Ended
March 31, Fiscal Year Ended December 31,
1996 1995 1995 1994 1993
(unaudited)
Income Statement Data:
Net sales $32,875 $35,232 $127,139 $117,897 $98,724
Costs and expenses 28,825 29,224 110,177 102,727 89,413
Interest expense 178 214 723 799 741
Income before income
taxes 4,123 5,979 16,909 14,555 6,893
Net income 2,571 3,640 10,660 8,802 4,241
Earnings per share:
Net income per share .25 .36 1.05 .88 .43
Average shares
outstanding 10,189 10,102 10,135 10,050 9,942
Balance Sheet Data:
Current assets $56,780 $49,171 $49,520 $41,968 $36,900
Total assets 93,041 84,743 86,278 76,569 69,629
Current liabilities 11,962 12,297 8,438 7,530 8,312
Long-term debt 8,184 9,540 8,212 9,567 10,000
Shareholders' equity 66,134 58,777 63,999 55,498 48,289
Certain Company Projections. Prior to entering into the Merger
Agreement, Varlen conducted a due diligence review of the Company and in
connection with such review the Company provided Varlen with certain non-
public business and financial information from the Company including
summary business plans comprised of income, balance sheet and cash flow
statements, financial plans and certain historical data detailing sales,
costs and expenses and balance sheet data. Certain projected information
included in the non-public business and financial records of the Company
included that (i) net sales for the Company for the fiscal years ending
December 31, 1996 through 1998 would be approximately $125 million, $124
million and $130 million, respectively and (ii) net income for the Company
for the fiscal years ending December 31, 1996 through 1998 would be
approximately $9.6 million, $9.7 million and $10.3 million, respectively.
None of the assumptions which form the basis for the projected information
give effect to the Offer, the Merger or the financing thereof or the
potential combined operations of Varlen and the Company after consummation
of such transactions. See "The Merger - Financing of the Offer and the
Merger."
The Company does not as a matter of course make public any projections
as to future performance or earnings. The above projections and forecasts
were prepared for internal purposes only, were not prepared with a view to
compliance with the Commission's published guidelines for disclosure of
forward-looking information or the guidelines established by the American
<PAGE>
Institute of Certified Public Accountants regarding projections, and were
not intended for public dissemination. The foregoing projections and
forecasts are necessarily based on assumptions as to facts which are not
within the Company's control. No assurance can be given that such
projections or forecasts will prove to be accurate to any extent and none
of the Company, Varlen, the Purchaser, or any of their respective advisors
or any other party who received such information assumes any responsibility
for the accuracy of such projections or forecasts. Such projections and
forecasts are included herein only because Varlen was provided them prior
to the execution of the Merger Agreement. Although presented with
numerical specificity, these projections and forecasts are based upon a
variety of assumptions relating to the businesses of the Company which may
not be realized and are subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company. There
can be no assurance that the projections and forecasts set forth above will
be realized, and actual results may vary materially from those shown. The
projections and forecasts have not been examined or compiled by the
Company's independent public accountants. The inclusion of such
projections and forecasts herein should not be regarded as an indication
that the Company, Varlen, the Purchaser, any of their respective advisors
or any other party who received such information considers it an accurate
prediction of future events.
CERTAIN INFORMATION CONCERNING THE PURCHASER AND VARLEN
General. The Purchaser is a newly incorporated Virginia corporation
and a wholly owned subsidiary of Varlen. To date, the Purchaser has
engaged in no activities other than those in connection with the Offer and
the Merger. The principal executive offices of the Purchaser and Varlen
are located at 55 Shuman Boulevard, P.O. Box 3089, Naperville, Illinois
60566-7089, telephone (708) 420-0400.
Varlen, a Delaware corporation, was formed in 1969. Varlen is a
manufacturer of (i) aluminum permanent mold and die castings and structural
molded plastic components for trucks and trailers; (ii) components for
railcars and locomotives; (iii) remanufactured crankshafts and camshafts
and railroad track fastener systems; (iv) automatic transmission reaction
plates, steering column and transmission components, seat frame brackets
and precision stamped metal components and weldments for cars and light
trucks; and (v) instruments to improve yield, certify products and monitor
regulatory standards for petroleum products.
Except with respect to the purchase of the Shares by the Purchaser
pursuant to the Offer, Purchaser does not have any significant assets or
liabilities and does not engage in activities other than those incident to
its formation and capitalization and the transactions contemplated by the
Offer and the Merger. Because the Purchaser is a newly formed corporation
and has minimal assets and capitalization, no meaningful financial
information regarding the Purchaser is available.
<PAGE>
Varlen is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information, as of
particular dates, concerning Varlen's business, principal physical
properties, capital structure, material pending legal proceedings,
operating results, financial condition, directors and executive officers,
their remuneration, stock options granted to them, the principal holders of
Varlen's securities and any material interest of such persons in
transactions with Varlen and other matters is required to be disclosed in
proxy statements and annual reports distributed to Varlen's shareholders
and filed with the Commission. Such reports, proxy statements and other
information may be examined, and copies may be obtained from the Commission
in the same manner set forth under "Available Information" with respect to
information concerning the Company. Such information should also be
available for inspection at the offices of the NASDAQ Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Selected Financial Information. Set forth below is a summary of
certain selected financial information of Varlen and its subsidiaries for
the fiscal years ended January 31, 1996, January 31, 1995 and January 31,
1994 and for the three-month periods ended May 4, 1996 and April 29, 1995,
which has been excerpted or derived from the audited consolidated financial
statements contained in Varlen's Annual Report on Form 10-K for the fiscal
years ended January 31, 1996 and January 31, 1995 and from unaudited
financial information contained in the Company's Quarterly Report on Form
10-Q for the quarter ended May 4, 1996. More comprehensive financial
information is included in such reports and other documents filed by Varlen
with the Commission, and the following summary is qualified in its entirety
by reference to such document and all of the financial statements and
related notes contained therein.
<PAGE>
VARLEN CORPORATION
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
Three Months Ended
May 4, April 29, Fiscal Year Ended January 31,
1996 1995 1996 1995 1994
(unaudited)
Income Statement Data:
Net sales $91,975 $106,969 $386,987 $341,521 $291,908
Costs and 68,178 79,611 290,052 260,469 221,988
expenses
Selling, general
and 14,254 15,289 57,762 50,436 45,087
administrative
expenses
Interest expense, 1,053 1,173 4,467 4,762 6,110
net
Income before 8,490 10,896 34,706 25,854 18,723
income taxes
Net earnings 4,822 6,156 19,609 14,762 10,766
Earnings per
share*
Primary earnings
per share .79 1.01 3.19 2.44 1.80
Fully diluted
earnings per .60 .75 2.43 1.92 1.57
share
Average shares
outstanding*:
Primary 6,095 6,101 6,141 6,064 5,986
Fully diluted 9,159 9,166 9,199 9,136 8,062
Balance Sheet Data:
Current assets $112,008 $119,118 $111,514 $111,535 $84,575
Total assets 234,123 232,214 230,874 220,186 186,264
Current 44,201 57,734 44,470 53,822 35,529
liabilities
Long-term debt 73,403 72,790 73,398 72,788 72,698
Shareholders' 101,399 86,766 97,953 79,031 63,644
equity
* Amounts prior to May 4, 1996 have been restated for a 10% stock dividend
declared on May 29, 1996 and payable on July 15, 1996.
<PAGE>
THE MERGER
Background of the Merger
As described in detail below, beginning in December, 1995, Varlen and
the Company engaged in a series of discussions and negotiations which
culminated in the execution of the Merger Agreement on June 15, 1996.
On December 11, 1995, at Varlen's request, two senior officers of
Varlen, Richard L. Wellek, President and Chief Executive Officer, and
Raymond A. Jean, Executive Vice President and Chief Operating Officer,
visited the Company's facilities in Petersburg, Virginia and met with
Needham B. Whitfield, Chairman of the Board of the Company and Chief
Executive Officer, J. Craig Rice, President and Chief Operating Officer,
and Howard J. Bush, Vice President--Marketing. After a presentation by Mr.
Bush of the Company's markets and businesses, the Varlen executives were
given a tour of the manufacturing facilities, and afterwards a general
discussion ensued. The Varlen executives pointed to a variety of changes
in the railroad markets domestically and internationally, and proposed that
a large supplier, with a wide variety of products important to the rail
industry, would be better positioned to deal with these changing
conditions. The Varlen executives asked the Company if they would be
interested in combining with Varlen to form such a supplier. The Company's
executives agreed to think about the proposition, and to have further
discussions with Varlen.
At its regular monthly meeting on December 15, 1995, the Company's
Board of Directors was advised of the Varlen visit and its interest.
On January 25, 1996, Mr. Wellek, together with George W. Hoffman,
Railroad Group Vice President for Varlen, returned to Petersburg and
resumed discussions with Messrs. Whitfield, Rice, and Bush. A number of
marketing synergies were identified between the two companies, and both
parties agreed to explore each other's operations in greater depth.
At its regular monthly meeting on January 26, 1996, the Company's
Board of Directors was advised of the Varlen visit and its continuing
interest.
On February 20, 1996, Messrs. Whitfield, Rice and Bush visited
Keystone Industries, Inc. in Camp Hill, Pennsylvania. Keystone is a
manufacturer of railroad equipment components and a wholly owned subsidiary
of Varlen. After a tour of the facilities, further discussions about
operations and railroad markets were conducted with Messrs. Wellek and
Hoffman.
On February 21, 1996, Messrs. Whitfield and Rice accompanied Mr.
Wellek to Vassar, Michigan to tour two automotive parts plants of a Varlen
subsidiary and meet local managers of these operations. Business
philosophies, marketing strategies, organizational culture and operating
methods were discussed.
<PAGE>
On March 11, 1996, Mr. Wellek visited Messrs. Whitfield and Rice at
the Company's administrative headquarters in Midlothian, Virginia to
discuss whether there was enough fit between the two companies to explore
in earnest the possibility of a business combination. The two companies
agreed to continue discussions.
On March 20, 1996, Messrs. Wellek and Jean met Mr. Rice and Keith Poe,
Executive Vice President of Quality Bearing Service ("QBS"), the Company's
wholly owned reconditioning subsidiary, in Little Rock, Arkansas to tour
QBS's newest reconditioning plant and discuss the reconditioning
operations.
On March 21, 1996, Messrs. Wellek and Jean, who were in Louisville,
Kentucky for an annual truck show, made a brief tour of QBS's
reconditioning plant in Louisville.
At its regular monthly meeting on March 22, 1996, the Company's Board
of Directors was advised of the continuing Varlen visits and discussions
between the two companies, and the process the Company intended to follow
with respect to these discussions was discussed in more detail.
On March 27, 1996, Varlen signed a confidentiality agreement with the
Company providing for the transfer of confidential information to Varlen
about the Company's operations and financial results, and holding Varlen
subject to a standstill provision in the event Varlen wished to use this
information for purposes of, among other things, making a public tender for
the Company shares.
On April 3, 1996, Richard A. Nunemaker, Vice President, Finance and
Chief Financial Officer of Varlen, met with Jacob M. Feichtner, Executive
Vice President and Secretary of the Company and Mr. Whitfield to determine
what financial and operating data was available and to begin his inquiries.
On April 10, 1996, Messrs. Wellek, Jean, Hoffman, Thomas Robinson, and
others visited the Company's facilities in Petersburg to conduct an
engineering review of the Company's new bearing developments and its
development of a one-way clutch for the automotive market. Mr. Rice and
several of the Company's engineers were involved in the discussions.
On April 11, 1996, Messrs. Wellek, Jean, Hoffman and Robinson met with
Messrs. Rice, Whitfield, and James W. Benz, President of Rail Link, a
contract switching subsidiary wholly owned by the Company. A variety of
railroad industry and international sales issues were discussed.
On April 15, 1996, Mr. Nunemaker and Stephen E. Obendorf met with Mr.
Feichtner and others to further discuss and review financial and operating
data of the Company. On the same date, Vicki L. Casmere, Vice President,
General Counsel and Secretary of Varlen, met with the Company's counsel in
Richmond and later with Messrs. Feichtner and Whitfield in Midlothian to
conduct a general review of legal matters related to the Company's
operations.
<PAGE>
At its regular monthly meeting on April 18, 1996, the Company's Board
of Directors was brought up to date on the discussions with Varlen. The
Board determined that the Company would require the services of a financial
advisor to guide the Board and express an opinion on fairness of whatever
consideration and terms were offered.
On May 7, 1996, Mr. Wellek met with Messrs. Whitfield and Rice at the
Company's Midlothian headquarters to review the status of Varlen's
inquiries and to advise the Company's executives that Varlen wished to
acquire the Company, assuming the contract terms, timing and price were
satisfactory to both parties. There was a general discussion as to how
this process might proceed and Mr. Wellek indicated the possible price
range of a Varlen offer.
A Special Meeting of the Company's Board of Directors was called on
May 13, 1996. The details of the meeting with Mr. Wellek were reported to
the Board, who determined to engage the investment banking firm of Wheat,
First Securities, Inc. ("Wheat") of Richmond, Virginia to serve as
financial advisor to the Company.
Wheat immediately proceeded to conduct a preliminary evaluation of
potential price ranges of comparable and hypothetical transactions. At the
Company Board's regular monthly meeting on May 24, 1996, the Company's
senior management made presentations on the markets and prospects for the
Company's various businesses and why a combination with Varlen would be in
the strategic interest of the Company. This was followed by Wheat's
presentation of its preliminary evaluation. Based on the discussions that
followed, the Board directed Messrs. Whitfield and Rice to pursue serious
negotiations with Varlen as to price, terms and how such a combination
might be effected.
On May 29, 1996, Messrs. Whitfield and Rice met with Messrs. Wellek,
Jean, Nunemaker, Robinson and Ms. Casmere at Varlen's headquarters in
Naperville, Illinois. Mr. Whitfield reported the Company Board's response
to Varlen's proposal and asked for definitive terms.
On May 31, 1996, Mr. Wellek called Mr. Whitfield and informed him that
Varlen wished to make a cash tender offer for the Shares and assuming the
Company would cooperate by entering into an acquisition agreement, Varlen
would submit a proposed draft of the agreement which was done the following
week. Mr. Wellek indicated that the final price offered would depend on
the terms of the agreement.
On June 11, 1996, Mr. Wellek and Ms. Casmere of Varlen, together with
Varlen's outside counsel, met with Messrs. Whitfield and Rice of the
Company and its counsel, and negotiated the basic terms of Varlen's
proposed acquisition agreement, subject to approval of both boards.
Negotiations continued over the period from June 11 to June 14 concerning
certain additional terms of the acquisition agreement and the related
shareholder tender agreement..
<PAGE>
On June 13, 1996, the Varlen Board of Directors met and received an
update on the status of negotiations relating to the Offer and the Merger
and the proposed terms of the relevant agreements. Mr. Bush of the Company
was in attendance at the beginning of the meeting, made a presentation on
the Company's railroad bearing markets and answered questions by the Varlen
directors. The Board of Directors then approved the terms of the Offer and
the Merger and the related agreements between the two companies.
The Board of Directors of the Company held a Special Meeting on June
15, 1996, at which Wheat advised the Board of Directors, based on various
analyses and subject to the limitations set forth in its written opinion,
that the consideration was fair to the Company's shareholders from a
financial point of view, and the Board, after discussion, approved the
Merger Agreement and agreed to recommend Varlen's offer to the Company's
shareholders.
During the process of its discussions with Varlen, the Company had
conversations with several other parties who expressed some degree of
interest in a business combination. A confidentiality agreement was
entered into with one party and information shared. However, no proposals
were made by any other party and based on the timing and substance of the
Varlen offer and advice from management concerning the nature of
discussions that had occurred with such parties and from its advisor that
the Company was unlikely to receive substantially higher offers, the
Company's Board decided to proceed with the Varlen negotiations and enter
into an agreement recommending the Varlen offer.
The negotiations culminated in the execution of the Merger Agreement,
and the Shareholder Tender Agreement on Saturday, June 15, 1996. On
Monday, June 17, 1996, Varlen and the Company, in a joint press release,
announced its intention to commence the Offer.
Recommendation of the Board of Directors; Reasons for Recommendation
The Company's Board of Directors unanimously has determined that the
Merger is fair to and in the best interest of the shareholders of the
Company, has approved the Merger Agreement and the Merger and recommends
that the shareholders vote for approval and adoption of the Merger
Agreement and the Merger.
In approving the Merger Agreement and the transactions contemplated
thereby, and recommending that all shareholders tender their Shares
pursuant to the Offer, the Board of Directors considered a number of
factors, including:
(i) the financial and other terms of the Offer, the Merger and the
Merger Agreement;
(ii) that the $16.125 per Share tender offer price represents a
premium of approximately 32% over the closing price of the Shares on the
NMS on June 14, 1996, the last full trading day prior to the public
announcement of the execution of the Merger Agreement;
<PAGE>
(iii) recent trading prices of the Shares on the NMS, including the
fact that the Shares have not traded at or above the $16.125 tender offer
price in more than fifteen (15) years;
(iv) the written opinion of Wheat delivered to the Board on June 15,
1996, to the effect that, as of that date, and based upon its review and
analysis and subject to the limitations set forth therein, the
consideration to be received by the holders of the Shares pursuant to the
Offer and the Merger as contemplated in the Merger Agreement was fair, from
a financial point of view, to such holders. See "Opinion of the Company's
Financial Advisor";
(v) the view of the Board of Directors, based in part upon the
presentations of management and of Wheat to the Board of Directors on May
24 and again on June 15, 1996, regarding the likelihood of a superior offer
arising;
(vi) the continuing consolidation in the rail industry, encouraging
consolidation among suppliers, as well, to compete effectively;
(vii) the Company's long-term and short-term prospects and capital
needs, especially in light of the developing market for the Company's
automotive one-way clutch products;
(viii) the provisions of the Merger Agreement, including the
provision allowing the Company to respond to unsolicited inquiries
concerning an acquisition of the Company, and the provisions which permit
the Company to terminate the Merger Agreement upon payment to Purchaser of
a break-up fee in the event that the Board of Directors determines to
withdraw its recommendation that shareholders accept the Offer based on
the Board of Directors' determination that such action is necessary to
comply with its fiduciary duties under applicable law;
(ix) the fact that Varlen's and the Purchaser's obligations under
the Offer were not subject to any financing condition;
(x) the familiarity of the Board of Directors with the business,
results of operations, properties and financial condition of the Company
and the nature of the industry in which it operates; and
(xi) the Board of Directors' belief that the transactions
contemplated by the Merger Agreement would result in relatively few changes
to the Company's operations and customer relationships, and that employment
opportunities within the combined companies would offer growth and security
to the Company's employees.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Offer and the Merger, the Board of
Directors did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board
of Directors may have given different weights to different factors.
<PAGE>
Opinion of the Company's Financial Advisor
Wheat was engaged by the Company to act as its financial advisor in
connection with a possible business combination. In connection with this
engagement, the Company requested that Wheat provide a written opinion to
the Board of Directors of the Company as to the fairness of the
consideration to be received by shareholders of the Company, from a
financial point of view, in connection with the proposed sale of the
Company to Varlen or one of its subsidiaries. On June 15, 1996, at a
meeting of the Board of Directors of the Company held to evaluate the
proposed transaction with Varlen, Wheat delivered an oral opinion
(subsequently confirmed by delivery of a written opinion) to the Board of
Directors of the Company to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated in such opinion, the
cash consideration of $16.125 per share to be received by the Company's
shareholders was fair, from a financial point of view, to such holders.
The full text of Wheat's opinion, which sets forth certain assumptions
made, matters considered and limitations on review undertaken is attached
as Exhibit B to this Proxy Statement and is incorporated herein by
reference. Shareholders are urged to read this opinion carefully in its
entirety. The summary of the opinion of Wheat set forth in this Proxy
Statement is qualified in its entirety by reference to the opinion.
Wheat's opinion is directed only to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of the
Company and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote on the Merger.
In arriving at its opinion, Wheat, among other things, (1) reviewed
the financial and other information contained in the Company's Annual
Reports to Shareholders and Annual Reports on Form 10-K for the fiscal
years ended December 31, 1995, December 31, 1994 and December 31, 1993, and
certain interim reports to Shareholders and Quarterly Reports on Form 10-Q;
(2) conducted discussions with members of senior management of the Company
concerning the Company's business and prospects; (3) reviewed certain
publicly available information with respect to historical market prices and
trading activity for the Shares and for certain publicly traded companies
which it deemed relevant; (4) compared the results of operations of the
Company with those of certain publicly traded companies which it deemed
relevant; (5) compared the proposed financial terms of the transaction with
the financial terms of certain other mergers and acquisitions which it
deemed to be relevant; (6) performed a discounted cash flow analysis of the
Company based upon estimates of projected financial performance prepared by
the management of the Company; and (7) reviewed the Merger Agreement
(including the Exhibits thereto) dated June 15, 1996. In addition to the
foregoing, Wheat reviewed such other financial studies and analyses and
performed such other investigations and took into account such other
matters as it deemed necessary.
<PAGE>
In rendering its opinion, Wheat assumed and relied upon the accuracy
and completeness of all information supplied or otherwise made available to
it by Varlen and the Company, and did not assume any responsibility for
independent verification of such information or any independent valuation
or appraisal of any of the assets of Varlen and the Company. Wheat relied
upon the management of Varlen and the Company as to the reasonableness and
achievability of their financial and operational forecasts and projections,
and the assumptions and bases therefor, provided to it, and assumed that
such forecasts and projections reflected the best available estimates and
judgments of such managements at that time, and assumed that such forecasts
and projections would be realized in the amounts and in the time periods
estimated by such managements. Wheat's opinion is necessarily based upon
market, economic and other conditions as they existed and could be
evaluated on the date of its opinion and the information made available to
Wheat through that date. Events occurring after that date could materially
affect the assumptions and conclusions contained in Wheat's opinion.
Wheat's opinion does not address the relative merits of the transaction
contemplated by the Agreement as compared to any alternative business
strategies that might exist for the Company, nor does it address the effect
of any other business combination in which the Company might engage.
Wheat's advisory services and its opinion are provided to the
Company's Board of Directors for use in evaluating the transaction
contemplated by the Agreement and do not constitute a recommendation to any
shareholder as to how such shareholder should vote on the Merger.
Pursuant to the terms of its engagement, the Company agreed to pay
Wheat a fee of $50,000 after the delivery of an oral opinion to the
Company's Board of Directors by Wheat as to the fairness of the
consideration to be received in the transaction by the Company's
shareholders, from a financial point of view; an additional fee of $150,000
at the time the opinion was included as an exhibit to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9; and an additional
$150,000 payable upon the closing of the transaction. In addition, the
Company agreed to reimburse Wheat for its reasonable out-of-pocket expenses
incurred (including reasonable legal fees and expenses) in performing its
services under its engagement, whether or not the transaction is
consummated or the engagement terminates or expires. In addition, the
Company has agreed to indemnify Wheat and certain related persons against
certain liabilities related to or arising out of Wheat's engagement.
Wheat is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and
other purposes. The Company selected Wheat as its financial advisor based
upon its familiarity with the Company and the industry in which the Company
operates and its experience, ability and reputation with respect the
mergers and acquisitions.
<PAGE>
In the ordinary course of its business as a broker-dealer, Wheat may,
from time to time, have a long or short position in, and buy or sell, debt
or equity securities of the Company or Varlen for its own account or for
the accounts of its customers. Wheat has provided investment banking
services for the Company in the past for which it has received customary
compensation.
Interests of Certain Persons in the Merger
Certain existing and former members of the Company's management and
Board (as well as other employees of the Company) have certain interests
that are described below that may present them with actual or potential
conflicts of interest in connection with the Merger. Also see "Security
Ownership of Certain Beneficial Owners and Management".
Change in Control Agreements. Effective March 22, 1996, the Company
entered into change in control agreements (the "Agreements") with Needham
B. Whitfield, J. Craig Rice, Jacob M. Feichtner, Howard J. Bush and Donald
E. Fitzsimmons (the executive officers named in the Company's proxy
statement for the 1996 Annual Meeting of Shareholders) and certain other
executives and employees. The Agreements provide that termination
compensation will be paid if the executive's employment is terminated by
the Company within two years after a Change in Control other than for
"cause" (as defined in the Agreements) or upon the death, permanent
disability or retirement of the executive, or if the executive voluntarily
terminates his employment for "good reason" (as defined in the Agreements).
Change in Control is defined generally to include (i) acquisition of more
than 20% of the Company's voting stock, (ii) certain changes in the
composition of its Board of Directors, (iii) shareholder approval of
certain business combinations or asset sales in which the Company's
historic shareholders hold less than 50% of the resulting or purchasing
company or (iv) shareholder approval of the liquidation or dissolution of
the Company. Termination compensation consists of a cash payment equal to
a multiple (generally one, two or three times) of the highest annual rate
of base salary paid to the executive in effect for the 12-month period
immediately prior to the executive's termination of employment ("Base
Salary"). The multiple is one times Base Salary for Messrs. Whitfield and
Fitzsimmons, three times Base Salary for Mr. Rice, two times Base Salary
for Mr. Bush, and the number of years from date of termination to age 62
times Base Salary for Mr. Feichtner (who is now age 59). In addition, the
Agreements provide for the continuation of certain medical, life and
disability benefits. The Agreements supersede employment agreements
between the Company and certain executives which were previously in place.
Executive Retirement Incentive Plan. The Company's Executive
Retirement Incentive Plan, as amended and restated effective March 22, 1996
(the "Executive Plan"), provides a monthly retirement benefit for life to
those executives selected for participation by the Compensation Committee
of the Board of Directors equal to the excess of (i) 3% of the executive's
remuneration multiplied by his years of service (up to a maximum of 20
years), over (ii) the value of benefits payable to the executive by the
<PAGE>
company retirement plan and the executive's Social Security benefit.
Messrs. Whitfield, Rice, Feichtner, Bush and Fitzsimmons are among the
executives participating in the Executive Plan. In order to receive a
benefit under the Executive Plan, the executive must have at least five
years of vesting service and must retire after attaining age 55 but no
later than the first day of the calendar quarter coinciding with or next
following his attaining age 62. The Executive Plan provides for benefit
payment options and spousal and beneficiary rights and payments in the
event of the executive's death. No benefits are payable under the
Executive Plan to any executive who terminates employment before attaining
age 55 or who does not retire during the available retirement window
period. In addition, benefits under the Executive Plan are forfeited if a
retired executive competes with the Company under certain circumstances.
The Company has established a grantor trust to accumulate the amounts
anticipated to be needed to pay benefits under the Executive Plan. Assets
of the trust are considered general assets of the Company and are subject
to claims of the Company's creditors. The Company is obligated to make
contributions to the trust annually in an amount equal to its reported
annual financial expense for the Executive Plan, as adjusted for trust
earnings and expenses. In addition, in the event there is a Change in
Control (as defined in the Agreements), the Company is obligated to
contribute an amount to the trust within 90 days equal to the Executive
Plan's unfunded actuarial liability at that time.
The Executive Plan provides additional benefits for Messrs.
Feichtner, Fitzsimmons, and Rice in the event there is a Change in Control.
First, the Executive Plan may not be amended to cause Messrs. Feichtner,
Fitzsimmons, or Rice to cease to be participants. Secondly, if Mr.
Feichtner's employment is terminated within two years after the Change in
Control and on or before June 30, 1999, by the Company without cause or by
Mr. Feichtner for good reason, then his benefit under the Executive Plan
will be calculated as though he had continued to work to June 30, 1999, and
his benefit under the Executive Plan will not be reduced for early payment
before age 62 and will include an amount equal to the amount of any
reduction to his benefit under the Company retirement plan for early
payment. Thirdly, if either Messrs. Fitzsimmons or Rice ceases to be
employed before age 62 (including before age 55), respectively, he will be
fully vested in his benefit under the Executive Plan, he may start drawing
that benefit at age 55 or his later termination, his beneficiary will be
entitled to his death benefit regardless of his vesting service or his
termination before age 55, and the prohibition on competition with the
Company will be waived if he resigns for good reason (other than the right
to voluntarily terminate during a 30 day period after the first anniversary
of the Change in Control). As of March 8, 1996, the ages of each such
executive officer were as follows: Needham B. Whitfield - 59, J. Craig
Rice - 48, Jacob M. Feichtner - 58, Howard J. Bush - 42 and Donald E.
Fitzsimmons - 54.
The Company's estimate of the total amount of all payments which may
be payable upon a Change in Control under the Agreements and the Executive
Plan is $3,435,000.
<PAGE>
Incentive Stock Plans. The Company also provides long-term incentive
compensation for executives of the Company (and other Company employees)
through the grant of stock options and restricted stock under the Company's
1988 Stock Option Plan (the "Stock Option Plan") and 1987 Restricted Stock
Plan (the "Restricted Stock Plan"). Stock options under the Stock Option
Plan are granted to executive officers at the fair market value of the
Common Stock on the date of grant. Historically, options typically have
been granted with a five-year period of exercise and a three-year vesting
schedule. However, options granted after July 1994 have been granted with
a ten-year period of exercise and are fully exercisable one year after the
date of grant. Shares of restricted stock granted under the Restricted
Stock Plan typically vest over a four-year period. As of June 14, 1996,
the Company had outstanding: (1) options to purchase 442,000 shares of
Common Stock heretofore granted under the Company's 1988 Stock Option Plan
("Options") and like number of shares reserved for issuance upon the
exercise thereof, and (2) 62,576 shares of Common Stock heretofore granted
under the Company's 1987 Restricted Stock Plan ("Restricted Shares").
Effective March 22, 1996, the Stock Option Plan and the Restricted Stock
Plan were amended to provide that the events which would constitute a
"change in control" under such plans will be the same as the events which
would constitute a Change in Control under the Agreements. Thus, upon a
Change in Control, outstanding Options would be freely exercisable and any
restrictions on Restricted Shares would lapse.
Under the Merger Agreement, the Company will, to the extent necessary,
adjust the terms of all outstanding Options and all Restricted Shares to
provide for (a) cancellation of the Options, not later than immediately
before the Effective Time in exchange for cash payment equal to the product
of (i) the total number of Shares subject to the Option and (ii) the
excess, if any, of $16.125 (or any such higher price per Share as may be
paid in the Offer) over the exercise price per Share subject to such
Option; and (b) cancellation, effective as of the Effective Time, of each
Restricted Share outstanding immediately prior to the Merger in exchange
for a payment equal to the product of (i) the total number of Restricted
Shares and (ii) $16.125 (or any such higher price per Share as may be paid
in the Offer). The Company anticipates that prior to the Effective Time,
all of the Company's executive officers will have either exercised their
Options or submitted their Options for cancellation in exchange for the
cash payment as described above.
Financing of the Offer and Merger
The total amount of funds required by the Purchaser to purchase all
presently outstanding Shares pursuant to the Offer and the Merger and to
pay related fees and expenses is estimated to be approximately $165
million. Such funds have been obtained by the Purchaser or provided by
Varlen or one or more of its subsidiaries to the Purchaser from available
cash on hand and pursuant to a $190 million credit facility (the "Credit
Facility") provided by The First National Bank of Chicago (the "Agent
Bank") and other banks and financial institutions who are party thereto
(collectively with the Agent Bank, the "Banks"). The Credit Facility is
<PAGE>
comprised of a term loan commitment (the "Facility A Commitment") in the
aggregate principal amount of approximately $135 million provided to the
Purchaser, and a revolving credit/letter of credit facility (the "Facility
B Commitment") in the aggregate principal amount of approximately $55
million provided to Varlen, the Purchaser and/or any other wholly owned
subsidiary of Varlen who may satisfy the conditions to becoming a
"Borrowing Subsidiary" under the applicable credit agreement (Varlen, the
Purchaser and each such other subsidiary, in such capacity, the
"Borrowers").
The Facility A Commitment and the revolving credit portion of the
Facility B Commitment bears interest, at the Borrower's option from time to
time, at a rate equal to either the "Alternate Base Rate," the
"Eurocurrency Rate" or the "Fixed CD Rate," in each case plus a spread
based on Varlen's Leverage Ratio." The "Alternate Base Rate" for any day
means the greater of (i) the rate of interest announced by the Agent Bank
as its "Corporate Base Rate" for such day or (ii) the "Federal Funds
Effective Rate" in effect on such day plus .50% per annum, changing as and
when such Corporate Base Rate or Federal Funds Effective Rate changes.
"Eurocurrency Rate" generally means the rate for dollar deposits appearing
on Telerate Page 3750, as adjusted for maximum statutory reserves. The
"Fixed CD Rate" generally means the rate determined by the Agent Bank based
on the average of the prevailing bid rates on the borrowing date for the
purchase of certificates of deposit of the Agent Bank, adjusted for maximum
Federal Reserve Board reserve requirements and the Federal Deposit
Insurance Corporation assessment rate. The Credit Facility provides for
customary provisions relating to yield protection, availability and capital
adequacy.
The Credit Facility provides for the payment by Varlen of certain fees
including a (i) commitment fee at a rate ranging from .175% to .375% per
annum based on the average daily unused portion of the Facility A
Commitment and the Facility B Commitment and (ii) certain letter of credit
fees ranging from .50% to 1.25% per annum based on the undrawn stated
amount of each letter of credit, a letter of credit fronting fee of 0.15%
of the face amount of each standby letter of credit and customary fees in
connection with commercial letters of credit and performance letters of
credit.
The Credit Facility has customary conditions to borrowing,
representations and warranties, covenants and events of default.
Each of Varlen and its domestic subsidiaries (including the Purchaser
and, upon consummation of the Offer or the Merger, the Company) has
unconditionally guaranteed the indebtedness, obligations and liabilities of
the Borrowers under the Credit Facility. In addition, upon consummation of
the Merger, the Company will assume, by operation of law, all liabilities
and indebtedness of Purchaser, including the Credit Facility used to effect
the acquisition of the Company.
<PAGE>
The commitment of the Banks under the Credit Facility will expire on
the sixth anniversary of the date of the closing of the Credit Facility,
subject to certain extension provisions. It is anticipated that borrowings
under the Credit Facility will be repaid from funds generated internally by
Varlen and its subsidiaries (including the Company) and from other sources,
which may include other bank financings.
Certain Effects of the Merger
If the Merger is consummated, holders of Shares will not have an
opportunity to continue their common equity interest in the Company as an
ongoing operation and therefore will not have the opportunity to share in
its future earnings and potential growth, if any. Following the Merger,
the Company plans to take all necessary actions (i) to deregister the
Shares under the Exchange Act and (ii) to terminate inclusion of the Shares
in NASDAQ and designation of the Shares as NMS securities.
At present, Varlen and Purchaser do not have any plans for any
material sale of the Company's assets, changes in capitalization or
dividend policy, or other changes in the Company's corporate structure of
business. After consummation of the Merger, Varlen will continue to review
the business and operations of the Company and, based on such review, may
make such changes as it considers appropriate or desirable. At present,
Varlen has not determined what specific actions, if any, it will take with
respect to the Company.
Payment of Merger Consideration
Promptly after consummation of the Merger, Harris Trust Company of New
York (the "Paying Agent") will send a transmittal letter and instructions
to each person that was a record holder of Shares immediately prior to the
Effective Time advising such holder of the procedure for surrendering his
or her certificates in exchange for $16.125 in cash, without any interest,
for each formerly outstanding Share. To receive the payment to which they
are entitled pursuant to the terms of the Plan of Merger, shareholders must
carefully comply with the instructions on such transmittal letter and
return it, along with their certificates to the Paying Agent pursuant to
the terms thereof. Do not send share certificates with your Proxy.
Interest will not be paid on the amounts payable upon surrender of
certificates which formerly represented the Shares. It is therefore
recommended that certificates be surrendered promptly after consummation of
the Merger. If, with respect to any Shares, the cash price of $16.125 per
Share is to be paid to a person who is not the holder of record of such
Shares, the amount of any applicable stock transfer taxes will be required
to be paid by the record holders or such other person prior to the payment
of the Merger Consideration unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted to the Paying Agent.
THE MERGER AGREEMENT AND THE PLAN OF MERGER
The principal terms of the Merger Agreement which are of continuing
applicability, as well as the terms of the Plan of Merger which was adopted
by the Company's Board of Directors pursuant to the Merger Agreement, are
summarized below. The description is qualified in its entirety by
reference to the Plan of Merger, which is attached as Exhibit A hereto and
is incorporated herein by reference.
<PAGE>
The Merger. The Merger Agreement and the Plan of Merger provide that,
upon the terms and subject to the conditions thereof, and in accordance
with the Virginia Act, at the Effective Time, Purchaser will be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Purchaser will cease and the Company will continue as the
Surviving Corporation and will become a direct wholly owned subsidiary of
Parent. Upon consummation of the Merger, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by Varlen,
Purchaser, or any direct or indirect wholly owned subsidiary of Varlen or
Purchaser) shall be converted into the right to receive the Merger
Consideration.
The Plan of Merger provides that the directors and officers of
Purchaser immediately prior to the Effective Time shall become the
directors and officers of the Surviving Corporation. The Plan of Merger
further provides that, at the Effective Time the articles of incorporation
of Purchaser, as in effect immediately prior to the Effective Time, will
become the articles of incorporation of the Surviving Corporation;
provided, however, that, at the Effective Time, Article I of the articles
of incorporation of the Surviving Corporation will be amended to read as
follows: "The name of the corporation is Brenco, Incorporated." The Plan of
Merger also provides that the by-laws of Purchaser, as in effect
immediately prior to the Effective Time, will become the by-laws of the
Surviving Corporation.
Agreements Of Varlen, Purchaser And The Company. Pursuant to the
Merger Agreement, the Company agreed to take all action necessary to cause
the Special Meeting to be duly called and held as promptly as practicable
following consummation of the Offer for the purpose of voting on the
approval and adoption of the Merger and the Plan of Merger and the
transactions contemplated thereby (if and to the extent required by the
Virginia Act).
The Merger Agreement provides that in connection with the Special
Meeting the Company shall promptly prepare and file with the Commission,
use all reasonable best efforts to have cleared by the Commission and
thereafter mail to its shareholders at the earliest practicable date this
Proxy Statement with respect to the Special Meeting. The Company has
agreed, subject to the fiduciary duties of the Board as advised by counsel,
to include in the Proxy Statement the recommendation of the Board that the
shareholders of the Company approve the Plan of Merger and the transactions
contemplated thereby and to use all reasonable best efforts to obtain such
approval.
The Merger Agreement provides that it may be amended at any time prior
to the filing of the Articles of Merger with the Virginia Commission;
provided that any such amendment is set forth in an instrument in writing
executed by each of the parties thereto and is previously approved by
action of the Board of Directors of each of the parties; and further
provided, that if the Merger Agreement and Merger are subject to
shareholder approval then, after approval of the Merger by the shareholders
of the Company, no amendment may be made without the further approval of
the shareholders of the Company which would do any of the following: (i)
reduce or (to the extent prohibited
<PAGE>
by the Virginia Act) increase the Merger Consideration or alter or
change the form thereof; (ii) alter or change any other of the terms and
conditions of this Agreement if any of the alterations or changes, alone or
in the aggregate, would adversely affect the shareholders of the Company;
or (iii) alter or change any of the terms and conditions of the Articles of
Incorporation (except as may otherwise be provided in the Merger
Agreement).
Pursuant to the Merger Agreement, until the Effective Time, the
Company shall, and shall cause its subsidiaries, officers, directors,
employees and agents to, afford to Varlen, the Purchaser and the financial
institutions and other designated parties and to the officers, employees
and agents of Varlen, the Purchaser and such financial institutions and
others complete access at all reasonable times to their respective
officers, employees, agents, properties, books, records and contracts, and
shall furnish Varlen, the Purchaser and such financial institutions and
others all financial, operating and other data and information as Varlen
and such financial institutions and others, through their respective
officers, employees or agents, may reasonably request.
Varlen, Purchaser and the Company have each agreed that it will use
its reasonable best efforts to take all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be
imposed on such party with respect to the Offer and the Merger (including
furnishing all information required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended) and will take all reasonable actions
necessary to cooperate promptly with and furnish information to the other
parties in connection with any such requirements imposed upon such other
parties in connection with the Offer and the Merger. Varlen, Purchaser and
the Company have also each agreed that it will use its reasonable best
efforts to take or cause to be taken all reasonable actions necessary to
obtain (and will take all reasonable actions necessary to cooperate
promptly with the other parties in obtaining) any consent, authorization,
order or approval of, or any exemption by, any court, administrative
agency, commission or other governmental or regulatory authority or
instrumentality, domestic or foreign, or other third party, required to be
obtained or made by any such party in connection with the Offer or the
Merger or the taking of any action contemplated thereby or by the Merger
Agreement.
Indemnification and Insurance. The Merger Agreement provides that
the articles of incorporation or bylaws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than
those that are set forth in the Company's articles of incorporation and
bylaws, as amended to the date of the Merger Agreement, which provisions
may not be amended, repealed or otherwise modified for a period of five
years after the Effective Time in any manner that would adversely affect
the rights thereunder of individuals who on or prior to the Effective Time
were directors, officers, employees or agents of the Company (the
"Indemnified Parties"). Varlen shall cause the Surviving Corporation to
fulfill such indemnification obligations. Varlen also agreed to use its
reasonable best efforts to cause to be maintained in effect for three years
from the Effective Time the current policy (or successor policies) of the
directors' and officers' liability insurance maintained by the Company with
respect to matters occurring prior to the Effective Time, to the extent
available; provided however, that Varlen is not required to expend more
than an amount per year equal to 150% of current annual premiums paid by
the Company to maintain or procure insurance coverage pursuant hereto.
<PAGE>
Board of Directors. The Merger Agreement provides that, promptly
upon the acceptance for payment of, and payment by the Purchaser in
accordance with the Offer for, Shares constituting 50% or more of all
Shares then outstanding pursuant to the Offer, and from time to time
thereafter, the Purchaser will be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors
of the Company as will give the Purchaser representation on the Board of
Directors equal to at least that number of directors which equals the
product of the total number of directors on the Board of Directors
multiplied by the percentage that such number of Shares so accepted for
payment and paid for or owned by Varlen or the Purchaser bears to the total
number of Shares outstanding; provided, however, that the Purchaser shall
have the right (in its discretion) to designate a number of directors less
than such product; and provided further, however, that at all times prior
to the Merger there shall be at least two members of the Board of Directors
of the Company selected by the current members of such Board. In the
Merger Agreement, the Company has agreed to use its best efforts to cause
the Purchaser's designees to be elected to the Company's Board of Directors
(including mailing to the Company's shareholders the information required
by Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 promulgated thereunder) and to use its
reasonable best efforts to cause the resignation of current directors,
and/or an increase in the number of the Company's directors, as may be
directed by Varlen and required to implement the foregoing.
In accordance with the foregoing provisions of the Merger Agreement,
Messrs. Feichtner, Johnson, Kenny, Wells and Yocum submitted their
resignations effective upon such submission at the regular meeting of the
Board of Directors of the Company held on July 26, 1996 and two Varlen
designees, Messrs. Wellek and Jean, were elected directors of the Company
at that meeting. As of a result of such actions, the Board of Directors of
the Company is currently comprised of Messrs. Whitfield, Rice, Wellek and
Jean. It is contemplated that upon consummation of the Merger,
Mr. Whitfield will resign as a director and that all continuing directors
of the Company will be officers or employees of Varlen and/or the Company.
Conditions. Consummation of the Merger is subject to certain
conditions, including among others, the non-occurrence or non-existence at
or prior to the Effective Time of any of the events, facts or circumstances
set forth in paragraphs (a) through (h) of Annex I to the Merger Agreement.
As of the date hereof, none of such events, facts or circumstances had
occurred.
Federal Income Tax Consequences
The following is a summary of the principal federal income tax
consequences of the Merger to shareholders of the Company who hold their
Shares as capital assets. The discussion is based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
the applicable Treasury Regulations ("Regulations") and public
administrative and judicial interpretations of the Code and Regulations,
all of which are subject to change, which changes could be applied
retroactively. This discussion is for general information purposes only
<PAGE>
and may not apply to shareholders of the Company who are subject to special
treatment under the Code, such as (but not limited to) foreign persons,
retirement plans, regulated investment companies and dealers in securities.
It does not cover the special tax consequences that may apply to holders
who acquired their Shares pursuant to the exercise of employee stock
options or otherwise as compensation. This summary is not intended to
address any aspects of state, local, foreign or other tax laws.
Accordingly, shareholders are urged and expected to consult their own
tax advisors to determine the specific tax consequences of the merger to
them under federal, state, local, foreign or other tax laws and the effect
of any change in the applicable tax laws after the date hereof.
The receipt of cash from Purchaser for Shares pursuant to the Merger
will be a taxable sale for federal income tax purposes. In general, a
shareholder will recognize gain or loss for federal income tax purposes
equal to the difference between the amount of cash received for the Shares
and the holder's adjusted tax basis in such Shares. Gain or loss must be
determined separately for each identifiable block of Shares (i.e., shares
acquired at the same time and at the same price in one transaction)
converted into cash in the Merger. Provided the Shares constitute capital
assets in the hands of the holder thereof such gain or loss will be capital
gain or loss and will be long-term capital gain or loss if, on the date of
the sale pursuant to the Merger, the Shares were held for more than one
year. The deduction of any capital loss may be limited under the Code.
Unless a shareholder complies with certain reporting and certification
procedures or is an exempt recipient under applicable withholding
provisions of the Code and Regulations, such holder may be subject to
backup withholding tax of 31% with respect to any cash payments received
pursuant to the Merger. This tax is not an additional tax, but is treated
as a payment of the taxpayer's federal income tax and may be refunded if
the taxpayer has otherwise satisfied its federal income tax liability and
the taxpayer complies with the applicable requirements for obtaining a
refund. Shareholders should consult their brokers or the Paying Agent to
ensure compliance with such procedures.
Accounting Treatment
The Merger will be accounted for under the "purchase" method of
accounting, whereby the purchase price for the Company will be allocated to
the identifiable assets and liabilities of the Company and its subsidiaries
based on their respective fair values.
Regulatory Matters
Except for the filing of Articles of Merger with the Virginia State
Corporation Commission, there are no federal or state regulatory
requirements which remain to be complied with in order for the Merger to be
consummated in accordance with the terms of the Merger Agreement and Plan
of Merger.
<PAGE>
DISSENTERS' RIGHTS
Section 13.1-730 of the Virginia Act (as effective July 1, 1996)
provides that no dissenters' rights are available for the shares of any
class or series of shares which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders to act upon the agreement or plan of merger, were either (I)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System or (II) held of record by at
least 2,000 shareholders, unless, among other things, in either case (i)
the holders of such class or series of shares are required by the terms of
such agreement or plan to accept for such shares anything except cash or
(ii) the transaction to be voted on is an "affiliated transaction" that has
not been approved by a majority of "disinterested directors."
As of the Record Date, the Shares were listed on the NASDAQ NMS, and
accordingly, shareholders have no dissenters' rights with respect to the
Merger.
<PAGE>
MARKET PRICE OF SHARES AND DIVIDENDS
The Shares are traded in the over-the-counter market, under the symbol
"BREN." The Shares are quoted in the NASDAQ NMS. The following table sets
forth, for the calendar periods shown, the range of high and low sales
prices for the Shares as quoted in the NASDAQ NMS for such periods, in each
case as reported by published financial sources, and the cash dividend paid
by the Company for each such quarter. NASDAQ NMS quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission, and do not
necessarily reflect actual transactions.
Quarterly
High Low Dividend
Year Ended
December 31, 1994
1st Quarter $12 1/2 $ 8 1/4 $ .05
2nd Quarter 13 1/4 9 1/8 .05
3rd Quarter 14 11 1/2 .06
4th Quarter 13 1/4 11 1/4 .06
Year Ended
December 31, 1995
1st Quarter 13 10 5/8 .06
2nd Quarter 14 1/2 12 .07
3rd Quarter 12 5/8 9 3/16 .07
4th Quarter 12 10 1/8 .07
Year Ending
December 31, 1996
1st Quarter 12 13/16 9 .07
2nd Quarter 16 1/4 12 1/8 .07
On June 14, 1996, the last full day of trading prior to the
announcement of the Purchaser's intention to make the Offer, the last
reported sale price for the Shares, as reported in the NASDAQ NMS, was
$12.25 per Share, according to published sources. Shareholders are urged
to obtain current market quotations for the Shares.
During the period from February 6, 1996, through April 4, 1996, a
subsidiary of Varlen purchased in the open market 460,000 (or approximately
4.5%) of the outstanding Shares.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 23, 1996, certain
information regarding beneficial ownership of Shares by each current
director of the Company, each executive officer named in the Company's
proxy statement for its 1996 Annual Meeting of Shareholders, the current
directors and "named executive officers" as a group, and all person known
to the Company to be the beneficial owners of more than 5% of the Shares.
Amount and Nature Percent
Name of Beneficial Owner of Beneficial of Class
Ownership (1)
Varlen Corporation (2) 9,799,986 96%
Naperville, Illinois
Howard J. Bush -0- -0-
Midlothian, Virginia
Jacob M. Feichtner -0- -0-
Richmond, Virginia
Donald E. Fitzsimmons -0- -0-
Midlothian, Virginia
Raymond A. Jean -0- -0-
Naperville, Illinois
J. Craig Rice -0- -0-
Midlothian, Virginia
Richard L. Wellek -0- -0-
Naperville, Illinois
Needham B. Whitfield -0- -0-
Midlothian, Virginia
All executive officers and
current directors as a -0- -0-
group
_______________
(1) All Shares owned by the named executive officers and directors (other
than Restricted Shares) were tendered to and purchased by Purchaser
pursuant to the Offer and/or Shareholder Tender Agreement. All outstanding
and unexercised Options held by the named executive officers have been (or
will be by the Effective Time) canceled in exchange for the cash payment
specified in the Merger Agreement and all Restricted Shares held by the
named executive officers will be canceled at the Effective Time in exchange
for the Merger Consideration, as described under "Interests of Certain
Persons."
(2) The total number of shares shown as beneficially owned by Varlen
includes 9,339,986 shares purchased by Purchaser in the Offer and 460,000
shares owned by Grantly, Inc., both of which are wholly-owned subsidiaries
of Varlen.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP, independent accountants and the Company's
auditors since 1952 audited and reported on the consolidated financial
statements of the Company and its subsidiaries for the year ended December
31, 1995. Such financial statements have been incorporated by reference in
this Proxy Statement in reliance upon such report. The Company does not
anticipate that representatives of McGladrey & Pullen will be present at
the Special Meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
No other matters are intended to be brought before the Special Meeting
by the Company nor does the Company know of any matters that are expected
to be properly brought before the Special Meeting by others.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
If the Merger is not consummated, any proposals of holders of Shares
intended to be presented at the annual meeting of stockholders of the
Company to be held on April 17, 1997 must have been received by the
Company, addressed to the Company at One Park West Circle, Midlothian,
Virginia 23113, Attention: Secretary, not later than November 8, 1996, to
be considered for inclusion in the proxy statement and form of proxy
relating to such annual meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files periodic reports, proxy
statements and other information with the Commission. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in
transactions with the Company is required to be disclosed in proxy
statements distributed to the Company's stockholders and filed with the
Commission. Such reports, definitive proxy statements and other
information, as well as the Schedule 14D-1 and the Schedule 14D-9, are
available for inspection at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and also should be available for inspection at the
Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may
also be obtained by mail, upon payment of the Commission's customary fees,
by writing to its principal office, Public Reference Section, at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
<PAGE>
The Shares are currently registered under the Exchange Act. Upon
consummation of the Merger, the Company will become a direct wholly owned
subsidiary of Parent, and there will be no public trading of the Shares.
Accordingly, as soon as practicable following the Merger registration of
the Shares, and the Company's obligation to file periodic reports, proxy
statements and other information with the Commission, will be terminated
upon application of the Company to the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement
the following documents previously filed with the Commission pursuant to
the Exchange Act:
The Company's Annual Report on Form 10-K for the year ended December 31,
1995; and
The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, as amended on Form 10-Q/A.
In addition, all reports and other documents filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such reports and documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein, or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Proxy Statement. A
copy of any document incorporated by reference herein (including any
exhibit incorporated by reference from any such document) may be obtained
without charge by any person receiving this Proxy Statement, upon written
or oral request, by contacting the Company at One Park West Circle, Suite
201, Midlothian, Virginia 23113, Attention: Secretary (telephone 804-378-
2950).
<PAGE>
Exhibit A
PLAN OF MERGER
ARTICLE 1: THE PARTIES
Section 1 Parties. The parties to this Plan of Merger, dated as of
July 26, 1996, are BAS, Inc., a Virginia corporation ("the Purchaser"),
which is a wholly-owned subsidiary of Varlen Corporation, a Delaware
corporation ("Varlen"), and Brenco, Incorporated, a Virginia corporation
("the Company").
ARTICLE 2: THE MERGER
Section 2.1 The Merger. At the Effective Time (as defined in
Section 2.3 hereof), in accordance with this Agreement and the Virginia
Stock Corporation Act (the "Virginia Act"), the Purchaser shall be merged
with and into the Company, the separate existence of the Purchaser (except
as may be continued by operation of law) shall cease, and the Company shall
continue as the surviving corporation of the Merger. The Company, after
the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
Section 2.2 Effect of the Merger. At the Effective Time, the
Surviving Corporation shall continue its corporate existence under the laws
of the Commonwealth of Virginia and shall succeed to all rights,
privileges, immunities, franchises, property, debts due, liabilities and
obligations of the Purchaser and the Company in accordance with the
provisions of the Virginia Act.
Section 2.3 Consummation of the Merger. The parties hereto will
cause the Merger to be consummated by delivering to the State Corporation
Commission of the Commonwealth of Virginia (the "Virginia Commission")
articles of merger (the "Articles of Merger") in such form as required by,
and executed and acknowledged in accordance with, the relevant provisions
of the Virginia Act. The Merger shall become effective as of the time that
the Virginia Commission finds that the Articles of Merger comply with the
requirements of law and that all required fees have been paid and it shall
issue a certificate of merger with respect to the Merger for record in
accordance with the relevant provisions of the Virginia Act (or at such
later time specified as the effective time in the Articles of Merger). The
term "Effective Time" shall mean the date and time at which the Merger
becomes effective.
Section 2.4 Articles of Incorporation; Bylaws; Directors and
Officers. The Articles of Incorporation of the Surviving Corporation shall
be the Articles of Incorporation of the Company as in effect immediately
prior to the Effective Time, until thereafter amended as provided therein
and under the Virginia Act. The Bylaws of the Surviving Corporation shall
be the Bylaws of the Purchaser as in effect immediately prior to the
Effective Time until thereafter amended as provided therein and under the
Virginia Act. The directors of the Purchaser immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation,
and the officers of the Purchaser immediately prior to the Effective Time
will be the initial officers of the Surviving Corporation, in each case
until their successors are elected and qualified.
<PAGE>
Section 2.5 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of the Purchaser,
the Company, the Surviving Corporation or the holder of any of the
following:
(a) Each share of the Company's outstanding Common Stock, par
value $1.00 per share (each, a "Share", and collectively, "Shares") issued
and outstanding immediately prior to the Effective Time (other than Shares
to be cancelled pursuant to Section 2.5(b) hereof) shall be cancelled and
extinguished and be converted into and become a right to receive $16.125 in
cash per Share without any interest thereon (the "Merger Consideration");
(b) Each Share which is issued and outstanding immediately prior
to the Effective Time and owned by Varlen, the Purchaser or the Company or
any direct or indirect subsidiary of Varlen, the Purchaser or the Company,
shall be cancelled and retired, and no payment shall be made with respect
thereto; and
(c) Each share of Common Stock of the Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation.
Section 2.6 Company Stock Incentive Plans. (a) Prior to the
Effective Time, the Board of Directors (or, if appropriate, any committee
thereof) shall adopt, subject to the terms of the Stock Option Plans (as
hereinafter defined), such resolutions as are necessary or appropriate, if
any, to adjust the terms of all outstanding employee stock options to
purchase Shares (collectively, the "Options") granted under any stock
option plan of the Company (collectively, the "Stock Option Plans", which
term shall include (without limitation) the Company's 1988 Stock Option
Plan, as amended) to provide for the cancellation, effective as of the
Effective Time, of such Options (and any stock appreciation rights or
limited stock appreciation rights) as set forth in this Section 2.6(a).
Not later than immediately prior to the Effective Time, each Option,
whether or not then exercisable or vested, shall become fully exercisable
and vested. The Company shall use its reasonable best efforts to insure
that each Option outstanding immediately prior to the Effective Time shall
be cancelled in exchange for a payment, not later than immediately prior to
the Effective Time, from the Company (subject to any applicable withholding
taxes) in cash equal to the product of (x) the total number of Shares
subject to such Option and (y) the excess, if any, of the Merger
Consideration over the exercise price per Share subject to such Option.
Any stock appreciation rights or limited stock appreciation rights shall be
cancelled as of immediately prior to the Effective Time without any payment
therefor.
(b) Prior to the Effective Time, the Board of Directors (or, if
appropriate, any committee thereof) shall adopt, subject to the terms of
the Restricted Stock Plans (as hereinafter defined), such resolutions as
are necessary or appropriate, if any, to adjust the terms of all restricted
Shares (collectively, the "Restricted Shares") granted under any restricted
stock plan of the Company (collectively, the "Restricted Stock Plans",
<PAGE>
which term shall include (without limitation) the Company's 1987
Restricted Stock Plan, as amended) to provide for the cancellation,
effective as of the Effective Time, of such Restricted Shares as set forth
in this Section 2.6(b). Not later than immediately prior to the Effective
Time, each Restricted Share, whether or not then unrestricted or vested,
shall become fully unrestricted, exercisable and vested. The Company shall
use its reasonable best efforts to insure that each Restricted Share
outstanding immediately prior to the Effective Time shall be cancelled in
exchange for the Merger Consideration.
(c) Effective as of the date of this Agreement, the Board of
Directors (or, if appropriate, any committee thereof) shall have taken the
appropriate action with respect to the Company's Employee Stock Savings
Plan (the "Savings Plan") to provide that: (i) until the earlier to occur
of the Effective Time or any termination of this Agreement, participants in
the Savings Plan will not be eligible to receive matching Shares on any
Shares purchased by such participants after the date of this Agreement, and
(ii) any right of participants in the Savings Plan to receive matching
Shares from the Company as of the date of this Agreement accrued as a
result of Shares purchased prior to the date of this Agreement shall be
cancelled in exchange for a payment, not later than immediately prior to
the Effective Time, from the Company (subject to any applicable withholding
taxes) in cash equal to the product of (x) the total number of such accrued
matching Shares and (y) the Merger Consideration.
(d) Except as provided herein, the Stock Option Plans,
Restricted Stock Plans and any other plan, program or arrangement providing
for the issuance or grant of any other interest in respect of the capital
stock of the Company or any subsidiary (collectively with the Stock Option
Plans and Restricted Stock Plans, referred to as the "Stock Incentive
Plans") shall terminate as of the Effective Time. The Company shall use
its reasonable best efforts to ensure that following the Effective Time no
holder of an Option or Restricted Shares nor any other participant in any
Stock Incentive Plan shall have any right thereunder to acquire equity
securities of the Company or the Surviving Corporation or any subsidiary
thereof and, if requested by Varlen, to obtain the written acknowledgement
of such holders and participants with respect thereto.
Section 2.7 Exchange of Certificates. (a) From and after the
Effective Time, Harris Trust Company of New York shall act as paying agent
(the "Paying Agent") in effecting the exchange, for the Merger Consid
eration multiplied by the number of Shares formerly represented thereby, of
certificates (the "Certificates") that, prior to the Effective Time,
represented Shares entitled to payment pursuant to Section 2.5 hereof. At
or before the Effective Time, Varlen or the Purchaser shall deposit with
the Paying Agent in trust for the benefit of the holders of Certificates
immediately available funds in an aggregate amount (the "Payment Fund")
equal to the product of the Merger Consideration multiplied by the number
of Shares entitled to payment pursuant to Section 2.5 hereof. Upon the
surrender of each such Certificate, the Paying Agent shall pay the holder
of such Certificate the Merger Consideration multiplied by the number of
Shares formerly represented by such
<PAGE>
Certificate, without any interest thereon, in exchange therefor, and
such Certificate shall forthwith be cancelled. Until so surrendered and
exchanged, each such Certificate shall represent solely the right to
receive the Merger Consideration multiplied by the number of Shares
represented by such Certificate, without any interest thereon. If any cash
is to be paid to a name other than the name in which the Certificate
representing Shares surrendered in exchange therefor is registered, it
shall be a condition to such payment that the person requesting such
payment shall pay to the Paying Agent any transfer or other taxes required
by reason of the payment of such cash to a name other than that of the
registered holder of the Certificate surrendered, or such person shall
establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to a holder of Shares for
any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(b) The Payment Fund shall be invested by the Paying Agent, as
directed by Varlen or the Purchaser, in: (i) obligations of, or fully
guaranteed by, the United States of America or any agency or
instrumentality thereof maturing not more than 12 months after the date of
acquisition, (ii) obligations of any United States state or any political
subdivision of such state, or any agency or instrumentality of such a state
or political subdivision, maturing not more than 12 months after
acquisition that are rated A or better by Standard & Poor's Corporation
("S&P") or A or better by Moody's Investors Services, Inc. ("Moody's"),
(iii) commercial paper rated A-1 or better by S&P or P-1 or better by
Moody's, and/or (iv) certificates of deposit and bankers' acceptances
issued by, and time deposits with, commercial banks (whether foreign or
domestic) having capital and surplus in excess of $100,000,000; and any net
earnings with respect thereto shall be paid to Varlen as and when requested
by Varlen, and Varlen shall replace any principal lost through any
investment made pursuant to this Section 2.7(b).
(c) The Paying Agent shall, pursuant to irrevocable instructions
to be given by Varlen or the Purchaser, make the payments referred to in
Section 2.5 out of the Payment Fund. Promptly following the date which is
nine months after the Effective Time, the Paying Agent shall deliver to
Varlen all cash, certificates and other documents in its possession
relating to the transactions described in this Agreement, and the Paying
Agent's duties shall terminate. Thereafter, each holder of a Certificate
formerly representing a Share may surrender such Certificate to the
Surviving Corporation or Varlen and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration, without any interest thereon, but shall have no greater
rights against the Surviving Corporation or Varlen than may be accorded to
general creditors of the Surviving Corporation or Varlen under applicable
law.
(d) Promptly after the Effective Time, the Paying Agent shall
mail each record holder of Certificates that immediately prior to the
Effective Time represented Shares a form of letter of transmittal and in
structions for use in surrendering such Certificates and receiving the
Merger Consideration therefor.
<PAGE>
(e) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of any Certificates which
theretofore represented Shares. If, after the Effective Time, Certificates
formerly representing Shares are presented to the Surviving Corporation or
the Paying Agent, they shall be cancelled and exchanged for the Merger
Consideration, as provided in this Article 2.
<PAGE>
EXHIBIT B
June 15, 1996
CONFIDENTIAL
The Board of Directors
Brenco, Incorporated
One Park West Circle
Midlothian, VA 23113
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of Common Stock, par
value $1.00 per share (the "Shares"), of Brenco, Incorporated (the
"Company") of the cash consideration of $16.125 per Share to be received by
such holders pursuant to the Acquisition Agreement dated as of June 15,
1996, among Varlen Corporation (the "Acquiror"), BAS, Inc. and the Company
(the "Agreement").
Wheat, First Securities, Inc. ("Wheat"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate,
corporate and other purposes. Wheat has provided investment banking
services for the Company in the past for which it has received customary
compensation. In the ordinary course of our business as a broker-dealer,
we may, from time to time, have a long or short position in, and buy or
sell, debt or equity securities of the Company or the Acquiror for our own
account or for the accounts of our customers. Wheat will receive a fee
from the Company for rendering this opinion.
In arriving at our opinion, we have, among other things:
(1) reviewed the financial and other information contained in the Company's
Annual Reports to Shareholders and Annual Reports on Form 10-K for the
fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993, and certain interim reports to Shareholders and
Quarterly Reports on Form 10-Q;
(2) conducted discussions with members of senior management of the Company
concerning the Company's business and prospects;
(3) reviewed certain publicly available information with respect to
historical market prices and trading activity for the Company's
Common Stock and for certain publicly traded companies which we
deemed relevant;
<PAGE>
(4) compared the results of operations of the Company with those of certain
publicly traded companies which we deemed relevant;
(5) compared the proposed financial terms of the transaction with the
financial terms of certain other mergers and acquisitions which we
deemed to be relevant;
(6) performed a discounted cash flow analysis of the Company based upon
estimates of projected financial performance prepared by the management
of the Company;
(7) reviewed the Agreement (including the Exhibits thereto) dated June 15,
1996; and
(8) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us
by the Acquiror and the Company, and we have not assumed any responsibility
for independent verification of such information or any independent
valuation or appraisal of any of the assets of the Acquiror and the
Company. We have relied upon the management of the Acquiror and the
Company as to the reasonableness and achievability of their financial and
operational forecasts and projections, and the assumptions and bases
therefor, provided to us, and we have assumed that such forecasts and
projections reflect the best currently available estimates and judgments of
such management and that such forecasts and projections will be realized in
the amounts and in the time periods currently estimated by such management.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof and the information
made available to us through the date hereof. Our opinion does not address
the relative merits of the transaction contemplated by the Agreement as
compared to any alternative business strategies that might exist for the
Company, nor does it address the effect of any other business combination
in which the Company might engage.
Our advisory services and the opinion expressed herein are provided to the
Company's Board of Directors for use in evaluating the transaction
contemplated by the Agreement and do not constitute a recommendation to any
holder of the Shares as to whether such holder should tender his or her
shares pursuant to the Acquiror's offer, or approve the merger. This
opinion may not be summarized, excerpted from or otherwise publicly
referred to without our prior written consent.
<PAGE>
On the basis of, and subject to the foregoing, we are of the opinion that
as of the date hereof the cash consideration of $16.125 per Share to be
received by the holders of the Shares is fair, from a financial point of
view, to such holders.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
By: _________________________________
Managing Director
<PAGE>
BRENCO, INCORPORATED
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Richard L. Wellek, Vicki L. Casmere
and Jacob M. Feichtner jointly and severally, proxies, with full power to
act alone, and with full power of substitution, to represent the
undersigned and to vote, as designated below and upon any and all other
matters which may properly be brought before such meeting, all shares of
Common Stock which the undersigned would be entitled to vote at the Special
Meeting of Shareholders of Brenco, Incorporated to be held on August 23,
1996, or any adjournment thereof.
1. To consider and vote upon a proposal to approve and adopt a Plan of
Merger dated as of July 26, 1996, adopted in accordance with the
Acquisition Agreement dated June 15, 1996 by and among Brenco,
Incorporated, Varlen Corporation, a Delaware corporation, and BAS, Inc., a
Virginia corporation and a wholly-owned subsidiary of Varlen Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon any other
business that may come before the meeting or any adjournment thereof.
Unless otherwise specified in the squares provided, the
undersigned's vote will be cast for item 1. This proxy may be revoked at
any time prior to its exercise.
______________________________
Signature
_______________________________
Signature
Dated:__________________, 1996
(In signing as Attorney, Administrator, Executor, Guardian or
Trustee, please add your title as such)
