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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
BRENCO, INCORPORATED
(NAME OF SUBJECT COMPANY)
BRENCO, INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE,
(TITLE OF CLASS OF SECURITIES)
107061 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
NEEDHAM B. WHITFIELD
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
BRENCO, INCORPORATED
ONE PARK WEST CIRCLE
MIDLOTHIAN, VIRGINIA 23113
(804) 378-2900
NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
F. CLAIBORNE JOHNSTON, JR.
MAYS & VALENTINE
NATIONSBANK CENTER
1111 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(804) 697-1214
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Brenco, Incorporated, a Virginia
corporation (the "Company"). The address of the principal executive offices of
the Company is One Park West Circle, Midlothian, Virginia 23113. The title of
the class of equity securities to which this Solicitation/ Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9" or the "Statement") relates is
the Common Stock, par value $1.00 per share, of the Company (the "Common
Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by Varlen Corporation, a Delaware
corporation ("Varlen") and its wholly-owned subsidiary, BAS, Inc., a Virginia
corporation (the "Purchaser"), disclosed in a Tender Offer Statement on Schedule
14D-1, dated June 20, 1996 (the "Schedule 14D-1"), to purchase all of the
outstanding shares (the "Shares") of Common Stock at $16.125 per share, net to
the seller in cash, without any interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated June 20, 1996 (the "Offer
to Purchase"), and the related Letter of Transmittal (collectively, the
"Offer"), copies of which are filed herewith as Exhibits A and B, respectively,
and incorporated herein by reference.
The Offer is being made pursuant to the Acquisition Agreement, dated as of
June 15, 1996 (the "Acquisition Agreement"), by and among the Company, Varlen
and the Purchaser, a copy of which is filed herewith as Exhibit C and
incorporated herein by reference, and a Shareholder Tender Agreement, dated as
of June 15, 1996, by and among Varlen, the Purchaser and Needham B. Whitfield,
Anne Whitfield Kenny and certain members of their families (the "Shareholder
Tender Agreement"), a copy of which is filed herewith as Exhibit D and
incorporated herein by reference. Pursuant to the Acquisition Agreement, as soon
as practicable after completion of the Offer and satisfaction or waiver, if
permissible, of all applicable conditions specified in the Acquisition
Agreement, the Purchaser will be merged with and into the Company (the
"Merger"), and the Company will become a wholly-owned subsidiary of Varlen (the
"Surviving Corporation"). At the effective time of the Merger (the "Effective
Time"), each share of Common Stock then outstanding (other than shares held by
Varlen, the Purchaser, or any other subsidiary of Varlen, and shares held by
shareholders who exercise their dissenters' rights, if any, in accordance with
the Virginia Stock Corporation Act (the "Virginia Act") will be converted into
the right to receive $16.125 in cash, without any interest.
Based on information in the Offer to Purchase, the principal executive
offices of Varlen and the Purchaser are located at 55 Shuman Boulevard, P.O. Box
3089, Naperville, Illinois 60566-7089, telephone (708) 420-0400.
ITEM 3. IDENTITY AND BACKGROUND.
(A) NAME AND ADDRESS OF THE COMPANY. The name and address of the Company,
which is the person filing this Statement, is set forth in Item 1 above. All
information contained in this Statement or incorporated herein by reference
concerning the Purchaser, Varlen or their affiliates, or actions or events with
respect to any of them, was provided by the Purchaser or Varlen, respectively,
and the Company takes no responsibility for such information.
(B) MATERIAL CONTRACTS. Each material contract, agreement, arrangement and
understanding or actual or potential conflict of interest between the Company
and/or its affiliates and (i) its executive officers, directors or affiliates
and (ii) Varlen, its executive officers, directors or affiliates, is described
below.
(B) (1) CERTAIN CONTRACTS. 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 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,
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(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.
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 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.
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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 have typically 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 Acquisition 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).
(B)(2) THE ACQUISITION AGREEMENT AND THE SHAREHOLDER TENDER AGREEMENT. The
following is a summary of certain provisions of the Acquisition Agreement and
the Shareholder Tender Agreement and is qualified in its entirety by reference
to the Acquisition Agreement and the Shareholder Tender Agreement, copies of
which are filed herewith as Exhibits C and D, respectively.
THE ACQUISITION AGREEMENT.
THE OFFER AND MERGER. The Acquisition Agreement provides for the public
announcement of the Offer within one business day after the execution thereof
and for the commencement of the Offer as promptly as practicable, but in no
event later than five business days, after such public announcement. The
obligation and right of Purchaser to accept for payment and pay for any Shares
tendered pursuant to the Offer is subject to satisfaction of the Minimum
Condition (as defined in the Offer to Purchase), the expiration or termination
of all waiting periods under the HSR Act and the other conditions described
below under "Certain Conditions." The Purchaser expressly reserves the right to
waive any such condition, to increase the price per Share payable in the Offer
and to make any other changes in the terms and conditions of the Offer; provided
that the Purchaser has agreed that it will not (i) decrease the price payable in
the Offer, (ii) change the form of consideration payable in the Offer or the
Merger, (iii) increase the Minimum Condition, or (iv) amend any other term of
the Offer (including the conditions described under "Certain Conditions" below)
in a manner materially adverse to the holders of Shares.
The Acquisition Agreement provides that, as soon as practicable following
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged into the Company, with the Company surviving the
Merger. Pursuant to the Merger, each outstanding Share (other than Shares held
by Varlen, the Purchaser, or any direct or indirect subsidiary of Varlen or the
Purchaser, and Shares with respect to which dissenter's rights under the
Virginia Act are properly exercised) will be converted into the right to receive
$16.125 in cash, without any interest. Following
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the Merger, the Company will be a wholly owned subsidiary of Varlen. The Merger
is subject to the satisfaction of various conditions, including approval by the
Company's shareholders if required under the Virginia Act.
In the Acquisition Agreement the Company has represented and warranted that
its Board of Directors has approved the Offer and the Merger and recommended
acceptance of the Offer by holders of Shares and approval of the Merger (if such
approval is required by the Virginia Act) by holders of Shares. The Company has
further represented and warranted that its Board of Directors (all of whom, the
Company's counsel has opined to Varlen, are "disinterested directors" within the
meaning of the Virginia Act with respect to Varlen and the Purchaser) has taken
certain actions in order to exempt Varlen, the Purchaser, their respective
direct and indirect subsidiaries and the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the restrictions and
other provisions of: (A) Article 14 (AFFILIATED TRANSACTIONS) of the Virginia
Act, in the manner provided by Section 13.1-727.B.1(iv) which (absent such an
exemption or similar board action) generally prohibits mergers,
recapitalizations, share exchanges, asset sales and other transactions between
certain Virginia corporations and holders of 10% or more of their voting
securities ("interested shareholders") unless approved by a majority of
"disinterested directors" and/or holders of two-thirds of the corporation's
shares excluding those of the interested shareholder; (B) Article 14.1 (CONTROL
SHARE ACQUISITIONS) of the Virginia Act, which (absent such an exemption or
similar board action) generally denies voting rights to certain acquirers of 20%
of more of the outstanding voting power of a public Virginia corporation
("acquiring persons") unless granted by a majority of the shares entitled to
vote in the election of directors of the corporation other than those held by
acquiring persons and certain corporate insiders; and (C) Article I of the
Articles of Incorporation, as amended of the Company (the "Charter"), which
(absent such an exemption or similar board action) generally requires the
affirmative vote of holders of 75% of the Shares in order to approve a merger,
consolidation and certain other business combinations between the Company and a
beneficial owner of 10% or more of its Shares. The Company and its Board of
Directors have agreed to take such other actions necessary or appropriate at the
request of Varlen or the Purchaser to: (1) exempt Varlen, the Purchaser, their
respective direct and indirect subsidiaries, the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the provisions of
any takeover, affiliated transactions, business combination, control share
acquisition or other provision of (i) law or regulation of the Commonwealth of
Virginia or any department or agency thereof or (ii) the Charter or Bylaws of
the Company, and (2) maintain the shareholder vote required to approve the
Merger at the two-thirds level.
COVENANTS OF THE COMPANY. Under the Acquisition Agreement, the Company has
agreed that, except as Previously Disclosed (as hereinafter defined) and unless
Varlen or the Purchaser otherwise agree in writing, prior to the Effective Time
or such earlier time as designees of the Purchaser constitute a majority of the
Board of Directors of the Company:
(i)
the business of the Company and its subsidiaries shall be conducted
in the ordinary course of business and consistent with past practice,
and the Company shall use its reasonable best efforts to maintain and
preserve its and its subsidiaries' business organization, assets, employees
and advantageous business relationships;
(ii)
neither the Company nor any of its subsidiaries shall: (1) amend or
propose to amend its articles of incorporation or bylaws; (2) split,
combine or reclassify any shares of its capital stock or declare, set aside
or pay any dividend payable in cash, stock or property with respect to its
capital stock except for regular quarterly cash dividends not in excess of
$.07 per Share on the Shares and except for any dividend by a wholly owned
subsidiary payable to the Company or another wholly owned subsidiary; (3)
issue, sell, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any capital
stock of any class of the Company or any of its subsidiaries other than
Shares which the Company is required to issue pursuant to the options
outstanding on June 14, 1996; (4) transfer, lease, license, sell, mortgage,
pledge, dispose of or encumber any material assets of the Company or any of
its subsidiaries other than in the ordinary
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course of business and consistent with past practice; (5) redeem, purchase
or otherwise acquire directly or indirectly any of the capital stock or
other equity securities of the Company; (6) adopt a plan of liquidation or
resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company or any of its
subsidiaries, except for mergers among wholly owned subsidiaries; (7)
acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof
or make any investment with respect thereto; (8) directly or indirectly: (i)
incur or modify any long-term indebtedness or short-term indebtedness for
money borrowed or other material liability other than in the ordinary course
of business and consistent with past practice, (ii) incur any additional
indebtedness for money borrowed other than in the ordinary course of
business and consistent with past practice, or (iii) make any loans or
advances other than in the ordinary course of business and consistent with
past practice and intercompany loans and advances among the Company and its
wholly owned subsidiaries; (9) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business and consistent with past practice; (10) waive,
release, grant or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or other document,
other than in the ordinary course of business and consistent with past
practice; or (11) enter into any material commitment or transaction, other
than in the ordinary course of business and consistent with past practice;
(iii)
neither the Company nor any of its subsidiaries shall: (1) grant any
increase in the compensation payable or to become payable by the
Company or any of its subsidiaries to any of its directors, executive
officers or key employees or adopt any new, or amend or otherwise increase
the amounts payable or to become payable under any existing, bonus,
incentive compensation, severance, deferred compensation, profit sharing,
stock option, stock purchase, insurance, pension, retirement or other
employee benefit plan (including (but not limited to) the granting of stock
options, stock appreciation rights or restricted stock), or (2) enter into
or amend any employment or change-in-control agreement with, or, except in
accordance with the existing written policies and agreements of the Company,
grant any severance or termination pay to, any director, officer or employee
of the Company or any of its subsidiaries; and
(iv)
neither the Company nor any of its subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any
action which would make any representation or warranty of the Company in the
Acquisition Agreement untrue or incorrect in any material respect.
NON-SOLICITATION. The Acquisition Agreement further provides that neither
the Company nor any of its subsidiaries, nor any of their respective directors,
officers, employees, investment bankers, representatives or agents shall,
directly or indirectly, make, solicit, initiate or encourage the initiation of,
any inquiries or proposals from, or provide any confidential information or
participate in any discussions or negotiations with, or otherwise cooperate in
any way with or assist, any person (other than Varlen and its subsidiaries,
those third parties previously disclosed in writing by the Company to Varlen
prior to the execution of the Acquisition Agreement ("Previously Disclosed") and
their respective directors, officers, employees, investment bankers, commercial
banks, representatives and agents) concerning any merger, consolidation, other
business combination, recapitalization, liquidation or dissolution or any
purchase or other acquisition or sale or other disposition of assets (other than
in the ordinary course of business) or shares of capital stock of the Company or
any of its subsidiaries or any similar transaction involving the Company or
(except as Previously Disclosed) any subsidiary or division of the Company or
any subsidiary; PROVIDED, HOWEVER, that (i) the Company or its Board of
Directors shall not be prohibited from taking and disclosing to the Company's
shareholders a position contemplated by Rule 14d-9 or Rule 14e-2 promulgated
under the Exchange Act, and (ii) in the event that the Company shall receive an
unsolicited proposal from a third party which the Company's Board of Directors
determines, based on the advice of its legal counsel and independent financial
advisor, is capable of consummating such transaction, for the acquisition for
cash of all the outstanding Shares on terms that the Company's Board of
Directors determines, based on the advice of its financial advisor (the receipt
of which advice shall be confirmed in writing to Varlen by the
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Company), are economically superior to those of the Offer and the Merger and
which in the written opinion of legal counsel to the Company (the delivery of
which shall be confirmed in writing to Varlen by such counsel) a failure to
consider by the Board of Directors of the Company would create a substantial
risk of violating their fiduciary duties to shareholders, the Company may
provide information to such third party to the same extent that such information
has been provided to the Purchaser and Varlen. The Company must promptly advise
Varlen of, and communicate to Varlen the terms of, any such inquiry or proposal
the Company may receive.
CONFIDENTIALITY AND STANDSTILL AGREEMENTS. Under the Acquisition Agreement,
the Company has agreed to use its reasonable best efforts to obtain a
confidential information, non-disclosure, non-use and standstill agreement from
any third party with or for whom the Company or any subsidiary has taken any
action or received any proposal not prohibited under the non-solicitation
provisions of the Acquisition Agreement. The Company also agreed not to consent
to the termination or amendment of the confidential information, non-disclosure
or non-use provisions of any agreement with a third party without the prior
written consent of Varlen or the Purchaser, and to use its reasonable best
efforts to take all actions necessary or proper to enforce strict compliance
with such provisions.
STOCK INCENTIVE PLANS. Under the Acquisition Agreement, the Company is
required to adjust the terms of all outstanding employee stock options to
purchase Shares granted under any stock option plan of the Company and all
restricted Shares granted under any restricted stock plan to cancel such options
and restricted shares. Not later than immediately prior to the Merger, each such
option and restricted Share shall become fully exercisable or unrestricted, as
the case may be, and vested. The Company has agreed to use its reasonable best
efforts to cancel each option outstanding not later than immediately prior to
the Merger in exchange for a 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. The Company has also agreed to
use its reasonable best efforts to cancel each restricted Share outstanding not
later than immediately prior to the Merger in exchange for $16.125. In addition,
the Board of Directors has agreed to take 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 the
Acquisition Agreement, participants in the Savings Plan will not be eligible to
receive matching Shares on any Shares purchased by such participants after the
date the Acquisition Agreement, and (ii) any rights of participants in the
Savings Plan to receive matching Shares from the Company as of the date of the
Acquisition Agreement accrued as a result of Shares purchased prior to the date
of the Acquisition 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) $16.125. Under the Acquisition
Agreement, any other plan providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary shall
terminate as of the consummation of the Merger.
DESIGNATION OF DIRECTORS. The Acquisition 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 in accordance with 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 current members of such Board. Subject to the preceding
sentence, upon the Purchaser's purchase of the Shares pursuant to the Offer, the
Purchaser will have sufficient voting
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power to remove the entire Board of Directors of the Company and replace it with
the Purchaser's nominees. In the Acquisition Agreement, the Company has agreed
to take all action necessary to cause the Purchaser's designees to be elected to
the Company's Board of Directors (including mailing to the shareholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder) and to use its reasonable best efforts to cause the
resignation of such directors, and/ or an increase in the number of its
directors, as may be directed by Varlen and required to implement the foregoing.
SHAREHOLDERS MEETING. The Merger is subject to the satisfaction of various
conditions, including, among other things, approval by the shareholders of the
Company if required under the Virginia Act. If the Purchaser acquires the number
of Shares required to satisfy the Minimum Condition, it will control two-thirds
of the outstanding Shares on a fully diluted basis. Accordingly, the Purchaser
would have sufficient voting power to approve the Merger at a meeting of
shareholders to vote thereon. In the event that as a result of the Offer Varlen
owns 90% or more of the outstanding Shares, the Purchaser and Varlen would be
able to effect the Merger pursuant to the short form merger provisions of the
Virginia Act without any action by any other shareholder of the Company, but
subject to the requirements of the Virginia Act that a copy of the Acquisition
Agreement be mailed to shareholders and to the applicable dissenter's rights
provisions of the Virginia Act.
In connection with the Merger, the Company has agreed that it shall take all
action necessary, in accordance with the Virginia Act and its charter and
bylaws, to convene a meeting of its shareholders as promptly as practicable to
consider and vote upon the Merger (if and to the extent required by the Virginia
Act), and to not take any action which would result in the affirmative vote of
shareholders required for approval of the Merger to be greater than two-thirds
of the votes entitled to be cast. Unless in the written opinion of legal counsel
to the Company (the delivery of which shall be confirmed in writing to Varlen by
such counsel) any of the following actions would create a substantial risk of
violating the fiduciary duties of the Board of Directors to the shareholders of
the Company, the Company has also agreed: (i) that the proxy or information
statement with respect to any meeting of the Company's shareholders or other
corporate action to approve the Acquisition Agreement and the Merger, shall
contain the recommendation of the Board of Directors that the shareholders of
the Company vote to adopt and approve the Merger and the Acquisition Agreement,
and (ii) if proxies are solicited, to use its reasonable best efforts to solicit
from its shareholders proxies in favor of such adoption and approval and to take
all other action necessary or, in the reasonable judgment of Varlen, helpful to
secure the vote or consent of shareholders required by the Virginia Act to
effect the Merger. At such meeting of the shareholders of the Company, Varlen,
the Purchaser and their direct and indirect subsidiaries will vote all of the
Shares then owned by any of them in favor of the Merger.
CONFIDENTIALITY. Under the Acquisition Agreement, Varlen and the Purchaser
have agreed to, and to cause their officers, employees, agents and
representatives to, keep confidential, unless compelled to disclose by judicial
or administrative process or by other requirements of law, all non-public,
confidential or proprietary information provided by the Company (except to the
extent that such information can be shown to have been (i) previously known by
Varlen or the Purchaser, (ii) in the public domain through no fault of Varlen or
the Purchaser, or (iii) later lawfully acquired by Varlen from other sources)
and will not release or disclose such information to any other person.
INDEMNIFICATION AND INSURANCE. The Acquisition Agreement provides that the
Charter or Bylaws of the Company, after the Merger (the "Surviving Corporation")
shall contain provisions no less favorable with respect to indemnification than
those that are set forth in the Company's Charter and Bylaws, as amended to the
date the Acquisition 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
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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.
REPRESENTATIONS AND WARRANTIES. The Acquisition Agreement contains various
customary representations and warranties of the parties thereto, including
representations by Varlen and the Purchaser as to their organization and
qualification, authority relative to the Acquisition Agreement, compliance,
financing, and brokers and finders, and by the Company as to its organization
and qualification, capitalization, capitalization of its subsidiaries, authority
relative to the Acquisition Agreement, lack of conflicts, filing of reports and
financial statements, litigation, employee benefit plans, taxes, absence of
certain changes, brokers and finders, liabilities, contracts, board actions, and
cash and cash equivalents.
TERMINATION. The Acquisition Agreement may be terminated at any time prior
to the Effective Time, whether prior to or after approval by the shareholders of
the Company:
(A)
by mutual written consent of the Boards of Directors of Varlen and
the Company;
(B)
by either the Company or Varlen if any court of competent
jurisdiction or other governmental body shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable best efforts to
lift), in each case, permanently restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, decree, ruling or other
action shall have become final and non-appealable;
(C)
by the Company, if the Offer shall have been terminated, or the Offer
shall have expired, without the purchase of any Shares thereunder
within two business days thereof and such non-purchase shall not have been
due to a failure to satisfy any of the conditions of the Offer described in
Section 13 of this Offer to Purchase; PROVIDED that the Company may not
terminate the Acquisition Agreement if the Company is in breach of such
agreement;
(D)
by the Company, if the Effective Time shall not have occurred on or
before December 31, 1996 due to a failure of any of the conditions to
the obligations of the Company to effect the Merger as described in the
Acquisition Agreement; PROVIDED that the Company may not terminate the
Agreement if the Company's failure to fulfill any obligation under the
Acquisition Agreement has been the cause of, or resulted in, in whole or in
part, the failure of the Effective Time to occur on or before such date;
(E)
by the Company, if: (1) any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act)
other than Varlen or the Purchaser or any of their respective subsidiaries
or affiliates (a "Qualified Person") shall have commenced (within the
meaning of Rule 14d-2 under the Exchange Act) a cash tender offer for any
and all Shares at a price at or in excess of $16.125 per Share, or (2) any
Qualified Person shall have made a bona fide written proposal involving a
merger or consolidation of the Company or the acquisition of all the Shares
or all or a substantial portion of its assets which would result in a cash
distribution to shareholders of the Company in excess of $16.125 per Share
(any such proposal described in subclause (1) or (2) being referred to as a
"Qualified Proposal"), and the Board of Directors of the Company shall have
been advised in a writing by its legal counsel (the delivery of which advice
shall have been confirmed in writing to Varlen by such counsel) that there
would be a substantial risk of liability for breach of their fiduciary
obligations to shareholders if they failed to recommend such offer or accept
such Qualified Proposal; PROVIDED, HOWEVER, that the Company may not
terminate the Acquisition Agreement: (i) until the expiration of five
business days after notice of such Qualified Proposal has been delivered to
Varlen, or (ii) unless otherwise consented to in writing by Varlen, if any
such offer or Qualified Proposal is made in breach of, or as a result of a
breach of its non-solicitation obligation described herein;
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(F)
by either of Varlen or the Purchaser, if due to a failure to satisfy
any of the conditions of the Offer described in Section 13 of this
Offer to Purchase: (i) Varlen or any of its subsidiaries or affiliates shall
not have commenced the Offer, or shall have terminated the Offer, or (ii)
the Offer shall have expired without the purchase of any Shares thereunder
within two business days thereof, or (iii) Varlen shall have determined not
to proceed with the Merger; PROVIDED that neither Varlen nor the Purchaser
may terminate the Acquisition Agreement if either Varlen or the Purchaser is
in material breach of such agreement;
(G)
by either of Varlen or the Purchaser, if the Effective Time shall not
have occurred on or before December 31, 1996 due to a failure of any
of the conditions to the obligations of Varlen and the Purchaser to effect
the Merger described in the Acquisition Agreement; PROVIDED that neither
Varlen nor the Purchaser may terminate the Acquisition Agreement if Varlen's
or the Purchaser's failure to fulfill any material obligation under the
Acquisition Agreement has been the cause of, or resulted in, in whole or in
part, the failure of the Effective Time to occur on or before such date; or
(H)
by either of Varlen or the Purchaser, if prior to the purchase of
Shares in the Offer, the Board of Directors of the Company shall
have: (1) withdrawn, or modified in a manner adverse to Varlen or the
Purchaser, its approval or recommendation of the Offer or the Merger or any
of its other actions taken in accordance with the provisions of the
Acquisition Agreement summarized in the third paragraph of "The Acquisition
Agreement -- The Offer and Merger" hereinabove, (2) taken any of the actions
referred to in the third paragraph of "The Acquisition Agreement -- The
Offer and Merger" hereinabove for the benefit of any person (other than
Varlen, the Purchaser or any of their respective subsidiaries) or any
transaction (other than the Offer and Merger), or (3) resolved to do any of
the foregoing.
TERMINATION FEE. If the Acquisition Agreement is terminated by the Company
pursuant to the provision described in clause (E) of "The Acquisition Agreement
- -- Termination" above or if the Acquisition Agreement and/or the Offer is
terminated by Varlen or the Purchaser by reason of a failure of any condition to
the Offer described in (i) paragraphs (a), (b) or (g) as set forth below under
"Certain Conditions," (ii) paragraph (c) as set forth below under "Certain
Conditions," (but only if due, in whole or in part, to any (x) act of the
Company or any affiliate thereof, or (y) other occurrence, event, fact or
circumstance not beyond the control of the Company or any affiliate thereof), or
(iii) clause (vi) of paragraph (c) as set forth below under "Certain
Conditions," the Company has agreed to pay to Varlen a termination fee of
$6,500,000 plus an amount sufficient to reimburse Varlen and its subsidiaries
for all fees, costs and expenses relating to the transactions contemplated by
the Acquisition Agreement, the financing contemplated by the Acquisition
Agreement and the transactions contemplated thereby (PROVIDED that the Company
shall not be obligated to reimburse Varlen or its subsidiaries for more than
$2,000,000 of such fees, costs and expenses).
In the event of the termination of the Acquisition Agreement, it will become
null and void and have no effect without any liability on the part of any party,
except that provisions relating to the termination fee, expenses of the parties
and confidentiality of information will survive any such termination and
provided that a party will not be relieved from liability for any breach of the
Acquisition Agreement.
COSTS AND EXPENSES. The Acquisition Agreement provides that except as
provided above under "Termination Fee," all costs and expenses incurred in
connection with the transactions contemplated by the Acquisition Agreement shall
be paid by the party incurring such costs and expenses.
DISSENTER'S RIGHTS. No dissenter's rights are available in connection with
the Offer. Holders of Shares may be entitled to dissenter's rights in connection
with the Merger if, at the record date with respect to the meeting at which the
Acquisition Agreement and the Merger will be acted upon, certain requirements
are satisfied.
Section 13.1-730 of the Virginia Act (as effective from July 1, 1996)
provides that no dissenter's rights are available for the shares of any class or
series of stock which, at the record date fixed to
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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." See Section 15.
If the conditions of Section 13.1-730 of the Virginia Act are not met and if
the Merger or a similar business combination is consummated, the holders of
Shares not purchased pursuant to the Offer would have certain rights to dissent
and demand to be paid the "fair value" of their Shares under the Virginia Act.
Under the Virginia Act, dissenting shareholders who comply with applicable
statutory procedures would be entitled to payment of the "fair value" of the
Shares as to which dissenter's rights are properly claimed as of the time
immediately before the effectuation of the Merger (excluding any appreciation or
depreciation in anticipation of the Merger, unless such exclusion would be
inequitable). In the first instance, the "fair value" estimation is made by the
corporation. Dissatisfied dissenters may then notify the corporation of their
own "fair value" estimation. If the corporation and the dissatisfied shareholder
cannot settle on the amount owed, the shareholder will ultimately be entitled to
a judicial determination of "fair value." Any such judicial determination of the
"fair value" of the Shares could be based upon considerations other than or in
addition to the price paid in the Offer and the market value of the Shares,
including asset values, the investment value of the Shares and any other
valuation considerations generally accepted in the investment community. The
"fair value" of the Shares so determined could be more or less than the price
per Share to be paid pursuant to the Offer and the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE COMPLETE. THE EXERCISE AND PRESERVATION OF DISSENTER'S RIGHTS
REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE VIRGINIA ACT.
SHAREHOLDER TENDER AGREEMENT.
SUMMARY. Simultaneously with entering into the Acquisition Agreement,
Varlen entered into a Shareholder Tender Agreement (the "Shareholder Tender
Agreement") with certain shareholders of the Company (the "Tendering
Shareholders"), including Needham B. Whitfield, Chairman and Chief Executive
Officer of the Company, Anne Whitfield Kenny (whose husband, John C. Kenny, is a
director of the Company), and certain members (and trusts for the benefit of
members) of their families. Pursuant to the Shareholder Tender Agreement, each
Tendering Shareholder has agreed to tender pursuant to the Offer and before the
Expiration Date all of the Shares owned of record or beneficially by such
Tendering Shareholder on the date of the Shareholder Tender Agreement, together
with any Shares acquired by any such Tendering Shareholder prior to the
termination of the Shareholder Tender Agreement. As of the date hereof, the
Tendering Shareholders beneficially own 2,108,343 Shares, or approximately 20.7%
of all outstanding Shares.
The Shareholder Tender Agreement provides that each Tendering Shareholder
will tender its Shares pursuant to the Offer before the Expiration Date and will
not withdraw any Shares so tendered without Varlen's prior written consent;
PROVIDED, HOWEVER, that each Tendering Shareholder may: (i) refrain from so
tendering its Shares, and may withdraw any Shares previously so tendered, if and
for so long as there shall have been commenced and not terminated a cash tender
offer by any person or "group" (other than Varlen or the Purchaser or any of
their respective subsidiaries or affiliates) for any and all Shares at a price
in excess of $16.125 per share (a "Superior Offer"); and (ii) tender its Shares
pursuant to such Superior Offer; AND PROVIDED FURTHER, HOWEVER, that in the
event that (x) any such Superior Offer shall have expired or been terminated
without purchase of such Tendering Shareholder's Shares, and (y) the Offer shall
then be in effect, then such Tendering Shareholder shall again be subject to the
foregoing provisions.
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Notwithstanding the foregoing, the Shareholder Tender Agreement permits up
to 50,000 of the Tendering Shareholders' Shares (in the aggregate) to be
contributed to one or more charitable organizations and, if and to the extent so
contributed, such Shares will not be required to be tendered pursuant to the
Offer.
OTHER AGREEMENTS. During the term of the Shareholder Tender Agreement, and
except as otherwise provided therein or with the prior written consent of
Varlen, each Tendering Shareholder may not (i) sell, pledge or otherwise dispose
of any of its Shares, (ii) deposit its Shares into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares, (iii) grant any
proxy, power-of-attorney or other authorization in or with respect to such
Shares, or (iv) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, assignment, transfer or
other disposition of such Shares.
The Shareholder Tender Agreement requires each Tendering Shareholder to
abide by the terms of the non-solicitation provisions of the Acquisition
Agreement summarized in "The Acquisition Agreement -- Non-Solicitation" section
set forth above in this Section 11.
TERMINATION. The Shareholder Tender Agreement will terminate upon the
earlier to occur of: (i) the termination of the Acquisition Agreement (if any),
and (ii) the Effective Date.
CERTAIN CONDITIONS.
Notwithstanding any other provision of the Acquisition Agreement or the
Offer, and except as expressly limited below, the Purchaser: shall not be
required to commence or continue the Offer; or accept for payment, purchase or
pay for any Shares tendered; may postpone the acceptance for payment, the
purchase of, and/or payment for, Shares; and/or may amend (subject to the
restrictions contained in Section 1.1 of the Acquisition Agreement,) or
terminate the Offer; if: (1) there shall not have been validly tendered and not
withdrawn prior to the expiration of the Offer a number of Shares which,
together with the Shares beneficially owned by the Purchaser and Varlen,
represents two-thirds of the total voting power of all shares of capital stock
of the Company outstanding on a fully diluted basis, or (2) any waiting period
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended ("HSR
Act"), applicable to the purchase of the Shares pursuant to the Offer shall not
have expired or been terminated, or (3) at any time on or after June 1, 1996,
and prior to the time of payment for any such Shares (whether or not any Shares
have theretofore been accepted for payment or paid for pursuant to the Offer),
any of the following events (each, an "Event") shall have occurred (each of
paragraphs (a) through (h) providing a separate and independent condition to the
Purchaser's obligations pursuant to the Offer):
(a)the Company shall have authorized, recommended or proposed, or shall have
announced an intention to authorize, recommend or propose, or shall have
entered into an agreement or agreement in principle with respect to, any merger,
consolidation, other business combination, recapitalization, liquidation or
dissolution, or any purchase or other acquisition or sale or other disposition
of assets (other than in the ordinary course of business) or shares of capital
stock of the Company or any of its Subsidiaries, or any similar transaction
involving the Company or any Subsidiary or division of the Company or any
Subsidiary (other than the Merger and as Previously Disclosed with respect to
certain subsidiaries) (the foregoing being collectively referred to as a
"Business Combination"), any material change in its capitalization, or any
release or relinquishment of any material contract or other rights not in the
ordinary course of business; or
(b)(i) the Board of Directors of the Company shall have (x) modified or
amended in any respect its recommendation of the Offer, the Merger or any
of its other actions taken in accordance with Section 1.2(a) and/or 4.14 of the
Acquisition Agreement, or (y) adopted any resolution to do so, or (ii) the
opinion of Virginia counsel to the Company referred to in Section 4.14 of the
Acquisition Agreement shall have been disclaimed, disavowed, retracted or
revoked in any respect, or shall otherwise have been rendered inaccurate or
erroneous, or (iii) the Board of Directors of the Company shall have (x) taken
any of the actions referred to in Section 1.2(a) and/or 4.14 of the Acquisition
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Agreement for the benefit of any person, entity or group (as defined in Section
13(d)(3) of the Exchange Act) (other than Varlen, the Purchaser or any of their
respective subsidiaries) or any Business Combination (other than the Offer and
the Merger), or (y) adopted any resolution to do so; or
(c)it shall have been publicly disclosed, or Varlen, the Purchaser or the
Company shall have learned that: (i) any person, entity (including the
Company or any of its subsidiaries or affiliates) or group (as defined in
Section 13(d)(3) of the Exchange Act) (a "Person") shall have (x) acquired or
become the beneficial owner of more than 10% of the outstanding Shares (other
than those shareholders of the Company party to that certain Shareholder Tender
Agreement, (the "Permitted Shareholders")), or (y) been granted by the Company
any warrant, option or right, conditional or otherwise, to acquire beneficial
ownership of more than 10% of the outstanding Shares, other than acquisitions by
a Person who has publicly disclosed such ownership in a Schedule 13D or 13G (or
amendment thereto) on file with the Commission prior to June 1, 1996, and other
than for bona fide arbitrage purposes, or (ii) any such Person (other than, in
the case of the following clause (x), a Permitted Shareholder) who has publicly
disclosed in such a Schedule 13D or 13G any such ownership of more than 10% of
the outstanding Shares prior to such date shall have (x) acquired or become the
beneficial owner of, or proposed to acquire or become the beneficial owner of,
additional Shares, or (y) been granted by the Company any warrant, option or
right, conditional or otherwise, to acquire any Shares, or (iii) any new group
shall have been formed which beneficially owns more than 10% of the Shares, or
(iv) any Person shall have commenced, or publicly proposed to commence, a tender
offer for outstanding Shares, or publicly proposed any Business Combination, or
(v) any Person shall have commenced any solicitation of proxies with respect to
the Shares in opposition to the Merger, or (vi) any Person shall have acquired
or become the beneficial owner of more than 50% of the outstanding Shares; or
(d)there shall be pending any action or proceeding before any court,
government or governmental authority or agency: (i) challenging or
seeking to make illegal, or to delay or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of,
payment for, or the purchase of, some or all of the Shares by Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen or the consummation of
the Merger, or seeking to obtain material damages in connection with the Offer
or the Merger, or (ii) seeking to prohibit ownership or operation by Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen of all or a material
portion of the business or assets of Varlen, the Company or any of their
respective subsidiaries or affiliates or to compel Varlen, the Purchaser or any
other subsidiary or affiliate of Varlen to dispose of or to hold separately all
or a material portion of the business or assets of Varlen, the Company or any of
their respective subsidiaries or affiliates, as a result of the Offer or the
Merger, or (iii) seeking to impose or confirm limitations on the ability of
Varlen, the Purchaser or any other subsidiary or affiliate of Varlen effectively
to exercise full rights of ownership and control of any Shares (or any shares of
capital stock of any subsidiary of the Company) (including, without limitation,
the right to vote any such Shares (or shares of a subsidiary)) acquired pursuant
to the Offer or otherwise (directly or indirectly), on all matters properly
presented to the Company's shareholders (or any such subsidiary's shareholders),
or (iv) seeking to require divestiture by Varlen, the Purchaser or any other
subsidiary or affiliate of Varlen of any Shares, or (v) invalidating or
rendering unenforceable any material provision of the Acquisition Agreement, or
(vi) which otherwise might materially adversely affect Varlen, the Company or
any of their respective subsidiaries or affiliates; or
(e)there shall be any action taken, or any statute, rule, regulation,
judgment, order or injunction proposed, enacted, entered, enforced,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency (other than the
application of the waiting period provisions of the HSR Act to the Offer or to
the Merger) which may, directly or indirectly, result in any of the consequences
referred to in paragraph (d) above; or
(f)there shall have occurred: (i) any general suspension of, or limitation
on prices for, trading in securities on any national securities exchange
or in the over-the-counter market, or (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, or (iii)
any limitation (whether or not mandatory) by any governmental authority on, or
any other event
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which, in the sole judgment of Varlen, might affect the extension of credit by
banks or other lending institutions in the United States, or (iv) any material
change in the United States or any other currency exchange rates or any
suspension of, or limitation on, the markets therefor, or (v) any extraordinary
adverse change in the financial markets or the market price of the Shares, or
(vi) any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in the sole judgment of
Varlen, have a material adverse effect upon the business or operations of the
Company or any of its subsidiaries or affiliates or the trading of the Shares,
or (vii) a commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, or (viii)
in the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g)the representations and warranties of the Company in the Acquisition
Agreement shall not be true and correct in all material respects, or the
Company shall not have performed in all material respects each covenant and
complied with each agreement to be performed and complied with by the Company
under the Acquisition Agreement; or
(h)the Company and Varlen shall have agreed to terminate the Offer or the
Acquisition Agreement, or the Acquisition Agreement shall otherwise have
been terminated in accordance with it terms;
which, in the sole judgment of the Purchaser, in any such case, and regardless
of the circumstances (including any action or inaction by the Purchaser and
Varlen) giving rise to any such condition, make it inadvisable to proceed with
acceptance for payment or purchase of or payment for any Shares tendered or to
proceed with the Merger.
The foregoing conditions are for the sole benefit of Varlen and the
Purchaser and may be asserted by Varlen and the Purchaser regardless of the
circumstances giving rise to such condition, including (without limitation) any
action or inaction by Varlen or the Purchaser, or may be waived by Varlen or the
Purchaser in whole at any time or in part from time to time in their sole
discretion. The failure by Varlen or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by Varlen or the Purchaser concerning any
Event shall be final and binding upon all parties.
In addition, under the Acquisition Agreement the obligations of Varlen and
the Purchaser to consummate and effect the Merger are subject to the condition
that the Company shall not have received demands for payment of the fair value
of Shares (pursuant to Article 15 (Dissenter's Rights) of the Virginia Act) with
respect to more than 5% of the outstanding Shares.
In addition, notwithstanding anything to the contrary in the Acquisition
Agreement, the obligations of the Purchaser to accept for payment, purchase or
pay for any Shares tendered shall also be subject to the expiration or
termination of all waiting periods under the HSR Act that are applicable to the
purchase of Shares pursuant to the Offer and the Acquisition Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD. The Company's Board of Directors
unanimously has determined that the Offer and the Merger are fair to and in the
best interests of the shareholders of the Company, has approved the Merger
Agreement, the Offer and the Merger and recommends that all shareholders of the
Company accept the Offer and tender all of their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR BOARD'S RECOMMENDATION.
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
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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.
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 Chief Financial Officer of the Company and Mr. Whitfield to
determine what financial and operating data was available and to begin his
inquiries.
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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, 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.
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. 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 subject to approval of both boards.
Negotiations continued over the period from June 11 to June 14 concerning
certain additional terms.
On June 13, 1996, the Varlen Board of Directors met and approved the terms
of the offer and the agreements between the two companies. 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.
At a Special Meeting on June 15, 1996, the Company's Board of Directors met.
Wheat advised the board, based on various analyses and subject to the
limitations set forth in its written opinion, that the
15
<PAGE>
consideration was fair to the Company's shareholders from a financial point of
view, and the Board, after discussion, approved the Acquisition 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 Acquisition 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.
* * * * *
In approving the Acquisition 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
Acquisition 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 NASDAQ
National Market System ("NMS") on June 14, 1996, the last full trading day
prior to the public announcement of the execution of the Acquisition
Agreement;
(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 Acquisition Agreement is fair, from a
financial point of view, to such holders. The full text of Wheat's written
opinion, which sets forth, among other things, assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Exhibit J and is incorporated herein by reference. Shareholders are urged to
read the opinion in its entirety. Wheat's opinion is directed to the Board,
addresses only the fairness of the consideration to be received by holders
of the Shares from a financial point of view and does not constitute a
recommendation to any shareholder as to whether such shareholder should
accept the Offer and tender its Shares;
(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 Acquisition 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 Acquisition Agreement upon payment to
16
<PAGE>
Purchaser of a break-up fee in the amount set forth in the description of
the Acquisition Agreement set forth in Item 3(b)(2), 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 Acquisition 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
Acquisition Agreement and the Offer, 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.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated May 31, 1996, between the Company and
Wheat, the Company retained Wheat to render certain financial advisory and
investment banking services to the Company in connection with a possible
business combination. Pursuant to this engagement, one of the services that
Wheat agreed to provide was a written opinion to the Board 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. Pursuant to the Engagement Letter, the Company agreed to
pay Wheat a fee of $50,000 after the delivery of an oral opinion to the Board by
Wheat as to the fairness of the consideration to 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 is included in a proxy statement or a 14D-9
recommendation to the shareholders; and an additional $150,000 payable upon the
closing of the transaction. In addition, the Company agreed to reimburse Wheat
for reasonable out-of-pocket expenses incurred (including reasonable legal fees
and expenses) in performing its services under the Engagement Letter, 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
under the Engagement Letter.
In the ordinary course of business, Wheat and its affiliates may trade the
equity securities of the Company for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Wheat has in the past provided financial advisory and
investment banking services to the Company for which services they have received
customary fees.
Wheat is a nationally recognized investment banking firm engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated primary and secondary underwritings, private placements
and valuations for 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 to mergers and acquisitions.
17
<PAGE>
Except as disclosed herein or in the Offer to Purchase, neither the Company
nor any person acting on its behalf currently intends to employ, retain or
compensate any other person to make solicitations or recommendations to security
holders on its behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) SHARE TRANSACTIONS IN LAST 60 DAYS. Except for exercises of outstanding
options, during the past 60 days, no transactions in shares have been effected
by the Company or, to the best of the Company's knowledge, by any of its
executive officers, directors, affiliates or subsidiaries.
(b) INTENT TO TENDER. To the best of the Company's knowledge, all of the
Company's executive officers and directors (except those individuals who would
be subject to liability therefor pursuant to the short-swing profit recapture
provisions of Sections 16(b) of the Exchange Act) have agreed to tender in the
Offer all shares that they now own. As described above, Mr. Whitfield and Mrs.
Kenny and members of their families have entered into a Shareholder Tender
Agreement pursuant to which such shareholders have agreed, among other things,
to validly tender (and not to withdraw, subject to the right not to tender or to
withdraw in the event of a superior offer) pursuant to and in accordance with
the terms of the Offer, all shares owned by them on the date of the Shareholder
Tender Agreement, as well as any Shares acquired after such date and prior to
the termination of such agreement.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) CERTAIN NEGOTIATIONS. Except as described in this Schedule 14D-9,
including as set forth in the Offer to Purchase, to the knowledge of the
Company, no negotiation is being undertaken or is under way by the Company in
response to the Offer which relates to or would result in (i) any extraordinary
transaction, such as a merger or reorganization, involving the Company or any
affiliate or subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company. Pursuant to the Acquisition Agreement, however, and as described under
"No Solicitation." in Item 3(b)(2) above, the Company may, subject to certain
limitations, take certain actions in respect of proposed transactions necessary
for the directors of the Company to discharge their fiduciary duties to
shareholders under applicable law.
(b) CERTAIN TRANSACTIONS. Except as described in this Schedule 14D-9, there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to or would result in one or
more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None
18
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------------ ---------------------------------------------------------------------------------------------
<S> <C>
Exhibit A Offer to Purchase dated June 20, 1996.*
Exhibit B Letter of Transmittal.*
Exhibit C Acquisition Agreement, dated June 15, 1996, by and among Varlen, the Purchaser and the
Company.
Exhibit D Shareholder Tender Agreement, dated June 15, 1996, by and among Varlen, the Purchaser, the
Company and the parties identified therein.
Exhibit E(1) Change in Control Agreement dated as of March 22, 1996, between the Company and Needham B.
Whitfield.
Exhibit E(2) Change in Control Agreement dated as of March 22, 1996, between the Company and J. Craig
Rice.
Exhibit E(3) Change in Control Agreement dated as of March 22, 1996, between the Company and Jacob M.
Feichtner.
Exhibit E(4) Change in Control Agreement dated as of March 22, 1996, between the Company and Howard J.
Bush.
Exhibit E(5) Change in Control Agreement dated as of March 22, 1996, between the Company and Donald E.
Fitzsimmons.
Exhibit F Executive Retirement Incentive Plan, as amended and restated effective March 22, 1996.
Exhibit G Trust Agreement for the Company's Executive Retirement Incentive Program dated as of May 31,
1996.
Exhibit H 1987 Restricted Stock Plan of the Company, as amended and restated effective March 22, 1996.
Exhibit I 1988 Stock Option Plan of the Company, as amended and restated effective March 22, 1996.
Exhibit J Fairness opinion of Wheat dated June 15, 1996.**
Exhibit K Joint Press Release of Varlen and the Company, dated June 17, 1996.
Exhibit L Joint Press Release of Varlen and the Company, dated June 20, 1996.
Exhibit M Letter dated June 20, 1996, from the Company's Chairman and Chief Executive Officer to the
Company's shareholders.**
</TABLE>
* Included in the Offer to Purchase materials sent to Company
shareholders.
** Included in the Schedule 14D-9 materials sent to Company
shareholders.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 20, 1996 Brenco, Incorporated
By _______/s/_Needham B. Whitfield______
Needham B. Whitfield
Chairman of the Board and
Chief Executive Officer
19
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
BRENCO, INCORPORATED
AT
$16.125 NET PER SHARE
BY
BAS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VARLEN CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, JULY 18, 1996 UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF BRENCO, INCORPORATED HAS UNANIMOUSLY APPROVED THE
OFFER, THE MERGER (AS HEREINAFTER DEFINED) AND THE ACQUISITION AGREEMENT (AS
HEREINAFTER DEFINED), HAS DETERMINED THAT THE TERMS OF THE OFFER, THE MERGER AND
THE ACQUISITION AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE
SHAREHOLDERS OF BRENCO, INCORPORATED AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES (AS HEREINAFTER DEFINED) PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS HEREINAFTER DEFINED)
A NUMBER OF SHARES OF BRENCO, INCORPORATED WHICH, TOGETHER WITH THE SHARES
BENEFICIALLY OWNED BY VARLEN CORPORATION, BAS, INC. AND/OR OTHER SUBSIDIARIES OF
VARLEN CORPORATION, REPRESENTS AT LEAST TWO-THIRDS OF THE TOTAL NUMBER OF SHARES
THEN OUTSTANDING ON A FULLY DILUTED BASIS. THE PURCHASER ESTIMATES THAT
APPROXIMATELY 6,639,627 SHARES WILL NEED TO BE VALIDLY TENDERED (AND NOT VALIDLY
WITHDRAWN) TO SATISFY THIS MINIMUM CONDITION (AS HEREINAFTER DEFINED). THE OFFER
IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTIONS 1, 13 AND 16.
VARLEN CORPORATION HAS ENTERED INTO A SHAREHOLDER TENDER AGREEMENT WITH
CERTAIN SHAREHOLDERS OF BRENCO, INCORPORATED INCLUDING THE CHAIRMAN AND CHIEF
EXECUTIVE OFFICER OF BRENCO, INCORPORATED AND CERTAIN MEMBERS OF HIS FAMILY,
PURSUANT TO WHICH, AMONG OTHER THINGS, SUCH SHAREHOLDERS HAVE AGREED (SUBJECT TO
CERTAIN EXCEPTIONS) TO TENDER IN THE OFFER APPROXIMATELY 20.7% OF ALL
OUTSTANDING SHARES.
---------------------
IMPORTANT
ANY SHAREHOLDER DESIRING TO TENDER ALL OR A PORTION OF SUCH SHAREHOLDER'S
SHARES SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL TOGETHER WITH THE
CERTIFICATE(S) EVIDENCING SUCH SHARES, AND ANY OTHER REQUIRED DOCUMENTS, TO THE
DEPOSITARY OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY
TRANSFER SET FORTH IN SECTION 4 OR (2) REQUEST HIS BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR HIM. A
SHAREHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH SHAREHOLDER
DESIRES TO TENDER SUCH SHARES.
A SHAREHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY
WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH
SHARES BY FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY SET FORTH IN SECTION
4.
QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE INFORMATION
AGENT OR TO THE DEALER MANAGER AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE
NUMBERS SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. ADDITIONAL COPIES
OF THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL, THE NOTICE OF GUARANTEED
DELIVERY AND OTHER RELATED MATERIALS MAY BE DIRECTED TO THE INFORMATION AGENT,
THE DEALER MANAGER, OR TO BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES.
---------------------
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
June 20, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- -----
<C> <S> <C>
INTRODUCTION............................................... 1
1. Terms of the Offer; Expiration Date............... 4
2. Acceptance of and Payment for Shares.............. 4
3. Withdrawal Rights................................. 5
4. Procedures for Accepting the Offer and Tendering
Shares........................................... 6
5. Certain Income Tax Consequences................... 8
6. Market Prices of Shares; Dividends................ 9
7. Certain Effects of the Offer...................... 9
8. Certain Information Concerning the Company........ 10
9. Certain Information Concerning the Purchaser and
Varlen........................................... 12
10. Background of the Offer........................... 14
11. Purpose of the Offer and the Merger; Plans for the 16
Company; the Acquisition Agreement and
Shareholder Tender Agreement.....................
12. Source and Amount of Funds........................ 24
13. Certain Conditions of the Offer and the Merger.... 25
14. Dividends and Distributions....................... 27
15. Certain Legal Matters............................. 28
16. Extension of Tender Period, Termination and
Amendments....................................... 31
17. Certain Fees and Expenses......................... 32
18. Miscellaneous..................................... 33
Schedule A -- Directors and Executive Officers of Varlen
and the Purchaser.......................................... A-1
</TABLE>
<PAGE>
TO THE HOLDERS OF COMMON STOCK OF BRENCO, INCORPORATED:
INTRODUCTION
BAS, Inc., a Virginia corporation (the "Purchaser") and a wholly owned
subsidiary of Varlen Corporation, a Delaware corporation ("Varlen"), hereby
offers to purchase all outstanding shares of the Common Stock, par value $1.00
per share (the "Shares"), of Brenco, Incorporated, a Virginia corporation (the
"Company"), at $16.125 per Share, net to the seller in cash, without any
interest, upon the terms and subject to the conditions set forth in this Offer
to Purchase and in the related Letter of Transmittal (which together constitute
the "Offer"). Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares
pursuant to the Offer. The Purchaser will pay charges and reimbursable expenses
of Lehman Brothers Inc., which is acting as the Dealer Manager for the Offer (in
such capacity, the "Dealer Manager"), Harris Trust Company of New York, which is
acting as the Depositary (the "Depositary") and D.F. King & Co., Inc., which is
acting as the Information Agent (the "Information Agent"), incurred in
connection with the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE ACQUISITION AGREEMENT, HAS DETERMINED THAT THE TERMS OF THE
OFFER, THE MERGER AND THE ACQUISITION AGREEMENT ARE FAIR TO AND IN THE BEST
INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT SHAREHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF
THE COMPANY WHICH, TOGETHER WITH THE SHARES BENEFICIALLY OWNED BY VARLEN, THE
PURCHASER AND/OR OTHER SUBSIDIARIES OF VARLEN, REPRESENTS AT LEAST TWO-THIRDS OF
THE TOTAL NUMBER OF SHARES THEN OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION"). THE OFFER IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTIONS 1, 13 AND 16.
Wheat, First Securities, Inc., has delivered to the Company's Board of
Directors its opinion that the consideration to be received by the shareholders
of the Company pursuant to the Offer and the Merger is fair to such shareholders
from a financial point of view. The Purchaser has been advised by the Company
that a copy of such opinion will be set forth in full as an exhibit to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") which is being distributed to the Company's shareholders. Shareholders
are urged to read the opinion in its entirety for a description of the
assumptions made, matters considered and limitations of the review undertaken by
Wheat, First Securities, Inc.
The purpose of the Offer is to facilitate the acquisition of all of the
outstanding Shares and thereby to enable Purchaser to acquire control of, and
the entire equity interest in, the Company. The Offer will be followed by the
Merger which will enable the Purchaser to acquire all outstanding Shares not
tendered and purchased pursuant to the Offer or acquired pursuant to the
Shareholder Tender Agreement (as hereinafter defined).
The Offer is being made pursuant to an Acquisition Agreement, dated as of
June 15, 1996 (the "Acquisition Agreement"), by and among Varlen, the Purchaser
and the Company. Pursuant to the Acquisition Agreement, and subject to the
satisfaction or waiver of the conditions set forth therein, the Purchaser has
agreed to make the Offer and purchase any and all Shares validly tendered and
not withdrawn following the later of (i) the expiration or termination of all
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), applicable to the Offer and (ii) the Expiration
Date. After the completion of the Offer, the Purchaser will be merged with and
into the Company (the "Merger") and each Share then outstanding (other than
Shares held by Varlen, the Purchaser or any direct or indirect subsidiary of
Varlen, the Purchaser or the Company, and Shares with respect to which
dissenter's rights under the Virginia Stock Corporation Act, as amended (the
"Virginia Act") are properly exercised) will be converted upon effectiveness of
the
<PAGE>
Merger (the "Effective Time") into the right to receive $16.125 in cash, without
any interest. Following the consummation of the Merger, the Company will
continue as the surviving corporation and will be a wholly owned subsidiary of
Varlen.
The Acquisition 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 Acquisition 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.
The Merger is subject to the satisfaction of various conditions, including,
among other things, approval by the shareholders of the Company if required
under the Virginia Act. If the Purchaser acquires the number of Shares required
to satisfy the Minimum Condition, it will control two-thirds of the outstanding
Shares on a fully diluted basis. Accordingly, the Purchaser would have
sufficient voting power to approve the Merger at a meeting of shareholders to
vote thereon. In the event that as a result of the Offer, Varlen owns 90% or
more of the outstanding Shares, the Purchaser and Varlen would be able to effect
the Merger pursuant to the short form merger provisions of the Virginia Act
without any action by any other shareholder of the Company, but subject to the
requirements of the Virginia Act that a copy of the Acquisition Agreement be
mailed to shareholders and to the applicable dissenter's rights provisions of
the Virginia Act.
In connection with the Merger, the Company has agreed that it shall take all
action necessary, in accordance with the Virginia Act and its charter and
bylaws, to convene a meeting of its shareholders as promptly as practicable to
consider and vote upon the Merger (if and to the extent required by the Virginia
Act), and to not take any action which would result in the affirmative vote of
shareholders required for approval of the Merger to be greater than two-thirds
of the votes entitled to be cast. Unless in the written opinion of legal counsel
to the Company (the delivery of which shall be confirmed in writing to Varlen by
such counsel) any of the following actions would create a substantial risk of
violating the fiduciary duties of the Board of Directors to the shareholders of
the Company, the Company has also agreed: (i) that the proxy or information
statement with respect to any meeting of the Company's shareholders or other
corporate action to approve the Acquisition Agreement and the Merger, shall
contain the recommendation of the Board of Directors that the shareholders of
the Company vote to adopt and approve the Merger and the Acquisition Agreement,
and (ii) if proxies are solicited, to use its reasonable best efforts to solicit
from its shareholders proxies in favor of such adoption and approval and to take
all other action necessary or, in the reasonable judgment of Varlen, helpful to
secure the vote or consent of shareholders required by the Virginia Act to
effect the Merger. At such meeting of the shareholders of the Company, Varlen,
the Purchaser and their direct and indirect subsidiaries will vote all of the
Shares then owned by any of them in favor of the Merger.
Holders of Shares may, in certain circumstances, have a statutory right to
dissent from the Merger and demand the "fair value" of their Shares under the
Virginia Act, provided they follow the
2
<PAGE>
procedures established by the Virginia Act to exercise and perfect such right.
Any dissenting shareholders will have only such rights and privileges as a
shareholder of the Company as are provided for under Article 15 (DISSENTER'S
RIGHTS) of the Virginia Act. See Section 11.
Simultaneously with entering into the Acquisition Agreement, Varlen entered
into a Shareholder Tender Agreement (the "Shareholder Tender Agreement") with
certain shareholders of the Company (the "Tendering Shareholders"), including
Needham B. Whitfield, Chairman and Chief Executive Officer of the Company, Anne
Whitfield Kenny (whose husband, John C. Kenny, is a director of the Company),
and certain members (and trusts for the benefit of members) of their family.
Pursuant to the Shareholder Tender Agreement, each Tendering Shareholder has
agreed to tender (subject to certain possible exceptions) pursuant to the Offer
and before the Expiration Date all of the Shares owned of record or beneficially
by such Tendering Shareholder (except for 50,000 Shares in the aggregate which
may be contributed to charity) on the date of the Shareholder Tender Agreement,
together with any Shares acquired by any such Tendering Shareholder prior to the
termination of the Shareholder Tender Agreement. As of the date hereof, the
Tendering Shareholders beneficially own 2,108,343 Shares, or approximately 20.7%
of all outstanding Shares.
The Acquisition Agreement and the Shareholder Tender Agreement are more
fully described in Section 11 of this Offer to Purchase. Shareholders are
encouraged to read that Section carefully, together with all other terms and
conditions of the Offer, before deciding whether to tender their Shares.
According to the Company, on June 14, 1996 there were (i) 10,207,440 Shares
(including 62,576 restricted Shares issued pursuant to the Company's restricted
stock plan) outstanding, and (ii) 442,000 shares reserved for issuance upon the
exercise of outstanding stock options issued pursuant to Company stock option
plans. As of the date of this Offer to Purchase, a subsidiary of Varlen
beneficially owns 460,000 Shares. Based on the foregoing, the Minimum Condition
will be satisfied if 6,639,627 Shares are validly tendered and not withdrawn
prior to the Expiration Date.
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY,
JULY 18, 1996, UNLESS THE OFFER IS EXTENDED.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING. ANY
SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY OR SOLICITATION
MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT,
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
3
<PAGE>
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions set forth in the Offer (including, if the Offer is extended or
amended, the terms and conditions of any extension or amendment), the Purchaser
will accept for payment and will pay for any and all Shares validly tendered on
or prior to the Expiration Date and not withdrawn in accordance with Section 3
of this Offer to Purchase. The term "Expiration Date" means 12:00 midnight, New
York City time, on Thursday, July 18, 1996, unless the Purchaser, in its sole
discretion, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by the Purchaser, shall expire. See Section 16.
The Offer is subject to certain conditions set forth in Section 13,
including satisfaction of the Minimum Condition and the expiration or
termination of the waiting period applicable to the Purchaser's acquisition of
Shares pursuant to the Offer under the HSR Act. If any condition to the
Purchaser's obligation to purchase shares is not satisfied prior to the payment
for any such Shares, the Purchaser may (i) terminate the Offer and return all
tendered Shares to tendering shareholders, (ii) extend the Offer and, subject to
withdrawal rights as set forth in Section 3, retain all such Shares until the
expiration of the Offer as so extended, (iii) waive such condition and, subject
to any requirement to extend the period of time during which the Offer is open,
purchase all Shares validly tendered by the Expiration Date and not withdrawn,
or (iv) delay acceptance for payment of or payment for Shares, subject to
applicable law, until satisfaction or waiver of the conditions of the Offer.
The Acquisition Agreement provides that, unless previously approved by the
Company, the Purchaser will not reduce the price to be paid per Share pursuant
to the Offer, change the form of consideration to be paid in the Offer or the
Merger, increase the Minimum Condition or amend the terms of the Offer
(including any of the conditions set forth in Section 13) in a manner that is
materially adverse to the holders of Shares. For a description of the
Purchaser's right to extend the period of time during which the Offer is open,
and to amend, delay or terminate the Offer, see Section 16.
The Company has provided the Purchaser with the Company's shareholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares and will be furnished to brokers,
dealers, banks and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE OF AND PAYMENT FOR SHARES. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the Purchaser will
purchase, by accepting for payment, and will pay for, any and all Shares validly
tendered and not withdrawn following the later of (i) the expiration or
termination of all waiting periods under the HSR Act that are applicable to the
purchase of Shares pursuant to the Offer, and (ii) the Expiration Date. In
addition, the Purchaser expressly reserves the right, in its sole discretion, to
delay the acceptance of, or payment for, Shares in order to comply, in whole or
in part, with any applicable law. See Section 15. In all cases, payment for
Shares purchased pursuant to the Offer will be made only after timely receipt by
the Depositary of certificates for such Shares or timely confirmation of
book-entry transfer (a "Book-Entry Confirmation") of such Shares into the
Depositary's account at The Depository Trust Company or the Philadelphia
Depository Trust Company (each, a "Book-Entry Transfer Facility" and
collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth in Section 4, a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) and any other documents
required by the Letter of Transmittal.
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<PAGE>
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment (and thereby purchased) tendered Shares as, if and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. Payment for Shares
purchased pursuant to the Offer will be made by deposit of the purchase price
with the Depositary, which will act as agent for tendering shareholders for the
purpose of receiving payment from the Purchaser and transmitting payments to
tendering shareholders. The Purchaser will not, under any circumstances, pay any
interest on the purchase price, regardless of any delay in making such payment.
If any tendered Shares are not purchased pursuant to the Offer, or if
certificates are submitted for more Shares than are tendered, certificates for
such unpurchased Shares will be returned, without expense to the tendering
shareholder (or, in the case of book-entry transfer within a Book-Entry Transfer
Facility, such Shares will be credited to an account maintained within such
Book-Entry Transfer Facility), as promptly as practicable after the expiration
or termination of the Offer.
The Purchaser will pay all stock transfer taxes, if any, payable with
respect to the transfer to it of Shares purchased pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or (in the
circumstances permitted by the Offer) if unpurchased Shares are to be registered
in the name of, any person other than the registered holder, or if tendered
certificates are registered in the name of any person other than the person
signing any Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such other person) payable on
account of such payment or transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted.
The Purchaser expressly reserves the right to transfer or assign to Varlen
or to one or more of Varlen's direct or indirect wholly owned subsidiaries the
right to purchase all or any portion of the Shares tendered pursuant to the
Offer, but no such transfer or assignment will relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
If, prior to the Expiration Date, the Purchaser shall decide, in its sole
discretion, to increase the consideration offered to shareholders pursuant to
the Offer, such increased consideration shall be paid to all holders of Shares
accepted for payment and paid for pursuant to the Offer.
3. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer will be
irrevocable, except that Shares tendered may be withdrawn at any time prior to
the Expiration Date and, unless previously accepted for payment, may also be
withdrawn after August 18, 1996. If the Purchaser is delayed in its acceptance
or purchase of or payment for Shares or is unable to purchase or pay for Shares
for any reason, then, without prejudice to the Purchaser's rights under Sections
1, 13 and 16, tendered Shares may be retained by the Depositary on behalf of the
Purchaser and may not be withdrawn except as permitted by this Section 3 and
subject to Rule 14e-1(c) under the Exchange Act. See Section 16.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its addresses
specified on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and, if certificates
representing such Shares have been delivered or otherwise identified to the
Depositary, the name(s) in which such certificate(s) is (are) registered, if
different from the name of the person tendering such Shares. If certificates
have been delivered or otherwise identified to the Depositary, then prior to the
physical release of such certificates, the tendering shareholder must also
submit the serial numbers shown on the particular certificates evidencing such
Shares and the signature on the notice of withdrawal must be guaranteed by a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office, branch or agency in the United States or any other
institution that is a member of the Medallion Signature Guaranty Program (each
being referred to herein as an "Eligible Institution"). If Shares
5
<PAGE>
have been tendered pursuant to the procedure for book-entry tender as set forth
in Section 4, the notice of withdrawal must specify the name and account
number(s) of the account(s) at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Shares, in which case a notice of withdrawal will be
effective if delivered to the Depositary by any method of delivery described in
the first sentence of this paragraph. None of Varlen, the Purchaser, the Dealer
Manager, the Depositary or the Information Agent will be obligated to give
notice of any defects or irregularities in any notice of withdrawal, nor shall
any of them incur any liability for failure to give any such notice. All
questions as to the form and validity (including time of receipt) of notices of
withdrawal will be determined by the Purchaser, in its sole discretion, whose
determination shall be final and binding.
Withdrawals of Shares tendered may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. Withdrawn Shares, however, may be retendered by following one of the
procedures described in Section 4 at any time prior to the Expiration Date.
4. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
VALID TENDER. In order for a holder of Shares to validly tender Shares
pursuant to the Offer, a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof), together with any required
signature guarantees and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase, on or prior to the Expiration
Date. Either (i) the certificates for such Shares must be delivered to the
Depositary or (ii) such Shares must be tendered pursuant to the procedure for
book-entry transfer set forth below and a Book-Entry Confirmation must be
received by the Depositary (including an Agent's Message (as defined below), if
the tendering shareholder has not delivered a Letter of Transmittal), in each
case on or prior to the Expiration Date. Delivery of documents to a Book-Entry
Transfer Facility does not constitute delivery to the Depositary. Alternatively,
the tendering shareholder may comply with the guaranteed delivery procedure set
forth below. The term "Agent's Message" means a message transmitted by a
Book-Entry Transfer Facility to and received by the Depositary and forming a
part of a Book-Entry Confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgement from a participant in the
system established by such Book-Entry Transfer Facility tendering the Shares
which are the subject of such Book-Entry Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Purchaser may enforce such Letter of Transmittal against such
participant.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in a Book-Entry Transfer Facility's
system may make book-entry transfer of the Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account in
accordance with such Book-Entry Transfer Facility's procedure for such transfer.
Even if delivery of Shares is to be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal (or a manually signed
facsimile thereof) along with any required signature guarantees and any other
required documents, or an Agent's Message, must be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover page of
this Offer to Purchase on or prior to the Expiration Date, or the shareholder
must comply with the guaranteed delivery procedure set forth below.
SIGNATURE GUARANTEES. If the Letter of Transmittal is signed by the
registered holder of the Shares tendered therewith and payment is to be made
directly to such registered holder, or if Shares are tendered for the account of
an Eligible Institution, no signature guarantee is required. In all other cases,
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. If certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made or
certificates for Shares not accepted for payment or not tendered are to be
returned to a person other than the registered holder, then certificates must be
endorsed or
6
<PAGE>
accompanied by appropriate stock powers, in either case signed exactly as the
name or the names of the registered owner or owners appear on certificates, with
the signature(s) on the certificates or stock powers guaranteed as aforesaid.
See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to
the Offer and such holder's certificates are not immediately available, or time
will not permit all required documents to reach the Depositary on or prior to
the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all of
the following conditions are met:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary as provided below by the Expiration Date; and
(iii) the certificates for all tendered Shares in proper form for
transfer (or a Book-Entry Confirmation), together with a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof) with any required signature guarantee and any other documents
required by the Letter of Transmittal, or an Agent's Message, are received
by the Depositary within three National Association of Securities Dealers,
Inc. Automated Quotation System trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or may be
transmitted by facsimile transmission, or by mail, to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
In all cases, payment for Shares tendered and purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of certificates
for such Shares (or a timely Book-Entry Confirmation), a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof) and
any other documents required by the Letter of Transmittal.
OTHER REQUIREMENTS. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of the Purchaser
as his proxies, in the manner set forth in the Letter of Transmittal, to the
full extent of such shareholder's rights with respect to the Shares tendered by
such shareholder and purchased by the Purchaser (and any and all other Shares
and other securities issued or issuable in respect thereof on or after June 15,
1996) prior to the time of any shareholder vote or other action. All such
proxies shall be irrevocable and coupled with an interest in the tendered
Shares. Such appointment will be effective when, and only to the extent that,
the Purchaser accepts such Shares for payment. Upon such appointment, all prior
proxies given by such shareholder with respect to such purchased Shares or other
securities will be revoked and no subsequent proxies may be given. The designees
of the Purchaser will, with respect to such Shares and other securities, be
empowered to exercise all voting and other rights of such shareholder as they,
in their sole discretion, may deem proper at any annual, special or adjourned
meeting of the Company's shareholders, by written consent or otherwise. The
Purchaser reserves the right to require that, in order for Shares to be validly
tendered, immediately upon the acceptance for payment of such Shares, the
Purchaser be able to exercise full voting and other rights of a record and
beneficial holder, including rights in respect of acting by written consent,
with respect to such Shares (and any and all other securities as set forth
above).
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING DELIVERY THROUGH A
BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
SHAREHOLDER. IF DELIVERY IS TO BE BY MAIL, INSURED REGISTERED MAIL, RETURN
RECEIPT REQUESTED IS RECOMMENDED. AMPLE TIME SHOULD BE ALLOWED FOR SUCH
DOCUMENTS TO REACH THE DEPOSITARY. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION
4, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
7
<PAGE>
BACK-UP FEDERAL INCOME TAX WITHHOLDING. Under the federal income tax laws,
the Depositary will be required to withhold 31% of the amount of any payments
made to certain shareholders pursuant to the Offer. To prevent such backup
federal income tax withholding, each such shareholder must provide the
Depositary with his correct taxpayer identification number and certify that such
shareholder is not subject to such backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser and Varlen, in their sole
discretion, whose determination will be final and binding. The Purchaser and
Varlen reserve the absolute right to reject any or all tenders determined by
them not to be in proper form or the acceptance of or payment for which may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser and Varlen
also reserve the absolute right to waive any of the conditions of the Offer or
any defect in any tender with respect to any particular Shares or any particular
shareholder. No tender of Shares will be deemed to have been validly made until
all defects and irregularities relating thereto have been cured or waived. None
of Varlen, the Purchaser, the Dealer Manager, the Depositary or the Information
Agent will be obligated to give notice of any defects or irregularities in
tenders, nor shall any of them incur any liability for failure to give any such
notice. The Purchaser's and Varlen's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and instructions thereto) will
be final and binding.
5. CERTAIN INCOME TAX CONSEQUENCES. The receipt of cash for Shares
pursuant to the Offer or for Shares pursuant to the Merger will be taxable for
federal income tax purposes and may be taxable under applicable state, local,
foreign and other tax laws. The tax consequences of such receipt may vary
depending upon, among other things, the particular circumstances of the
shareholder. In general, a shareholder will recognize gain or loss equal to the
difference between the amount of cash received and his tax basis for his Shares.
Such gain or loss will generally be capital gain or loss provided that such
shareholder held his Shares as a capital asset, and will be long-term capital
gain or loss if, on the date of sale, such Shares were held for more than one
year. Otherwise, such gain or loss will be short-term capital gain or loss.
The foregoing may not be applicable to shareholders who acquired their
Shares pursuant to the exercise of employee stock options or otherwise as
compensation or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Internal Revenue Code
of 1986, as amended (such as life insurance companies, tax exempt entities and
regulated investment companies).
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISORS TO
DETERMINE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO SUCH
SHAREHOLDER, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
8
<PAGE>
6. MARKET PRICES OF SHARES; DIVIDENDS. The Shares are traded in the
over-the-counter market, under the symbol "BREN." The Shares are quoted in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System ("NASDAQ") National Market System. 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 National Market System 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 National Market System quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
QUARTERLY
HIGH LOW DIVIDEND
-------- -------- -----------
<S> <C> <C> <C> <C>
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 1/4 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 (through June 19, 1996)......... 16 1/4 12 1/8 --
</TABLE>
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 National Market System, was $12.25 per
Share, according to published sources. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE SHARES.
7. CERTAIN EFFECTS OF THE OFFER. The purchase of Shares pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
may also be expected to reduce the number of holders of Shares. Such reductions
could adversely affect the liquidity and market value of the remaining Shares
held by the public.
NASDAQ QUOTATION. Depending on the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements of the NASD for
continued inclusion in the NASDAQ National Market System (the top tier market of
The NASDAQ Stock Market), which require that an issuer have at least 200,000
publicly held shares, held by at least 400 shareholders or 300 shareholders of
round lots, with a market value of $1,000,000, and have net tangible assets of
at least either $1,000,000, $2,000,000 or $4,000,000, depending on profitability
levels during the issuer's four most recent fiscal years. If these standards are
not met, the Shares might nevertheless continue to be included in the NASD's
NASDAQ Stock Market, with quotations published in the NASDAQ "additional list"
or in one of the "local lists", but if the number of holders of the Shares were
to fall below 300, or if the number of publicly held Shares were to fall below
100,000 or there were not at least two registered and active market makers for
the Shares, the NASD's rules provide that the Shares would no longer be
"qualified" for NASDAQ reporting and NASDAQ would cease to provide any
quotations. Shares held directly or indirectly by directors, officers or
beneficial owners of more than 10% of the Shares are not considered as being
publicly held for this purpose. If, as a result of the purchase of Shares
pursuant to the Offer, the Shares no longer meet the requirements of the NASD
for continued inclusion in The NASDAQ Stock Market or the NASDAQ National Market
System, as the case may be, the market for Shares could be adversely affected.
In the event that the Shares no longer meet the requirements of the NASD for
quotation through NASDAQ and the Shares are no longer included in The NASDAQ
Stock Market, it is possible that the Shares would continue to trade in the
over-the-counter market and that price quotations would be
9
<PAGE>
reported by other sources. The extent of the public market for the Shares and
the availability of such quotations would, however, depend upon the number of
holders of Shares remaining at such time, the interests in maintaining a market
in Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act, as described below, and other
factors. The Purchaser has been advised by the Company that, as of June 15,
1996, there were approximately 1,951 record holders of Shares.
EXCHANGE ACT REGISTRATION. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Company to the Securities and Exchange Commission (the "Commission") if the
Shares are not listed on a national securities exchange and there are fewer than
300 record holders of Shares. Termination of registration of the Shares under
the Exchange Act would substantially reduce the information required to be
furnished by the Company to its shareholders and the Commission and would make
certain provisions of the Exchange Act (such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with shareholders' meetings pursuant to
Section 14(a) or (c) and the related requirement of an annual report) no longer
applicable to the Company. Furthermore, the ability of "affiliates" of the
Company and persons holding "restricted securities" of the Company to dispose of
such securities pursuant to Rule 144 or Rule 144A promulgated under the
Securities Act of 1933, as amended, may be impaired or, with respect to certain
persons, eliminated. If, as a result of purchases pursuant to the Offer or
otherwise, the Company is no longer required to maintain registration of the
Shares under the Exchange Act, the Purchaser intends to cause the Company to
apply for termination of such registration. See Section 11.
MARGIN REGULATIONS. The Shares are presently "margin securities" under the
rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities for the purpose of buying,
carrying or trading in securities ("Purpose Loans"). In the event that the
Shares were no longer quoted in the NASDAQ National Market System (which depends
on factors such as the number of holders of the Shares and the number and market
value of publicly-held Shares (see NASDAQ QUOTATION above)), the Shares would no
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for Purpose Loans made by brokers. In addition, if registration of the Shares
under the Exchange Act were terminated, the Shares would no longer constitute
"margin securities."
RULE 13E-3. The Commission has adopted Rule 13e-3 under the Exchange Act,
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger or other transactions
following the purchase of Shares pursuant to the Offer in which the Purchaser
seeks to acquire the remaining shares not held by it. However, Rule 13e-3 would
be inapplicable if (i) the Shares are deregistered under the Exchange Act prior
to the Merger or other transactions or (ii) the Merger or another business
combination is consummated within one year after the purchase of the Shares
pursuant to the Offer and the amount paid per Share for each class of Share in
the Merger or other business combination is at least equal to the amount paid
per Share for such class of Share in the Offer. If applicable, Rule 13e-3
requires, among other things, that certain financial information concerning the
fairness of the proposed transaction and the consideration offered to minority
shareholders in such transaction be filed with the Commission and disclosed to
shareholders prior to the consummation of the transaction.
8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Virginia
corporation with its principal executive offices located at One Park West
Circle, Midlothian, Virginia 23113, telephone (804) 794-1436. According to
information filed by the Company with the Commission, 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.
10
<PAGE>
Set forth below is 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 or
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 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.
BRENCO, INCORPORATED
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------
1996 1995 1995 1994 1993
--------- --------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
CERTAIN COMPANY PROJECTIONS. Prior to entering into the Acquisition
Agreement, Varlen conducted a due diligence review of the Company and in
connection with such review received 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.
THE COMPANY HAS ADVISED THAT 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 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
11
<PAGE>
ACCURATE TO ANY EXTENT AND NONE OF VARLEN, THE PURCHASER, THE COMPANY 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.
VARLEN AND THE PURCHASER HAVE INCLUDED SUCH PROJECTIONS AND FORECASTS HEREIN
ONLY BECAUSE VARLEN WAS PROVIDED THEM PRIOR TO THE EXECUTION OF THE ACQUISITION
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 VARLEN, THE
PURCHASER, THE COMPANY, ANY OF THEIR RESPECTIVE ADVISORS OR ANY OTHER PARTY WHO
RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS.
Except where otherwise stated, the information concerning the Company
contained in this Offer to Purchase or incorporated herein by reference has been
taken from or based upon publicly-available documents and records on file with
the Commission and other public sources or was provided by the Company. Although
the Purchaser has no knowledge that would indicate that any statements contained
herein based on such documents and records are untrue, neither Varlen nor the
Purchaser can take responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information which are unknown to Varlen or
the Purchaser.
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the Company's
business, principal physical properties, capital structure, material pending
legal proceedings, operating results, financial condition, the Company's
directors and officers, their remuneration, stock options and restricted stock
granted to them, the principal holders of the Company's securities, any material
interests of such persons in transactions with the Company and other matters, is
required to be disclosed in proxy statements and annual reports distributed to
the Company's shareholders and filed with the Commission. Such reports, proxy
statements and other information may be inspected at the Commission's public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies may be
obtained, by mail, for prescribed rates from the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such information
should also be available for inspection at the offices of NASDAQ Operations,
1735 K Street, N.W., Washington, D.C. 20006.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND VARLEN. 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. 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.
The name, business address, citizenship, present principal employment or
occupation and employment history for the past five years of each of the
directors and executive officers of the Purchaser and Varlen are set forth in
Schedule A to this Offer to Purchase.
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
12
<PAGE>
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 as set forth in this paragraph or elsewhere in this Offer to
Purchase, and except for 460,000 shares beneficially owned by a subsidiary of
Varlen, neither the Purchaser nor Varlen nor, to the best of their knowledge,
any of the persons listed in Schedule A hereto nor any associate or majority
owned subsidiary of any of the foregoing, beneficially owns or has a right to
acquire any equity securities of the Company and neither the Purchaser nor
Varlen nor, to the best of their knowledge, any of the persons or entities
referred to above, nor any director, executive officer or subsidiary of any of
the foregoing, has effected any transaction in such equity securities during the
past 60 days.
Except as set forth in this Offer to Purchase, neither the Purchaser nor
Varlen nor, to the best of the knowledge of Varlen and the Purchaser, any of the
persons listed in Schedule A hereto, has any contract, arrangement,
understanding or relationship (whether or not legally enforceable) with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any of such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies. Except as set forth in this Offer
to Purchase, there have been no contacts, negotiations or transactions which
have occurred since January 1, 1993, between Varlen, the Purchaser, or any of
Varlen's other subsidiaries or, to the best of the knowledge of Varlen and the
Purchaser, any of the persons listed in Schedule A hereto, on the one hand, and
the Company or its affiliates, on the other hand, concerning: a merger,
consolidation or acquisition; a tender offer or other acquisition of securities;
an election of directors; or a sale or other transfer of a material amount of
assets. Except as described in this Offer to Purchase, neither the Purchaser nor
Varlen nor, to the best of the knowledge of Varlen and the Purchaser, any of the
persons listed in Schedule A hereto, has since January 1, 1993 had any
transaction with the Company or any of its executive officers, directors or
affiliates which would require disclosure under the rules and regulations of the
Commission applicable to the Offer.
Except as set forth in this Offer to Purchase, during the last five years,
neither the Purchaser nor Varlen nor, to the best of the knowledge of Varlen and
the Purchaser, any of the persons listed on Schedule A (i) has been convicted in
a criminal proceeding (excluding traffic violations and similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, Federal or state securities laws or finding any violation
of such laws.
Until immediately prior to the time the Purchaser purchases the Shares
pursuant to the Offer, it is not anticipated that the Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer. Because the Purchaser is a newly formed corporation and has
minimal assets and capitalization, no meaningful financial information regarding
the Purchaser is available.
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
stockholders and filed with the Commission. Such reports, proxy statements and
other information may be examined, and copies
13
<PAGE>
may be obtained from the Commission in the same manner set forth in Section 8
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.
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.
VARLEN CORPORATION
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------ FISCAL YEAR ENDED JANUARY 31,
APRIL 29, -------------------------------------
MAY, 4 1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $ 91,975 $ 106,969 $ 386,987 $ 341,521 $ 291,908
Cost of sales................................. 68,178 79,611 290,052 260,469 221,988
Selling, general and administrative
expenses..................................... 14,254 15,289 57,762 50,436 45,087
Interest expense, net......................... 1,053 1,173 4,467 4,762 6,110
Income before income taxes.................... 8,490 10,896 34,706 25,854 18,723
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 share............ .60 .75 2.43 1.92 1.57
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 liabilities........................... 44,201 57,734 44,470 53,822 35,529
Long-term debt................................ 73,403 72,790 73,398 72,788 72,698
Shareholders' equity.......................... 101,399 86,766 97,953 79,031 63,644
</TABLE>
- ------------------------
*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.
10. BACKGROUND OF THE OFFER. 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
14
<PAGE>
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.
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.
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.
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.
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 Chief Financial Officer of the Company, Mr. Whitfield and others
to determine what financial and operating data was available to begin his
inquiries.
On April 10, 1996, Messrs. Wellek, Jean, Hoffman, Thomas A. 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.
15
<PAGE>
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.
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 subject to approval of both boards.
Negotiations continued over the period from June 11 to June 14 concerning
certain additional terms.
At the June 13, 1996 Varlen Board of Directors' meeting, the Board of
Directors was updated on the status of negotiations relating to the Offer 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 Acquisition Agreement and the Shareholder
Tender Agreement.
The negotiations culminated in the execution of the Acquisition Agreement
and the Shareholder Tender Agreement on Saturday, June 15, 1996. On June 17,
1996, Varlen and the Company, in a joint press release, announced Varlen's
intention to commence the Offer.
11. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; THE
ACQUISITION AGREEMENT AND SHAREHOLDER TENDER AGREEMENT.
PURPOSE OF THE OFFER AND THE MERGER
The purpose of the Offer is to facilitate the acquisition of all of the
outstanding Shares and thereby to enable the Purchaser to acquire control of,
and the entire equity interest in, the Company. The purpose of the Merger is to
acquire all outstanding Shares not tendered and purchased pursuant to the Offer
or acquired pursuant to the Shareholder Tender Agreement. The Offer is being
made pursuant to the Acquisition Agreement.
No dissenter's rights are available in connection with the Offer. Holders of
Shares may be entitled to dissenter's rights in connection with the Merger if,
at the record date with respect to the meeting at which the Acquisition
Agreement and the Merger will be acted upon, certain requirements are satisfied.
Section 13.1-730 of the Virginia Act (as effective from July 1, 1996)
provides that no dissenter's 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." See Section 15.
If the conditions of Section 13.1-730 of the Virginia Act are not met and if
the Merger or a similar business combination is consummated, the holders of
Shares not purchased pursuant to the Offer
16
<PAGE>
would have certain rights to dissent and demand to be paid the "fair value" of
their Shares under the Virginia Act. Under the Virginia Act, dissenting
shareholders who comply with applicable statutory procedures would be entitled
to payment of the "fair value" of the Shares as to which dissenter's rights are
properly claimed as of the time immediately before the effectuation of the
Merger (excluding any appreciation or depreciation in anticipation of the
Merger, unless such exclusion would be inequitable). In the first instance, the
"fair value" estimation is made by the corporation. Dissatisfied dissenters may
then notify the corporation of their own "fair value" estimation. If the
corporation and the dissatisfied shareholder cannot settle on the amount owed,
the shareholder will ultimately be entitled to a judicial determination of "fair
value." Any such judicial determination of the "fair value" of the Shares could
be based upon considerations other than or in addition to the price paid in the
Offer and the market value of the Shares, including asset values, the investment
value of the Shares and any other valuation considerations generally accepted in
the investment community. The "fair value" of the Shares so determined could be
more or less than the price per Share to be paid pursuant to the Offer and the
Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE COMPLETE. THE EXERCISE AND PRESERVATION OF DISSENTER'S RIGHTS
REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE VIRGINIA ACT.
There can be no assurance that the Merger will be consummated, inasmuch as
the Merger is subject to various conditions, some of which are beyond the
control of Varlen, the Purchaser and the Company. See Section 13. In the event
that, for any reason, the Merger does not occur, depending on the results of the
Offer, Varlen and the Purchaser intend to consider the desirability of acquiring
either additional Shares or the entire remaining equity interest in the Company.
If Varlen and/or the Purchaser determine to do either, any such future
transaction or transactions might be by means of a merger, share exchange,
reverse stock split, open market or privately-negotiated purchases, one or more
additional tender offers, exchange offers or otherwise. Such transactions might
involve the exchange of Shares for cash, securities of the Company, Varlen, the
Purchaser or a subsidiary of any of the foregoing, or some combination of cash
and securities, and may be on terms and at prices more or less favorable than
those of the Offer. Moreover, the decision to enter into such future
transactions and the forms they might take will depend on the circumstances then
existing, including the financial resources of Varlen and the Purchaser and
Varlen's business, tax and accounting objectives, performance of the Shares in
the market, availability and alternative uses of funds, money market and stock
market conditions, general economic conditions, and other factors. Varlen and/or
the Purchaser may enter into one or more such transactions whether or not the
Purchaser purchases Shares pursuant to the Offer. Varlen and/or the Purchaser
may also engage in certain of such transactions during the period following
expiration of the Offer and prior to the Merger.
PLANS FOR THE COMPANY
As described in this Offer to Purchase, Varlen and the Purchaser have made
proposals which would, if completed, result in a merger of the Company, changes
in its board of directors, the termination of quotations for the Company's stock
on NASDAQ and the termination of the registration of the Company's stock under
the Exchange Act. At present Varlen and the 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 or business. After
consummation of the Merger, Varlen will continue to review the business and
operations of the Company and, based on such review, may effect the acquisition
or disposition of assets or other changes in the Company's business, corporate
structure, capitalization, management or dividend policy which it considers
appropriate or desirable. Varlen has not yet determined what specific actions,
if any, it may take with respect to the Company.
THE ACQUISITION AGREEMENT
THE OFFER AND MERGER. The Acquisition Agreement provides for the public
announcement of the Offer within one business day after the execution thereof
and for the commencement of the Offer as
17
<PAGE>
promptly as practicable, but in no event later than five business days, after
such public announcement. The obligation and right of Purchaser to accept for
payment and pay for any Shares tendered pursuant to the Offer is subject to
satisfaction of the Minimum Condition, the expiration or termination of all
waiting periods under the HSR Act and the other conditions described in Section
13. The Purchaser expressly reserves the right to waive any such condition, to
increase the price per Share payable in the Offer and to make any other changes
in the terms and conditions of the Offer; provided that the Purchaser has agreed
that it will not (i) decrease the price payable in the Offer, (ii) change the
form of consideration payable in the Offer or the Merger, (iii) increase the
Minimum Condition, or (iv) amend any other term of the Offer (including the
conditions described in Section 13) in a manner materially adverse to the
holders of Shares.
The Acquisition Agreement provides that, as soon as practicable following
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged into the Company, with the Company surviving the
Merger. Pursuant to the Merger, each outstanding Share (other than Shares held
by Varlen, the Purchaser, the Company or any direct or indirect subsidiary of
Varlen, the Purchaser or the Company, and Shares with respect to which
dissenter's rights under the Virginia Act are properly exercised) will be
converted into the right to receive $16.125 in cash, without any interest.
Following the Merger, the Company will be a wholly owned subsidiary of Varlen.
The Merger is subject to the satisfaction of various conditions, including
approval by the Company's shareholders if required under the Virginia Act.
In the Acquisition Agreement the Company has represented and warranted that
its Board of Directors has approved the Offer and the Merger and recommended
acceptance of the Offer by holders of Shares and approval of the Merger (if such
approval is required by the Virginia Act) by holders of Shares. The Company has
further represented and warranted that its Board of Directors (all of whom, the
Company's counsel has opined to Varlen, are "disinterested directors" within the
meaning of the Virginia Act with respect to Varlen and the Purchaser) has taken
certain actions in order to exempt Varlen, the Purchaser, their respective
direct and indirect subsidiaries and the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the restrictions and
other provisions of: (A) Article 14 (AFFILIATED TRANSACTIONS) of the Virginia
Act, in the manner provided by Section 13.1-727.B.1(iv) which (absent such an
exemption or similar board action) generally prohibits mergers,
recapitalizations, share exchanges, asset sales and other transactions between
certain Virginia corporations and holders of 10% or more of their voting
securities ("interested shareholders") unless approved by a majority of
"disinterested directors" and/or holders of two-thirds of the corporation's
shares excluding those of the interested shareholder; (B) Article 14.1 (CONTROL
SHARE ACQUISITIONS) of the Virginia Act, which (absent such an exemption or
similar board action) generally denies voting rights to certain acquirers of 20%
of more of the outstanding voting power of a public Virginia corporation
("acquiring persons") unless granted by a majority of the shares entitled to
vote in the election of directors of the corporation other than those held by
acquiring persons and certain corporate insiders; and (C) Article I of the
Articles of Incorporation, as amended of the Company (the "Charter"), which
(absent such an exemption or similar board action) generally requires the
affirmative vote of holders of 75% of the Shares in order to approve a merger,
consolidation and certain other business combinations between the Company and a
beneficial owner of 10% or more of its Shares. The Company and its Board of
Directors have agreed to take such other actions necessary or appropriate at the
request of Varlen or the Purchaser to: (1) exempt Varlen, the Purchaser, their
respective direct and indirect subsidiaries, the Offer, the Merger and the other
transactions contemplated by the Acquisition Agreement from the provisions of
any takeover, affiliated transactions, business combination, control share
acquisition or other provision of (i) law or regulation of the Commonwealth of
Virginia or any department or agency thereof or (ii) the Charter or Bylaws of
the Company, and (2) maintain the shareholder vote required to approve the
Merger at the two-thirds level.
COVENANTS OF THE COMPANY. Under the Acquisition Agreement, the Company has
agreed that unless Varlen or the Purchaser otherwise agree in writing, prior to
the Effective Time or such earlier time as designees of the Purchaser constitute
a majority of the Board of Directors of the Company:
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(i) the business of the Company and its subsidiaries shall be conducted
in the ordinary course of business and consistent with past practice, and
the Company shall use its reasonable best efforts to maintain and preserve
its and its subsidiaries' business organization, assets, employees and
advantageous business relationships;
(ii) neither the Company nor any of its subsidiaries shall: (1) amend or
propose to amend its articles of incorporation or bylaws; (2) split, combine
or reclassify any shares of its capital stock or declare, set aside or pay
any dividend payable in cash, stock or property with respect to its capital
stock except for regular quarterly cash dividends not in excess of $.07 per
Share on the Shares and except for any dividend by a wholly owned subsidiary
payable to the Company or another wholly owned subsidiary; (3) issue, sell,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any capital stock of
any class of the Company or any of its subsidiaries other than Shares which
the Company is required to issue pursuant to the options outstanding on June
14, 1996; (4) transfer, lease, license, sell, mortgage, pledge, dispose of
or encumber any material assets of the Company or any of its subsidiaries
other than in the ordinary course of business and consistent with past
practice; (5) redeem, purchase or otherwise acquire directly or indirectly
any of the capital stock or other equity securities of the Company; (6)
adopt a plan of liquidation or resolutions providing for the liquidation,
dissolution, merger, consolidation or other reorganization of the Company or
any of its subsidiaries, except for mergers among wholly owned subsidiaries;
(7) acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof
or make any investment with respect thereto; (8) directly or indirectly: (i)
incur or modify any long-term indebtedness or short-term indebtedness for
money borrowed or other material liability other than in the ordinary course
of business and consistent with past practice, (ii) incur any additional
indebtedness for money borrowed other than in the ordinary course of
business and consistent with past practice, or (iii) make any loans or
advances other than in the ordinary course of business and consistent with
past practice and intercompany loans and advances among the Company and its
wholly owned subsidiaries; (9) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business and consistent with past practice; (10) waive,
release, grant or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or other document,
other than in the ordinary course of business and consistent with past
practice; or (11) enter into any material commitment or transaction, other
than in the ordinary course of business and consistent with past practice;
(iii) neither the Company nor any of its subsidiaries shall: (1) grant
any increase in the compensation payable or to become payable by the Company
or any of its subsidiaries to any of its directors, executive officers or
key employees or adopt any new, or amend or otherwise increase the amounts
payable or to become payable under, any existing, bonus, incentive
compensation, severance, deferred compensation, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee
benefit plan (including (but not limited to) the granting of stock options,
stock appreciation rights or restricted stock), or (2) enter into or amend
any employment or change-in-control agreement with, or, except in accordance
with the existing written policies and agreements of the Company, grant any
severance or termination pay to, any director, officer or employee of the
Company or any of its subsidiaries; and
(iv) neither the Company nor any of its subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any action
which would make any representation or warranty of the Company in the
Acquisition Agreement untrue or incorrect in any material respect.
NON-SOLICITATION. The Acquisition Agreement further provides that neither
the Company nor any of its subsidiaries, nor any of their respective directors,
officers, employees, investment bankers, representatives or agents shall,
directly or indirectly, make, solicit, initiate or encourage the initiation of,
any inquiries or proposals from, or provide any confidential information or
participate in any discussions or negotiations with, or otherwise cooperate in
any way with or assist, any person (other than Varlen and its subsidiaries,
those third parties previously disclosed in writing by the Company to
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Varlen prior to the execution of the Acquisition Agreement ("Previously
Disclosed") and their respective directors, officers, employees, investment
bankers, commercial banks, representatives and agents) concerning any merger,
consolidation, other business combination, recapitalization, liquidation or
dissolution or any purchase or other acquisition or sale or other disposition of
assets (other than in the ordinary course of business) or shares of capital
stock of the Company or any of its subsidiaries or any similar transaction
involving the Company or (except as Previously Disclosed) any subsidiary or
division of the Company or any subsidiary; PROVIDED, HOWEVER, that (i) the
Company or its Board of Directors shall not be prohibited from taking and
disclosing to the Company's shareholders a position contemplated by Rule 14d-9
or Rule 14e-2 promulgated under the Exchange Act, and (ii) in the event that the
Company shall receive an unsolicited proposal from a third party which the
Company's Board of Directors determines, based on the advice of its legal
counsel and independent financial advisor, is capable of consummating such
transaction, for the acquisition for cash of all the outstanding Shares on terms
that the Company's Board of Directors determines, based on the advice of its
financial advisor (the receipt of which advice shall be confirmed in writing to
Varlen by the Company), are economically superior to those of the Offer and the
Merger and which in the written opinion of legal counsel to the Company (the
delivery of which shall be confirmed in writing to Varlen by such counsel) a
failure to consider by the Board of Directors of the Company would create a
substantial risk of violating their fiduciary duties to shareholders, the
Company may provide information to such third party to the same extent that such
information has been provided to the Purchaser and Varlen. The Company must
promptly advise Varlen of, and communicate to Varlen the terms of, any such
inquiry or proposal the Company may receive.
CONFIDENTIALITY AND STANDSTILL AGREEMENTS. Under the Acquisition Agreement,
the Company has agreed to use its reasonable best efforts to obtain confidential
information, non-disclosure, non-use and standstill agreements from any third
party with or for whom the Company or any subsidiary has taken any action or
received any proposal not prohibited under the non-solicitation provisions of
the Acquisition Agreement. The Company also agreed not to consent to the
termination or amendment of the confidential information, non-disclosure or
non-use provisions of any agreement with a third party without the prior written
consent of Varlen or the Purchaser, and to use its reasonable best efforts to
take all actions necessary or proper to enforce strict compliance with such
provisions.
STOCK INCENTIVE PLANS. Under the Acquisition Agreement, the Company is
required to adjust the terms of all outstanding employee stock options to
purchase Shares granted under any stock option plan of the Company and all
restricted Shares granted under any restricted stock plan to cancel such options
and restricted Shares. Not later than immediately prior to the Merger, each such
option and restricted Share shall become fully exercisable or unrestricted, as
the case may be, and vested. The Company has agreed to use its reasonable best
efforts to cancel each option outstanding not later than immediately prior to
the Merger in exchange for a 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. The Company has also agreed to
use its reasonable best efforts to cancel each restricted Share outstanding not
later than immediately prior to the Merger in exchange for $16.125. In addition,
the Board of Directors has agreed to take 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 the
Acquisition Agreement, participants in the Savings Plan will not be eligible to
receive matching Shares on any Shares purchased by such participants after the
date the Acquisition Agreement, and (ii) any rights of participants in the
Savings Plan to receive matching Shares from the Company as of the date of the
Acquisition Agreement accrued as a result of Shares purchased prior to the date
of the Acquisition 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) $16.125. Under the Acquisition
Agreement, any other plan providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary shall
terminate as of the consummation of the Merger.
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DESIGNATION OF DIRECTORS. The Acquisition 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 in accordance with 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 current members of such Board. Subject to the preceding
sentence, upon the Purchaser's purchase of the Shares pursuant to the Offer, the
Purchaser will have sufficient voting power to remove the entire Board of
Directors of the Company and replace it with the Purchaser's nominees. In the
Acquisition Agreement, the Company has agreed to take all action necessary to
cause the Purchaser's designees to be elected to the Company's Board of
Directors (including mailing to the shareholders the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder) and to
use its reasonable best efforts to cause the resignation of such directors, and/
or an increase in the number of its directors, as may be directed by Varlen and
required to implement the foregoing.
CONFIDENTIALITY. Under the Acquisition Agreement, Varlen and the Purchaser
have agreed to, and to cause their officers, employees, agents and
representatives to, keep confidential, unless compelled to disclose by judicial
or administrative process or by other requirements of law, all non-public,
confidential or proprietary information provided by the Company (except to the
extent that such information can be shown to have been (i) previously known by
Varlen or the Purchaser, (ii) in the public domain through no fault of Varlen or
the Purchaser, or (iii) later lawfully acquired by Varlen from other sources)
and will not release or disclose such information to any other person.
INDEMNIFICATION AND INSURANCE. The Acquisition Agreement provides that the
Charter or Bylaws of the Company, after the Merger (the "Surviving Corporation")
shall contain provisions no less favorable with respect to indemnification than
those that are set forth in the Company's Charter and Bylaws, as amended to the
date the Acquisition 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.
REPRESENTATIONS AND WARRANTIES. The Acquisition Agreement contains various
customary representations and warranties of the parties thereto, including
representations by Varlen and the Purchaser as to their organization and
qualification, authority relative to the Acquisition Agreement, compliance,
financing, and brokers and finders, and by the Company as to its organization
and qualification, capitalization, capitalization of its subsidiaries, authority
relative to the Acquisition Agreement, lack of conflicts, filing of reports and
financial statements, litigation, employee benefit plans, taxes, absence of
certain changes, brokers and finders, liabilities, contracts, board actions, and
cash and cash equivalents.
TERMINATION. The Acquisition Agreement may be terminated at any time prior
to the Effective Time, whether prior to or after approval by the shareholders of
the Company:
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(A) by mutual written consent of the Boards of Directors of Varlen and
the Company;
(B) by either the Company or Varlen if any court of competent
jurisdiction or other governmental body shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable best efforts to lift),
in each case, permanently restraining, enjoining or otherwise prohibiting
the Offer or the Merger and such order, decree, ruling or other action shall
have become final and non-appealable;
(C) by the Company, if the Offer shall have been terminated, or the
Offer shall have expired, without the purchase of any Shares thereunder
within two business days thereof and such non-purchase shall not have been
due to a failure to satisfy any of the conditions of the Offer described in
Section 13 of this Offer to Purchase; PROVIDED that the Company may not
terminate the Acquisition Agreement if the Company is in breach of such
agreement;
(D) by the Company, if the Effective Time shall not have occurred on or
before December 31, 1996 due to a failure of any of the conditions to the
obligations of the Company to effect the Merger as described in the
Acquisition Agreement; PROVIDED that the Company may not terminate the
Agreement if the Company's failure to fulfill any obligation under the
Acquisition Agreement has been the cause of, or resulted in, in whole or in
part, the failure of the Effective Time to occur on or before such date;
(E) by the Company, if: (1) any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Varlen or the Purchaser or any of their respective subsidiaries or
affiliates (a "Qualified Person") shall have commenced (within the meaning
of Rule 14d-2 under the Exchange Act) a cash tender offer for any and all
Shares at a price at or in excess of $16.125 per Share, or (2) any Qualified
Person shall have made a bona fide written proposal involving a merger or
consolidation of the Company or the acquisition of all the Shares or all or
a substantial portion of its assets which would result in a cash
distribution to shareholders of the Company in excess of $16.125 per Share
(any such proposal described in subclause (1) or (2) being referred to as a
"Qualified Proposal"), and the Board of Directors of the Company shall have
been advised in a writing by its legal counsel (the delivery of which advice
shall have been confirmed in writing to Varlen by such counsel) that there
would be a substantial risk of liability for breach of their fiduciary
obligations to shareholders if they failed to recommend such offer or accept
such Qualified Proposal; PROVIDED, HOWEVER, that the Company may not
terminate the Acquisition Agreement: (i) until the expiration of five
business days after notice of such Qualified Proposal has been delivered to
Varlen, or (ii) unless otherwise consented to in writing by Varlen, if any
such offer or Qualified Proposal is made in breach of, or as a result of a
breach of its non-solicitation obligation described herein;
(F) by either of Varlen or the Purchaser, if due to a failure to satisfy
any of the conditions of the Offer described in Section 13 of this Offer to
Purchase: (i) Varlen or any of its subsidiaries or affiliates shall not have
commenced the Offer, or shall have terminated the Offer, or (ii) the Offer
shall have expired without the purchase of any Shares thereunder within two
business days thereof, or (iii) Varlen shall have determined not to proceed
with the Merger; PROVIDED that neither Varlen nor the Purchaser may
terminate the Acquisition Agreement if either Varlen or the Purchaser is in
material breach of such agreement;
(G) by either of Varlen or the Purchaser, if the Effective Time shall
not have occurred on or before December 31, 1996 due to a failure of any of
the conditions to the obligations of Varlen and the Purchaser to effect the
Merger described in the Acquisition Agreement; PROVIDED that neither Varlen
nor the Purchaser may terminate the Acquisition Agreement if Varlen's or the
Purchaser's failure to fulfill any material obligation under the Acquisition
Agreement has been the cause of, or resulted in, in whole or in part, the
failure of the Effective Time to occur on or before such date; or
(H) by either of Varlen or the Purchaser, if prior to the purchase of
Shares in the Offer, the Board of Directors of the Company shall have: (1)
withdrawn, or modified in a manner adverse to
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Varlen or the Purchaser, its approval or recommendation of the Offer or the
Merger or any of its other actions taken in accordance with the provisions
of the Acquisition Agreement summarized in the third paragraph of "The
Acquisition Agreement -- The Offer and Merger" hereinabove, (2) taken any of
the actions referred to in the third paragraph of "The Acquisition Agreement
-- The Offer and Merger" hereinabove for the benefit of any person (other
than Varlen, the Purchaser or any of their respective subsidiaries) or any
transaction (other than the Offer and Merger), or (3) resolved to do any of
the foregoing.
TERMINATION FEE. If the Acquisition Agreement is terminated by the Company
pursuant to the provision described in clause (E) of "The Acquisition Agreement
- -- Termination" above or if the Acquisition Agreement and/or the Offer is
terminated by Varlen or the Purchaser by reason of a failure of any condition to
the Offer described in (i) paragraphs (a), (b) or (g) of Section 13 of this
Offer to Purchase, (ii) paragraph (c) of Section 13 of this Offer to Purchase
(but only if due, in whole or in part, to any (x) act of the Company or any
affiliate thereof, or (y) other occurrence, event, fact or circumstance not
beyond the control of the Company or any affiliate thereof), or (iii) clause
(vi) of paragraph (c) of Section 13 of this Offer to Purchase, the Company has
agreed to pay to Varlen a termination fee of $6,500,000 plus an amount
sufficient to reimburse Varlen and its subsidiaries for all fees, costs and
expenses relating to the transactions contemplated by the Acquisition Agreement,
the financing contemplated by the Acquisition Agreement and the transactions
contemplated thereby (PROVIDED that the Company shall not be obligated to
reimburse Varlen or its subsidiaries for more than $2,000,000 of such fees,
costs and expenses).
In the event of the termination of the Acquisition Agreement, it will become
null and void and have no effect without any liability on the part of any party,
except that provisions relating to the termination fee, expenses of the parties
and confidentiality of information will survive any such termination and
provided that a party will not be relieved from liability for any breach of the
Acquisition Agreement.
COSTS AND EXPENSES. The Acquisition Agreement provides that except as
provided above under "Termination Fee," all costs and expenses incurred in
connection with the transactions contemplated by the Acquisition Agreement shall
be paid by the party incurring such costs and expenses.
SHAREHOLDER TENDER AGREEMENT
TENDER OF TENDERING SHAREHOLDER SHARES. Varlen and the Tendering
Shareholders have entered into the Shareholder Tender Agreement, which provides
that each Tendering Shareholder will tender its Shares pursuant to the Offer
before the Expiration Date and will not withdraw any Shares so tendered without
Varlen's prior written consent; PROVIDED, HOWEVER, that each Tendering
Shareholder may: (i) refrain from so tendering its Shares, and may withdraw any
Shares previously so tendered, if and for so long as there shall have been
commenced and not terminated a cash tender offer by any person or "group" (other
than Varlen or the Purchaser or any of their respective subsidiaries or
affiliates) for any and all Shares at a price in excess of $16.125 per share (a
"Superior Offer"); and (ii) tender its Shares pursuant to such Superior Offer;
AND PROVIDED FURTHER, HOWEVER, that in the event that (x) any such Superior
Offer shall have expired or been terminated without purchase of such Tendering
Shareholder's Shares, and (y) the Offer shall then be in effect, then such
Tendering Shareholder shall again be subject to the foregoing provisions.
Notwithstanding the foregoing, the Shareholder Tender Agreement permits up
to 50,000 of the Tendering Shareholders' Shares (in the aggregate) to be
contributed to one or more charitable organizations and, if and to the extent so
contributed, such Shares will not be required to be tendered pursuant to the
Offer.
OTHER AGREEMENTS. During the term of the Shareholder Tender Agreement, and
except as otherwise provided therein or with the prior written consent of
Varlen, each Tendering Shareholder may not (i) sell, pledge or otherwise dispose
of any of its Shares, (ii) deposit its Shares into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares, (iii) grant any
proxy,
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power-of-attorney or other authorization in or with respect to such Shares, or
(iv) enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, assignment, transfer or other
disposition of such Shares.
The Shareholder Tender Agreement requires each Tendering Shareholder to
abide by the terms of the non-solicitation provisions of the Acquisition
Agreement summarized in "The Acquisition Agreement -- Non-Solicitation" section
set forth above in this Section 11.
TERMINATION. The Shareholder Tender Agreement will terminate upon the
earlier to occur of: (i) the termination of the Acquisition Agreement (if any),
and (ii) the Effective Date.
GENERAL. The preceding descriptions of the terms and provisions of the
Acquisition Agreement and the Shareholder Tender Agreement are qualified in
their entirety by reference to the texts of such agreements, which are exhibits
to the Tender Offer Statement on Schedule 14D-1 filed by the Purchaser and
Varlen with the Commission and is available for inspection and copying at the
principal office of the Commission in the manner set forth in Section 9.
12. SOURCE AND AMOUNT OF FUNDS. 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 will be 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") to be
provided by The First National Bank of Chicago (the "Agent Bank") and other
banks and financial institutions who may become party thereto (collectively with
the Agent Bank, the "Banks"), the identity of which has not yet been determined.
The Credit Facility will be comprised of a term loan commitment (the "Facility A
Commitment") in the aggregate principal amount of approximately $135 million to
be 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 to be 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 will bear 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 will mean 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 will mean the rate for dollar
deposits appearing on Telerate Page 3750, as adjusted for maximum statutory
reserves. The "Fixed CD Rate" generally will mean 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 will provide for
customary provisions relating to yield protection, availability and capital
adequacy.
The Credit Facility will provide 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 will have customary conditions to borrowing,
representations and warranties, covenants and events of default. Without
limiting the generality of the foregoing, the Lenders obligation to fund shall
be conditioned upon the satisfaction of the Minimum Condition.
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Each of Varlen and its domestic subsidiaries (including the Purchaser and,
upon consummation of the Offer or the Merger, the Company) will unconditionally
guarantee the indebtedness, obligations and liabilities of the Borrowers under
the Credit Facility.
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.
THE OFFER IS NOT SUBJECT TO A FINANCING CONDITION.
13. CERTAIN CONDITIONS OF THE OFFER AND THE MERGER. Notwithstanding any
other provision of the Acquisition Agreement or the Offer, and except as
expressly limited below, the Purchaser: shall not be required to commence or
continue the Offer; or accept for payment, purchase or pay for any Shares
tendered; may postpone the acceptance for payment, the purchase of, and/or
payment for, Shares; and/ or may amend (subject to the restrictions contained in
the Acquisition Agreement, which for purposes of this section of the Offer to
Purchase includes the same as it may be modified, amended, supplemented and/or
restated from time to time) or terminate the Offer; if: (1) there shall not have
been validly tendered and not withdrawn prior to the expiration of the Offer a
number of Shares which, together with the Shares beneficially owned by the
Purchaser and Varlen, represents two-thirds of the total voting power of all
shares of capital stock of the Company outstanding on a fully-diluted basis, or
(2) any waiting period under the HSR Act applicable to the purchase of the
Shares pursuant to the Offer shall not have expired or been terminated, or (3)
at any time on or after June 1, 1996 and prior to the time of payment for any
such Shares (whether or not any Shares have theretofore been accepted for
payment or paid for pursuant to the Offer), any of the following events (each an
"Event") shall have occurred (each of paragraphs (a) through (h) providing a
separate and independent condition to the Purchaser's obligations pursuant to
the Offer):
(a) the Company shall have authorized, recommended or proposed, or shall
have announced an intention to authorize, recommend or propose, or
shall have entered into an agreement or agreement in principle with respect
to, any merger, consolidation, other business combination, recapitalization,
liquidation or dissolution, or any purchase or other acquisition or sale or
other disposition of assets (other than in the ordinary course of business)
or shares of capital stock of the Company or any of its subsidiaries, or any
similar transaction involving the Company or any subsidiary or division of
the Company or any subsidiary (other than the Merger and as Previously
Disclosed with respect to certain subsidiaries) (the foregoing being
collectively referred to as a "Business Combination"), or any material
change in its capitalization, or any release or relinquishment of any
material contract or other rights not in the ordinary course of business; or
(b) (i) the Board of Directors of the Company shall have (x) modified or
amended in any respect its recommendation of the Offer, the Merger or
any of its other actions taken in accordance with the provisions of the
Acquisition Agreement summarized in the third paragraph of "The Acquisition
Agreement -- The Offer and Merger" in Section 11 of this Offer to Purchase,
or (y) adopted any resolution to do so, or (ii) the opinion of Virginia
counsel to the Company received by the Company pursuant to the Acquisition
Agreement (which opinion relates to the actions of the Board of Directors of
the Company described in the foregoing clause (i)) shall have been
disclaimed, disavowed, retracted or revoked in any respect, or shall
otherwise have been rendered inaccurate or erroneous, or (iii) the Board of
Directors of the Company shall have (x) taken any of the actions taken in
accordance with the provisions of the Acquisition Agreement summarized in
the third paragraph of "The Acquisition Agreement -- The Offer and Merger"
in Section 11 of this Offer to Purchase for the benefit of any person,
entity or group (as defined in Section 13(d)(3) of the Exchange Act) (other
than Varlen, the Purchaser or any of their respective subsidiaries) or any
Business Combination (other than the Offer and the Merger), or (y) adopted
any resolution to do so; or
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(c) it shall have been publicly disclosed, or Varlen, the Purchaser or
the Company shall have learned that: (i) any person, entity
(including the Company or any of its subsidiaries or affiliates) or group
(as defined in Section 13(d)(3) of the Exchange Act) (a "Person") shall have
(x) acquired or become the beneficial owner of more than 10% of the
outstanding Shares (other than the Tendering Shareholders), or (y) been
granted by the Company any warrant, option or right, conditional or
otherwise, to acquire beneficial ownership of more than 10% of the
outstanding Shares, other than acquisitions by a Person who has publicly
disclosed such ownership in a Schedule 13D or 13G (or amendment thereto) on
file with the Commission prior to June 1, 1996, and other than for bona fide
arbitrage purposes, or (ii) any such Person (other than, in the case of the
following clause (x), a Tendering Shareholder) who has publicly disclosed in
such a Schedule 13D or 13G any such ownership of more than 10% of the
outstanding Shares prior to such date shall have (x) acquired or become the
beneficial owner of, or proposed to acquire or become the beneficial owner
of, additional Shares, or (y) been granted by the Company any warrant,
option or right, conditional or otherwise, to acquire any Shares, or (iii)
any new group shall have been formed which beneficially owns more than 10%
of the Shares, or (iv) any Person shall have commenced, or publicly proposed
to commence, a tender offer for outstanding Shares, or publicly proposed any
Business Combination, or (v) any Person shall have commenced any
solicitation of proxies with respect to the Shares in opposition to the
Merger, or (vi) any Person shall have acquired or become the beneficial
owner of more than 50% of the outstanding Shares; or
(d) there shall be pending any action or proceeding before any court,
government, governmental authority or agency: (i) challenging or
seeking to make illegal, or to delay or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of,
payment for, or the purchase of, some or all of the Shares by Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen or the consummation
of the Merger, or seeking to obtain material damages in connection with the
Offer or the Merger, or (ii) seeking to prohibit ownership or operation by
Varlen, the Purchaser or any other subsidiary or affiliate of Varlen of all
or a material portion of the business or assets of Varlen, the Company or
any of their respective subsidiaries or affiliates or to compel Varlen, the
Purchaser or any other subsidiary or affiilate of Varlen to dispose of or to
hold separately all or a material portion of the business or assets of
Varlen, the Company or any of their respective subsidiaries or affiliates,
as a result of the Offer or the Merger, or (iii) seeking to impose or
confirm limitations on the ability of Varlen, the Purchaser, or any other
subsidiary or affiliate of Varlen effectively to exercise full rights of
ownership and control of any Shares (or any shares of capital stock of any
subsidiary of the Company) (including, without limitation, the right to vote
any such Shares (or shares of a subsidiary)) acquired pursuant to the Offer
or otherwise (directly or indirectly), on all matters properly presented to
the Company's shareholders (or any such subsidiary's shareholders), or (iv)
seeking to require divestiture by Varlen, the Purchaser or any other
subsidiary or affiliate of Varlen of any Shares, or (v) invalidating or
rendering unenforceable any material provision of the Acquisition Agreement,
or (vi) which otherwise might materially adversely affect Varlen, the
Company or any of their respective subsidiaries or affiliates;
(e) there shall be any action taken, or any statute, rule, regulation,
judgment, order or injunction proposed, enacted, entered, enforced,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government, governmental authority or agency (other than the
application of the waiting period provisions of the HSR Act to the Offer or
to the Merger) which may, directly or indirectly, result in any of the
consequences referred to in paragraph (d) above;
(f) there shall have occurred: (i) any general suspension of, or
limitation on prices for, trading in securities on any national
securities exchange or in the over-the-counter market, or (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks in
the United States, or (iii) any limitation (whether or not mandatory) by any
governmental authority on, or any other event which, in the sole judgment of
Varlen, might affect the extension of credit by banks or other lending
institutions in the United States, or (iv) any material change in the
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United States or any other currency exchange rates or any suspension of or
limitation on, the markets therefor, or (v) any extraordinary adverse change
in the financial markets or the market price of the Shares, or (vi) any
change in the general political, market, economic or financial conditions in
the United States or abroad that could, in the sole judgment of Varlen, have
a material adverse effect upon the business or operations of the Company or
any of its subsidiaries or affiliates or the trading of the Shares, or (vii)
a commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, or (viii) in
the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(g) the representations and warranties of the Company in the Acquisition
Agreement shall not be true and correct in all material respects, or
the Company shall not have performed in all material respects each covenant
and complied with each agreement to be performed and complied with by the
Company under the Acquisition Agreement; or
(h) the Company and Varlen shall have agreed to terminate the Offer or
the Acquisition Agreement, or the Acquisition Agreement shall
otherwise have been terminated in accordance with its terms;
which, in the sole judgment of the Purchaser, in any such case, and regardless
of the circumstances (including any action or inaction by the Purchaser and
Varlen) giving rise to any such condition, make it inadvisable to proceed with
acceptance for payment or purchase of or payment for any Shares tendered or to
proceed with the Merger.
The foregoing conditions are for the sole benefit of Varlen and the
Purchaser and may be asserted by Varlen and the Purchaser regardless of the
circumstances giving rise to such condition, including (without limitation) any
action or inaction by Varlen or the Purchaser, or may be waived by Varlen or the
Purchaser in whole at any time or in part from time to time in their sole
discretion. The failure by Varlen or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by Varlen or the Purchaser concerning any
Event shall be final and binding upon all parties.
In addition, under the Acquisition Agreement the obligations of Varlen and
the Purchaser to consummate and effect the Merger are subject to the condition
that the Company shall not have received demands for payment of the fair value
of Shares (pursuant to Article 15 (DISSENTER'S RIGHTS) of the Virginia Act) with
respect to more than 5% of the outstanding Shares.
In addition, notwithstanding anything to the contrary in this Section 13,
the obligations of the Purchaser to accept for payment, purchase or pay for any
Shares tendered shall also be subject to the expiration or termination of all
waiting periods under the HSR Act that are applicable to the purchase of Shares
pursuant to the Offer and the Acquisition Agreement.
14. DIVIDENDS AND DISTRIBUTIONS. If, on or after June 15, 1996, the
Company should (i) split, combine or otherwise change the Shares or the
Company's capitalization, (ii) issue or sell any additional securities of the
Company or otherwise cause an increase in the number of outstanding securities
of the Company (except for Shares issuable upon the exercise of employee stock
options outstanding on the date of the Acquisition Agreement), (iii) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares, or (iv) disclose that it has taken any such action, then,
without prejudice to Purchaser's rights under Sections 1 and 13, the Purchaser
may, in its sole discretion, make such adjustments as it deems appropriate to
reflect such split, combination or other change in the purchase price and the
other terms of the Offer or the Merger (including, without limitation, the
number and type of securities offered to be purchased, the amounts payable
therefor and the fees payable hereunder).
Except for regular quarterly cash dividends paid by the Company on its
Shares in an amount not in excess of $.07 per Share on the Shares, if, on or
after June 15, 1996, the Company should declare or
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pay any cash or stock dividend or other distribution or issue any rights with
respect to the Shares, payable or distributable to shareholders of record on a
date prior to the transfer to the name of the Purchaser or its nominee or
transferee on the Company's stock transfer records of the Shares accepted for
payment pursuant to the Offer, then, without prejudice to the Purchaser's rights
under Sections 1 and 13 and without limiting the rights of the Purchaser
described in the preceding paragraph of this Section 14, any such dividend,
distribution or right to be received by the tendering shareholders will be
received and held by the tendering shareholder for the account of the Purchaser
and will be required to be promptly remitted and transferred by each tendering
shareholder to the Depositary for the account of Purchaser, accompanied by
appropriate documentation and transfer. Pending such remittance, the Purchaser
will be entitled to all rights and privileges as owner of any such dividend,
distribution or right and may withhold the entire purchase price or deduct from
the purchase price the amount or value thereof, as determined by the Purchaser
in its sole discretion.
15. CERTAIN LEGAL MATTERS. Except as set forth in this Section 15, based
on a review of publicly available filings by the Company with the Commission and
other information concerning the Company provided to Varlen, the Purchaser is
not aware of any license or other regulatory permit which appears to be material
to the business of the Company and that might be adversely affected by the
Purchaser's acquisition of Shares pursuant to the Offer (and the indirect
acquisition of the stock of the Company's subsidiaries), or of any approval or
other action by any domestic or foreign governmental or administrative agency
that would be required prior to the acquisition of Shares by the Purchaser
pursuant to the Offer. Should any such approval or other action be required, it
is the Purchaser's present intention that such additional approval or action
would be sought. While the Purchaser does not presently intend to delay the
purchase of Shares tendered pursuant to the Offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Company's or Varlen's business, or that certain parts of the Company's or
Varlen's business might not be required to be disposed of or held separate or
other substantial conditions complied with in order to obtain such approval or
action or in the event that such approvals were not obtained or such actions
were not taken. The Purchaser's obligation to purchase and pay for Shares is
subject to certain conditions relating to the legal matters discussed in this
Section 15. See Section 13.
ANTITRUST. Under the HSR Act, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission ("FTC") and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer and the Acquisition
Agreement is subject to such requirements. On June 20, 1996, Varlen filed with
the Antitrust Division and the FTC a Notification and Report Form with respect
to the Offer and the Merger.
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares pursuant to the Offer may not be consummated prior to the expiration of a
15-calendar day waiting period following the filing by Varlen, unless earlier
terminated. Accordingly, as such filing was made on June 20, 1996, the waiting
period which is applicable to the Offer will expire at 11:59 p.m., New York City
time, on July 5, 1996, unless Varlen receives a request from either the FTC or
the Antitrust Division for additional information or documentary material, or
the Antitrust Division and the FTC terminate the waiting period prior thereto.
If, within such 15-day waiting period either the Antitrust Division or the FTC
requests additional information or material from Varlen concerning the Offer,
the waiting period will be extended and would expire at 11:59 p.m., New York
City time, on the tenth calendar day after the date of substantial compliance by
Varlen with such request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the rules promulgated under
the HSR Act. Thereafter, the waiting period could be extended only by court
order or with the consent of the Purchaser. The additional 10-calendar-day
waiting period may be terminated sooner by the FTC or the Antitrust Division. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Antitrust Division or
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the FTC raises substantive issues in connection with a proposed transaction, the
parties frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Although the
Company is required to file certain information and documentary material with
the Antitrust Division and the FTC in connection with the Offer and the Merger,
neither the Company's failure to make such filings nor a request made to the
Company from the Antitrust Division or the FTC for additional information or
documentary material will extend the Offer period with respect to the purchase
of Shares pursuant to the Offer and the Acquisition Agreement. The Purchaser
will not accept for payment Shares tendered pursuant to the Offer unless and
until the waiting period requirements imposed by the HSR Act with respect to the
Offer have been satisfied. See Section 13.
If the acquisition of Shares is delayed pursuant to a request by the FTC or
the Antitrust Division for additional information or documentary material
pursuant to the HSR Act, the Offer may, at the discretion of the Purchaser, be
extended and, in any event, the purchase of and payment for Shares will be
deferred until ten days after the request is substantially complied with by
Varlen, unless the ten-day extended period expires on or before the date when
the initial waiting period would otherwise have expired or unless the waiting
period is sooner terminated by the FTC and the Antitrust Division. See Section
2. Unless the Offer is extended, any extension of the waiting period will not
give rise to any additional withdrawal rights. See Section 3.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer and the Merger. At any time before or after the
Purchaser's purchase of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as either deems necessary or desirable in
the public interest, including seeking to enjoin the purchase of Shares pursuant
to the Offer and the Merger or seeking divestiture of Shares purchased
thereunder or the divestiture of assets of the Company, the Purchaser, Varlen or
any of their respective subsidiaries or affiliates. Private parties as well as
state attorneys general may also bring legal actions under the antitrust laws
under certain circumstances. If any such action by the FTC, the Antitrust
Division or any other person should be instituted, the Purchaser could decline
to accept for payment any Shares tendered. See Section 13 for certain conditions
to the Offer. Based upon an examination of information relating to the
businesses in which Varlen and the Company are engaged, Varlen believes that the
consummation of the Offer would not violate any antitrust laws. However, there
can be no assurance that a challenge to the Offer on antitrust grounds will not
be made or, if a challenge is made, what the result will be.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
STATE TAKEOVER LAWS
The Company is incorporated under the laws of the State of Virginia. The
following is a summary of certain provisions of the Virginia Act which are
applicable to the Offer.
SHAREHOLDER VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTIONS. Section 13.1-718
of the Virginia Act provides that, except for certain parent-subsidiary mergers
(see "Introduction" above), certain significant corporate actions must be
approved by a vote of more than two-thirds of the votes entitled to be cast on
the matter unless the corporation's articles of incorporation specify a higher
or lower vote. These matters include mergers (with certain exceptions), share
exchanges, sales of all or substantially all of a corporation's assets,
dissolutions and amendments to a corporation's articles of incorporation
("Fundamental Actions"). The Company's Charter currently provides that the vote
required to approve certain Fundamental Actions constituting a "business
combination" (as defined therein) with a beneficial owner of 10% or more of the
Shares is 75% of the Shares. See "The Acquisition Agreement -- The Offer and
Merger" in Section 11 above.
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AFFILIATED TRANSACTIONS STATUTE. Article 14 of the Virginia Act (the
"Affiliated Transactions Statute") generally prohibits a publicly held Virginia
corporation from engaging in an "affiliated transaction" with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless (i) a majority of
disinterested directors approved in advance the transaction in which the
interested shareholder became an interested shareholder or (ii) the affiliated
transaction is approved by the affirmative vote of a majority of the
disinterested directors and the holders of two-thirds of the voting shares other
than the shares beneficially owned by the interested shareholder. A corporation
may engage in an affiliated transaction with an interested shareholder beginning
three years after the date of the transaction in which the person became an
interested shareholder, if the transaction is approved by a majority of the
disinterested directors or by two-thirds of the disinterested shareholders or if
it complies with certain statutory fair price provisions.
Subject to certain exceptions, under the Virginia Act an "interested
shareholder" is a person who, together with affiliates and associates,
beneficially owns 10% or more of the corporation's outstanding voting
securities. "Affiliated transactions" include (i) any merger or share exchange
with an interested shareholder; (ii) the transfer to any interested shareholder
of corporate assets with a fair market value greater than 5% of the
corporation's consolidated net worth; (iii) the issuance to any interested
shareholder of voting shares with a fair market value greater than 5% of the
fair market value of all outstanding voting shares of the corporation; (iv) any
reclassification of securities or corporate reorganization that will have the
effect of increasing by 5% or more the percentage of the corporation's
outstanding voting shares held by any interested shareholder; and (v) any plan
or proposal for dissolution of the corporation proposed by or on behalf of any
interested shareholder.
Under certain circumstances, the Affiliated Transactions Statute may make it
more difficult for an interested shareholder to effect various transactions with
the Company, after the consummation of the Merger. These provisions may have the
effect of preventing changes in management and possibly making it more difficult
to accomplish transactions which shareholders may otherwise deem to be in their
best interests.
CONTROL SHARE ACQUISITIONS STATUTE. Article 14.1 of the Virginia Act (the
"Control Share Acquisitions Statute") provides that shares of a publicly held
Virginia corporation that are acquired in a "control share acquisition"
generally will have no voting rights unless such rights are conferred on those
shares by the vote of a majority of all the outstanding shares other than
interested shares. A control share acquisition is defined, with certain
exceptions, as the acquisition of the beneficial ownership of voting shares
which would cause the acquirer to have voting power within the following ranges
or to move upward from one range into another: (i) 20% to 33 1/3%; (ii) 33 1/3%
to 50%; or (iii) more than 50%, of such votes.
The foregoing summary of the provisions of the Virginia Act does not purport
to be complete and is qualified in its entirety by reference to the provisions
of the Virginia Act.
The Board of Directors of the Company has approved the Offer and the Merger
and recommended acceptance of the Offer by holders of Shares and approval (if
required by the Virginia Act) by holders of Shares. The Board of Directors of
the Company has also taken actions to exempt Varlen, the Purchaser, their
respective direct and indirect subsidiaries and the Offer and the Merger from
the restrictions and provisions of the Affiliated Transactions Statute and
Control Share Acquisitions Statute as well as from the super-majority
shareholder vote provisions of Article I of the Company's Charter. In addition,
in connection with Section 13.1-730 (DISSENTER'S RIGHTS) of the Virginia Act,
the Board of Directors of the Company has approved the Merger by a majority of
"disinterested directors" (as defined in Section 13.1-725 of the Virginia Act).
See Section 11.
In 1995, in WLR FOODS, INC. V. TYSON FOODS INC., the United States Court of
Appeals for the Fourth Circuit ruled that four Virginia anti-takeover statutes,
including the Affiliated Transactions Statute, the Control Share Acquisitions
Statute, the "poison pill statute" and the "business judgment statute" contained
in the Virginia Act are not preempted by applicable federal securities law, are
constitutional and, even though the statutes favor incumbent management over
bidders, do not impermissibly restrict the ability of a bidder to take over a
Virginia corporation.
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A number of states have adopted takeover laws which purport, to varying
degrees, to be applicable to attempts to acquire securities of corporations
which are incorporated in such states or which have substantial assets, security
holders, principal executive offices or principal places of business therein. To
the extent that certain provisions of certain of these state takeover statutes
purport to apply to the Offer or the Merger, the Purchaser believes that such
laws conflict with federal law and constitute an unconstitutional burden on
interstate commerce. In 1982, the Supreme Court of the United States, in EDGAR
V. MITE CORP., held that the Illinois Business Takeovers Statute, which as a
matter of state securities law, made takeovers of corporations meeting certain
requirements more difficult, imposed a substantial burden on interstate commerce
and therefore was unconstitutional. In 1987, however, in CTS CORP. V. DYNAMICS
CORP. OF AMERICA, the Supreme Court of the United States held that the State of
Indiana could, as a matter of corporate law and, in particular, those aspects of
corporate law concerning corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
the prior approval of the remaining shareholders, provided that such laws were
applicable only under certain conditions. The state law before the Supreme Court
was by its terms applicable only to corporations that had a substantial number
of stockholders in the state and were incorporated therein. Subsequently, a
number of Federal courts ruled that various state takeover statutes were
unconstitutional insofar as they apply to corporations incorporated outside the
state of enactment.
Except as described herein, the Purchaser does not know whether the Offer is
subject to any state takeover statutes and neither Varlen nor the Purchaser has
attempted to comply with any state takeover statutes in connection with the
Offer. Should any person seek to apply any such statute to the Offer, Varlen and
the Purchaser reserve the right to challenge the validity or applicability of
any state law allegedly applicable to the Offer and nothing in this Offer to
Purchase nor any action taken in connection herewith is intended as a waiver of
that right. In the event that any state takeover statute is found applicable to
the Offer and an appropriate court does not determine that such laws are
inapplicable or invalid as applied to the Offer, the Purchaser may be required
to file certain information with, or receive approvals from, the relevant state
authorities, or the Purchaser might be unable to purchase and accept for payment
or pay for Shares tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer. In the circumstances described above, the Purchaser may
not be obligated to accept for purchase and payment or pay for any Shares
tendered.
16. EXTENSION OF TENDER PERIOD, TERMINATION AND AMENDMENTS. The
Acquisition Agreement provides that the Offer may not be amended to reduce the
price to be paid per Share, change the form of consideration to be paid in the
Offer or the Merger, increase the Minimum Condition or amend the terms of the
Offer in a manner that is materially adverse to the holders of the Shares.
Subject to such restrictions, the Purchaser expressly reserves the right, in its
sole discretion, at any time from time to time, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary. If the Purchaser shall decide, in its sole
discretion, to increase the consideration offered in the Offer to holders of
Shares or make any other material change in the terms of the Offer (including
the Minimum Condition) or the information concerning the Offer, the Purchaser
will disseminate additional tender offer materials and extend the Offer to the
extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The
minimum period during which the Offer must remain open following material
changes in the terms of the Offer or information concerning the Offer, other
than a change in price or a change in percentage of securities sought, will
depend upon the facts and circumstances, including the relative materiality of
the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten-business day period from the date
of announcement thereof is required to allow for adequate dissemination to
shareholders and investor response. If, prior to the Expiration Date, the
Purchaser should decide to increase the price per Share being offered in the
Offer, such increase will be applicable to all shareholders whose Shares are
accepted for payment pursuant to the Offer. As used in this Offer to Purchaser,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
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The Purchaser also expressly reserves the right (i) to delay payment for any
Shares, regardless of whether such Shares were theretofore accepted for payment,
or to terminate the Offer and not accept for payment or pay for any Shares not
theretofore accepted or paid for, upon the occurrence of any of the conditions
specified in Section 13 by giving oral notice thereof to the Depositary, and
(ii) subject to the restrictions set forth in the Acquisition Agreement, at any
time or from time to time, to amend the Offer in any respect. See Section 13.
Any extension, delay, termination, waiver or amendment of the Offer will be
followed, as soon as practicable, by public announcement thereof, and such
announcement in the case of an extension will be made in accordance with Rule
14e-1(d) no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. Without limiting the manner in
which the Purchaser may choose to make any public announcement, the Purchaser
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to either the Dow Jones or
Reuters News Services and making any appropriate filing with the Commission.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in Section 3. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
17. CERTAIN FEES AND EXPENSES. Lehman Brothers Inc. ("Lehman") is acting
as Dealer Manager for the Offer and as financial advisor to Varlen in connection
with the transactions described in this Offer to Purchase. Pursuant to an
engagement letter dated March 15, 1996 (the "Engagement Letter"), Varlen has
agreed to pay Lehman an advisory fee in connection with the acquisition of the
Company, in one or a series or combination of transactions whereby, directly or
indirectly, control (i.e., 51% of the Shares of the Company), or substantially
all of the assets of the Company or any of its affiliates is transferred to
Varlen or Purchaser or any of their affiliates (an "Acquisition"), of 0.75% of
the gross value of all cash, securities and other property paid directly or
indirectly by Varlen and/or the Purchaser in connection with an Acquisition (the
"Consideration"); provided that the Acquisition occurs on or prior to December
31, 1998 (the "Termination Date"). Varlen has further agreed that in the event
that Varlen or the Purchaser shall acquire less than 50% of the Shares but more
than 20% of the Shares outstanding on a fully diluted basis prior to the
Termination Date, and during such period Varlen or Purchaser shall have a
designee appointed to the Company's Board of Directors, then Varlen has agreed
to pay to Lehman an advisory fee of 0.75% of the price paid by the Company for
such shares. Varlen has agreed to pay Lehman the foregoing fees as follows: (x)
one-third upon commencement of an Acquisition and (y) two-thirds upon
consummation of an Acquisition. Pursuant to the Dealer Manager Agreement, dated
June 20, 1996, Varlen has also agreed to pay Lehman a fee equal to $.065 per
Share for each Share accepted for payment in the Offer as compensation for
serving as Dealer Manager for the Offer, which amount will be credited against
the above-described advisory fee being paid to Lehman by Varlen. In addition,
Varlen has agreed to reimburse Lehman for its reasonable expenses (including
professional fees and expenses of up to $10,000, plus 50% of its reasonable
professional fees and expenses in excess of $10,000, up to a maximum of $50,000)
and has agreed to indemnify Lehman against certain liabilities and expenses in
connection with their engagement. The amount of the total advisory fees and
reimbursable expenses payable to Lehman pursuant to the Engagement Letter, if
the Acquisition is consummated, is currently estimated not to exceed $1.4
million.
The Purchaser has retained D.F. King & Co. to act as Information Agent and
Harris Trust Company of New York to act as Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telex, telegraph and personal interview and may request
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brokers, dealers and other nominee shareholders to forward material relating to
the offer to beneficial owners. The Information Agent and the Depositary will
receive reasonable and customary compensation for services relating to the Offer
in addition to reimbursement of reasonable out-of-pocket expenses. The Purchaser
has agreed to indemnify the Information Agent and the Depositary against certain
liabilities and expenses in connection with the Offer including certain
liabilities under the federal securities laws.
Neither Varlen nor the Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the above-described fee to Lehman)
for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by the
Purchaser for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
18. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction in which
the making of the Offer is not in compliance with applicable law. If the
Purchaser becomes aware of any jurisdiction in which the making of the Offer
would not be in compliance with applicable law, the Purchaser will make a good
faith effort to comply with any such law. If, after good faith effort, the
Purchaser cannot comply with any such law, the Offer will not be made to, nor
will tenders be accepted from or on behalf of, holders of Shares residing in any
jurisdiction in which the making of the Offer or acceptance thereof would not be
in compliance with the securities, blue sky or other laws of such jurisdiction.
In any jurisdiction the securities, blue sky or other laws of which require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Purchaser by the Dealer Manager or by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
Varlen and the Purchaser have filed with the Commission a Tender Offer
Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of
the General Rules and Regulations under the Exchange Act, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. Such Tender Offer Statement and any amendments thereto, including
exhibits, may be obtained in the manner described in Section 8 with respect to
information concerning the Company, except that such information will not be
available at the regional offices of the Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF VARLEN OR THE PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
BAS, Inc.
33
<PAGE>
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF VARLEN AND THE PURCHASER
The names and principal business positions for the past five years of each
director and executive officer of Varlen are set forth below. The business
address of each such person is 55 Shuman Boulevard, P.O. Box 3089, Naperville,
Illinois 60566-7089. All persons listed below are citizens of the United States
of America.
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS POSITIONS FOR THE PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
Richard L. Wellek Director; President and Chief Executive Officer of Varlen since 1983. From
1968 through 1983 he held various executive and operational positions at
Varlen.
Vicki L. Casmere Vice President, General Counsel and Secretary since April 1, 1996. Ms.
Casmere served as Corporate Counsel of Caremark Inc. from 1992 to 1996 and
as Vice President of Caremark Inc. from 1994 to 1996. Previously, Ms.
Casmere served as Corporate Counsel of Baxter Healthcare Corporation from
1988 to 1992.
Rudolph Grua Director; Vice Chairman of General Binding Corporation, a manufacturer of
business machines and related supplies, since January 1995 and a director
since May 1984. Prior to January 1995, Mr. Grua was President and Chief
Executive Officer of General Binding Corporation, positions he had held
since May 1984.
George W. Hoffman Railroad Group Vice President since 1990. Mr. Hoffman was an Executive at
Keystone Railway Equipment Company, a subsidiary of Varlen, from 1979 to
1994.
Raymond A. Jean Executive Vice President and Chief Operating Officer since 1993.
Previously, Mr. Jean served as Group Vice President from 1988 to 1992.
Ernest H. Lorch Director; Of Counsel to Whitman Breed Abbott & Morgan, attorneys, a
position he has held since January 1993. He retired as Chairman and Chief
Executive Officer of The Dyson-Kissner-Moran Corporation ("DKM"), a private
investment company, in December 1992, a position he held since January
1992. DKM owned approximately 30% of the Common Stock of Varlen prior to
Varlen's purchase of all of the Varlen shares owned by DKM in January 1993.
Mr. Lorch was President of DKM from June 1984 to January 1992. Mr. Lorch is
also a director of Tyler Corporation, a retail supplier of automotive parts
that also provides products for fundraising programs.
L. William Miles Director; Vice President for Administration at Fairfield University,
Connecticut, a position he has held since July 1992. From February 1988 to
June 1992 he was Senior Vice President of Call Interactive, a provider of
interactive telephone services. Mr. Miles is also a director of Bouton
Corporation, a manufacturer of safety glasses.
Richard A. Nunemaker Vice President, Finance and Chief Financial Officer since 1991. Previously,
Mr. Nunemaker served as Vice President and Controller from 1987 to 1991.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS POSITIONS FOR THE PAST FIVE YEARS
- ------------------------------------ ---------------------------------------------------------------------------
Greg A. Rosenbaum Director; President of Palisades Associates, Inc., a merchant banking and
consulting company, since August 1989. Mr. Rosenbaum is also director of
Richey Electronics, Inc., a distributor of electronic components, a
position he has held since 1993.
<S> <C>
Joseph J. Ross Director; Chairman, President and Chief Executive Officer of Federal Signal
Corporation, a manufacturer of public safety, signaling and communications
equipment. He has been Chairman of Federal Signal since February 1990 and
has served as its President and Chief Executive Officer since December
1987.
Theodore A. Ruppert Director; For more than the last five years, a general partner in the
Village Development Partnership, a real estate, manufacturing and oil
development holding company; Chairman, Chief Executive Officer and director
of Glaize Development Corporation, a real estate developer; and a director
of Pioneer Bank & Trust Company.
</TABLE>
A-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The names and principal business positions for the past five years of the
director and executive officers of the Purchaser are set forth below. The
business address of each such person is 55 Shuman Boulevard, P.O. Box 3089,
Naperville, Illinois 60566-7089. All persons listed below are citizens of the
United States of America. For further information regarding such persons, see
"Directors and Executive Officers of Varlen."
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------------ -------------------------------------------------------
<S> <C>
Richard L. Wellek Director and President
Richard A. Nunemaker Vice President and Treasurer
Vicki L. Casmere Vice President and Secretary
</TABLE>
A-3
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each shareholder
of the Company or his broker, dealer, commercial bank or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
----------------
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Wall Street Station 77 Water Street, 4th Receive Window
P.O. Box 1010 Floor 77 Water Street, 5th
New York, New York New York, New York 10005 Floor
10268-1010 New York, New York
10005
BY FACSIMILE
TRANSMISSION:
(FOR ELIGIBLE
INSTITUTIONS ONLY)
(212) 701-7636
(212) 701-7637
CONFIRM FACSIMILE BY
TELEPHONE:
(212) 701-7624
</TABLE>
---------------------
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be directed to the Information Agent or the Dealer
Manager at their respective telephone numbers and locations listed below. You
may also contact your broker, dealer, commercial bank or trust company or
nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (collect)
or
Call Toll Free: 1-800-848-3402
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
(212) 526-2864 (CALL COLLECT)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
BRENCO, INCORPORATED
PURSUANT TO THE OFFER TO
PURCHASE DATED JUNE 20, 1996
BY
BAS, INC.
A WHOLLY OWNED SUBSIDIARY OF
VARLEN CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, JULY 18, 1996 UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Wall Street Station 77 Water Street, 4th Floor Receive Window
P.O. Box 1010 New York, New York 10005 77 Water Street, 5th Floor
New York, New York New York, New York 10005
10268-1010
</TABLE>
BY FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(212) 701-7636
(212) 701-7637
CONFIRM FACSIMILE BY TELEPHONE:
(212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders if
certificates for Shares (as defined below) are to be forwarded herewith or,
unless an Agent's Message (as defined in Section 4 of the Offer to Purchase) is
utilized, if delivery of Shares is to be made by book-entry transfer to the
accounts maintained by Harris Trust Company of New York, as Depositary (the
"Depositary"), at The Depository Trust Company or the Philadelphia Depository
Trust Company (each a "Book-Entry Transfer Facility" and collectively the
"Book-Entry Transfer Facilities") pursuant to the procedures set forth in
Section 4 of the Offer to Purchase. Holders of Shares whose certificates for
Shares are not immediately available, or who are unable to deliver their Shares
or confirmation of the book-entry tender of their Shares into the Depositary's
account at a Book-Entry Transfer Facility ("Book Entry Confirmation") and all
other documents required by this Letter of Transmittal to the Depositary on or
prior to the Expiration Date (as defined in the Offer to
<PAGE>
Purchase), must tender their Shares according to the guaranteed delivery
procedure set forth in Section 4 of the Offer to Purchase. See Instruction 2.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution ....................................................................................
Check box of Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number ...................................................................................................
Transaction Code Number ..........................................................................................
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO
THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Owner(s) ...................................................................................
Window Ticket Number (if any) ....................................................................................
Date of Execution of Notice of Guaranteed Delivery ...............................................................
Name of Institution which Guaranteed Delivery ....................................................................
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number ...................................................................................................
Transaction Code Number ..........................................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF TENDERED SHARES
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
APPEAR(S) ON SHARE CERTIFICATES)
CERTIFICATE TOTAL NUMBER OF NUMBER OF
NUMBER(S)* SHARES REPRESENTED SHARES TENDERED**
BY CERTIFICATE(S)*
TOTAL SHARES
* NEED NOT BE COMPLETED BY SHAREHOLDERS DELIVERING SHARES BY BOOK-ENTRY TRANSFER.
** UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES REPRESENTED BY ANY CERTIFICATES DELIVERED TO THE
DEPOSITARY ARE BEING TENDERED. SEE INSTRUCTION 4.
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to BAS, Inc., a Virginia corporation (the
"Purchaser") and a wholly owned subsidiary of Varlen Corporation, a Delaware
corporation ("Varlen"), the above-described shares of Common Stock, par value
$1.00 per share (the "Shares"), of Brenco, Incorporated, a Virginia corporation
(the "Company"), pursuant to the Purchaser's offer to purchase all outstanding
Shares at a price of $16.125 per Share, net to the seller in cash, without any
interest, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated June 20, 1996 (the "Offer to Purchase") and in this Letter of
Transmittal (which together constitute the "Offer"), receipt of which are hereby
acknowledged. The undersigned understands that the Purchaser reserves the right
to transfer or assign, in whole or from time to time in part, to Varlen or one
or more of its other direct or indirect wholly owned subsidiaries the right to
purchase all or any portion of the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment for the Shares
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns, and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby (and any and all other Shares and other
securities and property issued or issuable or distributed or distributable
(other than the Company's regular quarterly dividend of not more than $.07 per
Share) in respect thereof on or after June 15, 1996 and prior to the transfer to
the name of the Purchaser or nominee or transferee of the Purchaser on the
Company's stock transfer records of the Shares tendered herewith (collectively,
a "Distribution")), and irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares (and any Distribution) with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest)
to: (i) deliver certificates for such Shares (and any Distribution), or transfer
ownership of such Shares (and any Distribution) on the account books maintained
by a Book-Entry Transfer Facility, together in any such case with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Purchaser, upon receipt by the Depositary, as the undersigned's agent, of the
purchase price (adjusted, if appropriate, as provided in the Offer to Purchase);
(ii) present such Shares (and any Distribution) for transfer on the books of the
Company; and (iii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares (and any Distribution), all in accordance
with the terms and subject to the conditions of the Offer.
The undersigned hereby irrevocably appoints the Purchaser, its officers and
its designees, and each of them, the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution, to exercise all voting and
other rights of the undersigned in such manner as each such attorney-in-fact and
proxy or the substitute for any such attorney-in-fact and proxy shall in the
sole discretion of each such attorney-in-fact and proxy or his substitutes deem
proper, and otherwise act (including pursuant to written consent) with respect
to all of the Shares tendered hereby (and any Distribution) which have been
accepted for payment by the Purchaser prior to the time of such vote or other
action and which the undersigned is entitled to vote at any meeting of
shareholders (whether annual or special and whether or not an adjourned
meeting), or consent in lieu of any such meeting, or otherwise. THIS PROXY IS
IRREVOCABLE AND COUPLED WITH AN INTEREST AND IS GRANTED IN CONSIDERATION OF, AND
IS EFFECTIVE UPON, THE ACCEPTANCE FOR PAYMENT OF SUCH SHARES BY THE PURCHASER
<PAGE>
IN ACCORDANCE WITH THE TERMS OF THE OFFER. SUCH ACCEPTANCE FOR PAYMENT SHALL
REVOKE, WITHOUT FURTHER ACTION, ANY OTHER POWER OF ATTORNEY AND/ OR PROXY GIVEN
BY THE UNDERSIGNED AT ANY TIME WITH RESPECT TO SUCH SHARES (AND ANY
DISTRIBUTION) AND NO SUBSEQUENT POWER OF ATTORNEY OR PROXY MAY BE GIVEN (AND IF
GIVEN WILL NOT BE EFFECTIVE) WITH RESPECT THERETO BY THE UNDERSIGNED. The
undersigned understands that the Purchaser expressly reserves the right to
require that, in order for Shares to be validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares (and any Distribution), the
Purchaser is able to exercise full voting rights and other rights of a record
and beneficial holder thereof, including rights in respect of acting by written
consent with respect to such Shares (and any Distribution) or voting at any
meeting of shareholders.
The undersigned hereby represents and warrants that: (i) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distribution) and (ii) when the same are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary, the Purchaser or Varlen to be necessary or desirable
to complete the sale, assignment and transfer of the Shares tendered hereby (and
any Distribution). In addition, the undersigned shall promptly remit and
transfer to the Depositary for the account of the Purchaser the whole of any
dividend (other than the Company's regular quarterly dividend of not more than
$.07 per Share), distribution, interest payment or right issued to the
undersigned on or after June 15, 1996, in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer. Pending such remittance,
the Purchaser shall be entitled to all rights and privileges as owner of any
such dividend, distribution, interest payment or right and may withhold the
entire purchase price or deduct from the purchase price the amount or value
thereof, as determined by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned. Except as stated in the Offer to Purchase,
this tender is irrevocable.
The undersigned understands that the tender of Shares pursuant to any of the
procedures described in Section 4 of the Offer to Purchase and in the
instructions hereto will constitute the tendering shareholder's acceptance of
the terms and conditions of the Offer, as well as the tendering shareholder's
representation and warranty that such shareholder has the full power and
authority to tender and assign the Shares tendered (and any Distribution), as
specified in this Letter of Transmittal. The Purchaser's acceptance for payment
of Shares pursuant to the Offer will constitute a binding agreement between the
tendering shareholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or any certificates for Shares
not tendered or accepted for payment in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature. In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment in the name(s) of, and deliver said check and/or return
such certificates to, the person or persons so indicated. The undersigned
recognizes that the Purchaser has no obligation pursuant to the Special Payment
Instructions to transfer any Shares from the name of the registered holder
thereof if the Purchaser does not accept for payment any of the Shares so
tendered.
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not
purchased and/or the check for the purchase price of Shares purchased are to
be issued in the name of someone other than the undersigned.
Issue / / check / / certificates to:
Name ........................................................................
(Please Print)
Address .....................................................................
.............................................................................
(Include Zip Code)
.............................................................................
(Taxpayer Identification or Social Security Number)
(See Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not
purchased and/or the check for the purchase price of Shares purchased are to
be sent to someone other than the undersigned, or to the undersigned at an
address other than that shown above.
Mail / / check / / certificates to:
Name ........................................................................
(Please Print)
Address .....................................................................
.............................................................................
(Include Zip Code)
IMPORTANT
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
.............................................................................
.............................................................................
Signature(s) of Owner(s)
Dated: ............................................................... , 1996
(Must be signed by registered owner(s) exactly as name(s) appear(s) on
certificate(s) for Shares or on a security position listing or by person(s)
authorized to become registered owner(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, agents, officers of corporations or others
acting in a fiduciary or representative capacity, please provide the following
information. See Instruction 5.)
Name(s) ......................................................................
.............................................................................
(Please Print)
Capacity (full title) .......................................................
Address ....................................................................
.............................................................................
.............................................................................
(Include Zip Code)
Area Code and Telephone Numbers .............................................
Taxpayer Identification
or Social Security No. ....................................................
(See Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Name ........................................................................
(Please Print)
Authorized Signature ........................................................
Name of Firm ................................................................
Address .....................................................................
.............................................................................
(including Zip Code)
Area Code and Telephone Number ..............................................
Dated: ............................................................... , 1996
<PAGE>
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 9)
<TABLE>
<S> <C> <C> <C>
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN IN ------------------------------------
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number
DEPARTMENT OF THE TREASURY, SIGNING AND DATING BELOW. OR
INTERNAL REVENUE SERVICE ------------------------------------
Employer Identification Number
PAYER'S REQUEST FOR TAXPAYER PART 2 - Certification - Under Penalties of Perjury, PART 3 -
IDENTIFICATION NUMBER (TIN) I certify that: Awaiting
(1) The number shown on this form is my correct TIN / /
Taxpayer Identification Number (or I am waiting
for a number to be issued to me and have checked
the box in Part 3) and
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding, do
not cross out such item (2).
SIGNATURE DATE
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number by the
time of payment, 31% of all reportable payments made to me will be withheld,
but that such amounts will be refunded to me if I then provide a Taxpayer
Identification Number within sixty (60) days.
_________________________________ _________________________________, 1996
Signature Date
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this document, shall include
any participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Shares) of Shares tendered herewith,
unless such holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" above, or (b)
if such Shares are tendered for the account of a firm which is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of a recognized Medallion Signature Guarantee Program (each of the
foregoing being referred to as an "Eligible Institution"). In all other cases,
all signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5 of this Letter of Transmittal.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed
by shareholders either if certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in Section 4 of the Offer
to Purchase. Certificates for tendered Shares, or timely confirmation (a
"Book-Entry Confirmation") of a book-entry transfer of such Shares into the
Depositary's account at a Book-Entry Transfer Facility, as well as this Letter
of Transmittal (or a facsimile hereof), properly completed and duly executed
with any required signature guarantees, or an Agent's Message in connection with
a book-entry transfer, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal prior to the Expiration
Date. Shareholders whose certificates are not immediately available or who
cannot deliver their certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedure set forth in Section 4 of the Offer to
Purchase. Pursuant to such procedure: (i) such tender must be made by or through
an Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Purchaser,
must be received by the Depositary prior to the Expiration Date; and (iii) the
certificates (or a Book-Entry Confirmation) representing all tendered Shares, in
proper form for transfer, in each case together with the Letter of Transmittal
(or a facsimile thereof), properly completed and duly executed with any required
signature guarantees (or, in the case of a book-entry delivery, an Agent's
Message) and any other documents required by this Letter of Transmittal, must be
received by the Depositary within three National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ System") trading days after
the date of execution of such Notice of Guaranteed Delivery. If certificates are
forwarded separately to the Depositary, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER. DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased (unless you are tendering all of the Shares
you own). All tendering shareholders, by execution of this Letter of Transmittal
(or a facsimile hereof), waive any right to receive any notice of the acceptance
of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate number(s) and/or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER.) If fewer than all of the Shares evidenced by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Shares which are to be tendered in the box entitled "Number of Shares
Tendered." In such a case, new Share certificate(s) for the Shares that were
evidenced by your old Share certificate(s), but were not tendered by you, will
be sent to you (unless otherwise provided in the appropriate box on this Letter
of Transmittal) as soon as practicable after the Expiration Date. All Shares
represented by certificates delivered to the Depositary will be deemed to have
been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to or
certificates for Shares not tendered or not purchased are to be issued in the
name of a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s)
for such Shares. Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Purchaser will pay or cause to be paid any stock transfer taxes with
respect to the transfer and sale of Shares to it or its order pursuant to the
Offer. If, however, payment of
<PAGE>
the purchase price is to be made to, or if certificate(s) for Shares not
tendered or accepted for payment are to be registered in the name of, any person
other than the registered holder(s), if a transfer tax is imposed for any reason
other than the sale or transfer of Shares to Purchaser pursuant to the Offer, or
if tendered certificate(s) are registered in the name of any person other than
the person(s) signing this Letter of Transmittal, the amount of any stock
transfer taxes (whether imposed on the registered holder(s) or such person)
payable on account of the transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes or an
exemption therefrom, is submitted.
Except as otherwise provided in this Instruction 6, it will not be necessary
for transfer tax stamps to be affixed to the certificate(s) listed in this
Letter of Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the
purchase price of any Shares purchased is to be issued, or any Shares not
tendered or not purchased are to be returned, in the name of a person other than
the person(s) signing this Letter of Transmittal, or if the check or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Shareholders tendering Shares by book-entry transfer may request that Shares not
purchased be credited to such account at any of the Book-Entry Transfer
Facilities as such shareholder may designate under "Special Payment
Instructions." If no such instructions are given, any such Shares not purchased
will be returned by crediting the account at the Book-Entry Transfer Facilities
designated above.
8. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time of receipt) and acceptance for payment of
any tender of Shares will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. The Purchaser
reserves the absolute right to reject any or all tenders of Shares determined by
it not to be in proper form or the acceptance for payment of or payment for
tenders of Shares which may, in the opinion of the Purchaser's counsel, be
unlawful. The Purchaser also reserves the absolute right to waive any defect or
irregularity in any tender of Shares. No tender of Shares will be deemed to have
been properly made until all defects and irregularities relating thereto have
been cured or waived. The Purchaser's interpretation of the terms and conditions
of the Offer in this regard will be final and binding. None of the Purchaser,
the Dealer Manager, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defect or irregularity in
tenders or incur any liability for failure to give any such notification.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a shareholder whose tendered Shares are accepted for payment is
required to provide the Depositary with a correct Taxpayer Identification Number
("TIN"), generally the shareholder's social security or federal employer
identification number, on Substitute Form W-9 below. Failure to provide the
information on the form may subject the tendering shareholder or other payee to
a $50 penalty. In addition, payments that are made to such shareholder or other
payee with respect to Shares purchased pursuant to the Offer may be subject to
31% federal income tax withholding on the payment of the purchase price.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify an exempt recipient,
the shareholder must submit a Form W-8, signed under penalties of perjury,
attesting that individual's exempt status. A Form W-8 can be obtained from the
Depositary. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of such shareholder's correct TIN by
completing the Substitute Form W-9 certifying (i) that the TIN provided on the
Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN) and
(ii) that (a) such shareholder has not been notified by the Internal Revenue
Service that such shareholder is subject to backup withholding as a result of a
failure to report all interest or dividends or (b) the Internal Revenue Service
has notified such shareholder that such shareholder is no longer subject to
backup withholding.
The box in part 3 of the Substitute Form W-9 may be checked if the tendering
shareholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
shareholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number in order to avoid backup withholding.
Notwithstanding that the box in part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, if the shareholder or
other payee does not provide a properly certified TIN to the Depositary within
60 days, the Depositary will withhold 31% of all payments made prior to the time
a properly certified TIN is provided to the Depositary.
The shareholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares or of
the last transferee appearing on the transfers attached to, or endorsed on, the
Shares. If the Shares are in more than one name or are not in the name of the
actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests
for assistance may be directed to the Information Agent at its address and
telephone numbers set forth below. Additional copies of the Offer to Purchase,
this Letter of Transmittal and the Notice of Guaranteed Delivery may also be
obtained from the Information Agent or the Dealer Manager or from brokers,
dealers, commercial banks or trust companies.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate evidencing
Shares has been lost, destroyed or stolen, the shareholder should promptly
notify Wachovia Bank of North Carolina, N.A., Winston Salem, North Carolina
27102-3001, Attention: Darrell V. Milton at (919) 770-4994. The shareholder will
then be instructed as to the steps that must be taken in order to replace the
certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY HEREOF) OR AN
AGENT'S MESSAGE TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR
TO THE EXPIRATION DATE.
FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY
EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, CERTIFICATES FOR SHARES
AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER
OF THE COMPANY OR HIS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER
NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH BELOW:
THE DEPOSITARY FOR THE OFFER IS:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
------------------
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Wall Street Station 77 Water Street, 4th Receive Window
P.O. Box 1010 Floor 77 Water Street,
New York, New York New York, New York 5th Floor
10268-1010 10005 New York, New York
10005
BY FACSIMILE
TRANSMISSION:
(FOR ELIGIBLE
INSTITUTIONS ONLY)
(212) 701-7636
(212) 701-7637
CONFIRM FACSIMILE BY
TELEPHONE:
(212) 701-7624
</TABLE>
--------------------------
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of the Offer to Purchase, this Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent or the Dealer Manager as set forth below, and will be
furnished promptly at the Purchaser's expense. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (collect)
or
Call Toll Free: 1-800-848-3402
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
(212) 526-2864 (CALL COLLECT)
<PAGE>
EXHIBIT C
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (as the same may be modified, amended, supplemented
and/or restated from time to time, this "Agreement"), dated as of June 15, 1996,
by and among (1) Varlen Corporation, a Delaware corporation ("Varlen"), (2) BAS,
Inc., a Virginia corporation and a wholly owned subsidiary of Varlen (the
"Purchaser"), and (3) Brenco, Incorporated, a Virginia corporation (the
"Company").
RECITALS
The respective Boards of Directors of Varlen, the Purchaser and the Company
have each determined that it is advisable for Varlen, through the Purchaser, to
acquire all of the Company's outstanding Common Stock, par value $1.00 per share
(the "Shares"), at a price of $16.125 per Share in cash pursuant to the offer
described below in Article 1 and the merger described below in Article 2, as a
result of which the Company will become a wholly owned subsidiary of Varlen. The
Board of Directors of the Company has duly approved such offer and resolved to
recommend its acceptance by the holders of Shares. The respective Boards of
Directors of Varlen, the Purchaser and the Company have each duly approved the
merger of the Purchaser and the Company following the consummation of such
offer.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Varlen, the Purchaser and the Company
hereby agree as follows:
ARTICLE 1: THE OFFER
Section 1.1 THE OFFER. (a) Provided that none of the conditions set forth
in ANNEX I to this Agreement shall have occurred, the Purchaser (or one or more
other direct or indirect wholly owned subsidiaries of Varlen) shall promptly,
and in no event later than one business day after the date of this Agreement,
publicly announce, and within five business days thereafter commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), an offer to purchase any and all outstanding Shares at a price
of $16.125 per Share, net to the seller in cash and without any interest thereon
(the "Offer", which term shall include any amendments to such offer not
prohibited by this Agreement). The obligation of the Purchaser to consummate the
Offer, to accept for payment and to pay for any Shares tendered shall be subject
to those conditions set forth in ANNEX I to this Agreement. Without the consent
of the Company, the Purchaser shall not reduce the price to be paid per Share
pursuant to the Offer, change the form of consideration to be paid in the Offer
or the Merger (as hereinafter defined), increase the minimum number of Shares to
be purchased in the Offer or amend any other term of the Offer (including the
conditions set forth on ANNEX I to this Agreement) in a manner materially
adverse to the holders of the Shares. The conditions of the Offer are for the
sole benefit of Varlen and the Purchaser and may be asserted by Varlen and the
Purchaser regardless of the circumstances giving rise to any such conditions or,
subject to the preceding sentence, may be waived by Varlen and the Purchaser in
whole or in part.
(b) On the date that the Purchaser commences the Offer (within the meaning
of Rule 14D-2 under the Exchange Act), Varlen and the Purchaser shall file with
the Securities and Exchange Commission (the "Commission") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer (the "Schedule 14D-1")
that will comply in all material respects with the provisions of applicable
federal securities law and will contain an Offer to Purchase (which, along with
the related letters of transmittal and summary advertisements, together with any
supplements or amendments thereto, are referred to herein as the "Offer
Documents"). The Schedule 14D-1 and the Offer Documents, on the date the
Schedule 14D-1 is filed with the Commission and on the date the Offer Documents
are first published, sent or given to securityholders, as the case may be, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or
1
<PAGE>
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and Varlen and the Purchaser agree
promptly to correct (and the Company, with respect to written information
supplied by it specifically for use in the Schedule 14D-1 and the Offer
Documents, agrees to promptly request that Varlen and the Purchaser correct) the
Schedule 14D-1 and/or the Offer Documents if and to the extent that any of them
shall have become false or misleading in any material respect. Varlen and the
Purchaser shall take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the Commission and such Offer Documents as so
corrected to be disseminated to securityholders, in each case as and to the
extent required by applicable federal securities laws. None of the information
relating to Varlen and its affiliates supplied in writing by Varlen specifically
for inclusion in the Schedule 14D-9 (as defined hereinbelow) will, at the time
the Schedule 14D-9 is filed with the Commission, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 1.2 COMPANY ACTIONS. (a) The Company represents that the Board of
Directors of the Company (the "Board of Directors") has duly approved the Offer
and the Merger and resolved to recommend acceptance of the Offer by holders of
Shares and approval of the Merger (if such approval is required by the Virginia
Stock Corporation Act, as amended (the "Virginia Act")) by holders of Shares.
The Company represents and warrants that its Board of Directors has: (1)
exempted Varlen, the Purchaser, their respective direct and indirect
subsidiaries and the Offer, the Merger and the other transactions contemplated
by this Agreement from the restrictions and other provisions of Article 14,
SectionSection 13.1-725-13.1-728 (AFFILIATED TRANSACTIONS) of the Virginia Act
in the manner provided by Section 13.1-727.B.1.(iv) thereof, by the adoption of
resolutions substantially in the form set forth in ANNEX II hereto; (2) exempted
Varlen, the Purchaser, their respective direct and indirect subsidiaries and the
Offer, the Merger and the other transactions contemplated by this Agreement from
the super majority shareholder vote provisions of Article I of the Articles of
Incorporation, as amended, of the Company (the "Charter"), by the adoption of
resolutions substantially in the form set forth in ANNEX II hereto; (3) in
connection with the provisions of Article 15 (DISSENTER'S RIGHTS), Section
13.1-730 of the Virginia Act, approved the Merger by a majority of
"disinterested directors" (as defined in Section 13.1-725 of the Virginia Act),
by the adoption of resolutions substantially in the form set forth in ANNEX II
hereto; and (4) approved this Agreement, with the effect of (among other things)
exempting Varlen, the Purchaser, the Offer and the Merger from the restrictions
and provisions of Article 14.1, SectionSection 13.1-728.1-13.1-728.9 (CONTROL
SHARE ACQUISITIONS) of the Virginia Act. The Company and its Board of Directors
(including the "disinterested director" members thereof) shall take such other
and further actions necessary or appropriate, at the request of Varlen or the
Purchaser to: (A) exempt Varlen, the Purchaser, their direct or indirect
subsidiaries, the Offer, the Merger and the other transactions contemplated by
this Agreement from the provisions of any takeover, affiliated transaction,
business combination, control share acquisition or other provision of: (i) law
or regulation adopted by the Commonwealth of Virginia or any department or
agency thereof, or (ii) the Charter or Bylaws of the Company, and (B) maintain
the shareholder vote required to approve the Merger at the two-thirds level.
(b) The Company agrees to file with the Commission, and mail to the
Company's shareholders, a Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") containing the recommendation of the Board of
Directors that the holders of Shares accept the Offer. The Schedule 14D-9 will
comply in all material respects with the provisions of applicable federal
securities laws. The Schedule 14D-9, on the date filed with the Commission and
on the date first published, sent or given to the Company's securityholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Company agrees promptly to correct (and Varlen and the
Purchaser, with respect to written information supplied by either of them
specifically for use in the Schedule 14D-9, agree to promptly request that the
Company correct) the Schedule 14D-9 if and to the extent that it shall have
become false or misleading in any material respect. The Company shall take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
Commission and mailed to the Company's securityholders to
2
<PAGE>
the extent required by applicable federal securities laws. None of the
information relating to the Company and its affiliates supplied in writing by
the Company specifically for inclusion in the Schedule 14D-1 will, at the time
the Schedule 14D-1 is filed with the Commission, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company will promptly furnish Varlen or the Purchaser with mailing
labels containing the names and addresses of the record holders of Shares and
lists of securities positions of Shares held in stock depositories, each as of a
recent date, and shall furnish the Purchaser with such additional information,
including updated lists of securityholders, mailing labels and lists of
securities positions, and other assistance as the Purchaser may reasonably
request for the purpose of communicating the Offer to the holders of Shares.
Varlen and the Purchaser agree to hold the foregoing information confidential,
to use it only in connection with the Offer and the Merger, and in the event
this Agreement is terminated in accordance with its terms to cause such lists to
be returned to the Company.
Section 1.3 DIRECTORS. 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 shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors 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 (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that such number of
Shares so accepted for payment and paid for or owned by the Purchaser or Varlen
bears to the number of Shares outstanding, and the Company shall, at such time,
use its best efforts to cause the Purchaser's designees to be so elected;
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. Subject to applicable law, the Company shall take all action
necessary to effect any such election (including mailing to its shareholders the
information required Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, in form and substance reasonably satisfactory to Varlen)
and use its reasonable best efforts to cause the resignation of such directors,
and/or an increase in the number of its directors, as may be directed by Varlen
and required to implement the provisions of this Section 1.3.
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 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." At the election of Varlen, any other direct or indirect wholly
owned subsidiary of Varlen may be substituted for the Purchaser as a constituent
corporation in the merger for purposes of this Section 2.1.
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. As soon as is practicable after
the satisfaction or waiver of the conditions set forth in Article 6 hereof, 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,
3
<PAGE>
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.
Section 2.5 CONVERSION OF SECURITIES. (a) 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
securities:
(1) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares to be cancelled pursuant to Section 2.5(b) hereof
and Shares held by any holder who properly exercises and does not waive or
withdraw dissenter's rights with respect to his Shares under the Virginia
Act ("Dissenting Shares")) shall be cancelled and extinguished and be
converted into and become a right to receive $16.125 in cash per Share (or
any such higher price per Share as may be paid in the Offer) without any
interest thereon (the "Merger Consideration");
(2) 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
(3) 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.
(b) The holders of Dissenting Shares, if any, shall be entitled to payment
for such Shares only to the extent permitted by and in accordance with the
applicable provisions of the Virginia Act; PROVIDED, HOWEVER, that if, in
accordance with such provisions of the Virginia Act, any holder of Dissenting
Shares shall waive or withdraw such right to payment of the fair value of such
Shares, each such Share shall thereupon be deemed to have been converted into
and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration provided in Section 2.5(a)(1) of this
Agreement. The holders of Dissenting Shares shall have and possess only such
rights and privileges as a shareholder of the Company as are provided for under
Article 15 (DISSENTER'S RIGHTS) of the Virginia Act.
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
4
<PAGE>
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", 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 Consideration 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(a) 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(a) 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 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
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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(a) 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 instructions for use in
surrendering such Certificates and receiving the Merger Consideration therefor.
(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, subject to applicable law in the
case of Dissenting Shares.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF VARLEN AND THE PURCHASER
Varlen and the Purchaser each hereby represents and warrants to, and agrees
with, the Company as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. Each of Varlen and the
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power to carry on its respective business as now conducted. Each of
Varlen and the Purchaser is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not, in the aggregate, materially impair the ability of
Varlen and the Purchaser to
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perform their obligations hereunder. The Purchaser has not engaged in any
material business or activity of any kind, or entered into any material
agreement or arrangement with any person or entity or incurred, directly or
indirectly, any material liabilities or obligations, except in connection with
its incorporation or with the negotiation of this Agreement and the agreements
relating to the financing of the Offer, the Merger and the other transactions
contemplated thereby (the "Financing") and the consummation of the transactions
contemplated hereby and thereby.
Section 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Varlen and the
Purchaser has the requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Varlen and the Purchaser and the consummation by Varlen and the Purchaser of
the transactions contemplated hereby have been duly authorized by the respective
Boards of Directors of Varlen and the Purchaser and no other corporate
proceedings on the part of Varlen or the Purchaser are necessary to authorize
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Varlen and the Purchaser and constitutes a valid and binding obligation of each
of them, enforceable against each of them in accordance with its terms except to
the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
Section 3.3 COMPLIANCE. (a) Neither the execution and delivery of this
Agreement by Varlen and the Purchaser nor the consummation by them of the
transactions contemplated hereby, nor compliance by Varlen and the Purchaser
with any of the provisions hereof, does or will: (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or right of amendment of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Varlen or the Purchaser or
any other direct or indirect subsidiary of Varlen under, any of the terms,
conditions or provisions of (x) the charter documents or bylaws of Varlen or the
Purchaser or any other direct or indirect subsidiary of Varlen or, (y) except
for the Revolving Credit Agreement, dated as of December 6, 1993, as amended,
among Varlen, the subsidiaries thereof party thereto, the lenders named therein,
and The First National Bank of Chicago (the "Agent Bank"), as agent, which will
be refinanced simultaneously with the consummation of the Offer, any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Varlen or the Purchaser or any other direct or
indirect subsidiary of Varlen is a party, or to which any of them, or any of
their respective properties or assets, may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in Section 3.3(b),
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Varlen or the Purchaser or any other direct or indirect
subsidiary of Varlen or any of their respective properties or assets; except, in
the case of each of clauses (i)(y) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances which, in the aggregate,
would not materially impair the ability of Varlen and the Purchaser to perform
their obligations hereunder.
(b) Other than in connection with or in compliance with the provisions of
the Virginia Act, the Securities Act of 1933, as amended (the "Securities Act"),
the Exchange Act, the "take-over" or "blue sky" laws of any state, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act") and the laws and regulations of any
states or foreign jurisdictions under which a filing or consent may be required
for Varlen's acquisition of control of the Company or any of its subsidiaries,
and except for any notices, filings, authorizations, consents or approvals which
are required because of the regulatory status of the Company and its
subsidiaries or facts specifically pertaining to them, no notice to, filing
with, or authorization, consent or approval of, any domestic or foreign public
body or authority is necessary for the consummation by Varlen or the Purchaser
of the transactions contemplated by this Agreement, except where the failure to
give
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such notices, make such filings, or obtain authorizations, consents or approvals
would, in the aggregate, not materially impair the ability of Varlen and the
Purchaser to perform their obligations hereunder.
Section 3.4 FINANCING. Varlen has received (and has furnished to the
Company copies of) written commitments from one or more banks and other
financial institutions (as the case may be, the "Banks") to provide the
Financing. The Schedule 14D-1 will contain true and accurate descriptions of the
commitments of the Banks. The Financing will not violate Regulations G, T, U or
X of the Board of Governors of the Federal Reserve System.
Section 3.5 BROKERS AND FINDERS. Neither Varlen nor the Purchaser nor any
of their respective officers, directors, employees or agents has employed any
broker, finder, investment banker or other person, and none of the foregoing
have incurred any liability for any brokerage fees, commissions or finders'
fees, in connection with the transactions contemplated hereby, except that
Varlen and the Purchaser have engaged Lehman Brothers Inc. in connection with
the transactions contemplated hereby and the Agent Bank (and/or affiliates
thereof) in connection with the Financing. The Schedule 14D-1 contains a true
and accurate description of the fee arrangements between Varlen and Lehman
Brothers and the Agent Bank (and any affiliates thereof).
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and agrees with, Varlen and
the Purchaser as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as hereinafter defined) is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia and
has the requisite power and authority (corporate and otherwise) to carry on its
business as it is now being conducted. The subsidiaries listed in Exhibit 21 of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Latest 10-K") and those Previously Disclosed (as hereinafter defined)
are the only subsidiaries of the Company (such subsidiaries listed and
Previously Disclosed, "Subsidiaries"). The Company and each Subsidiary is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which do not have a Material Adverse
Effect (as hereinafter defined). Copies of the Charter and Bylaws of the Company
have heretofore been delivered to Varlen and the Purchaser and such copies are
accurate and complete as of the date hereof. For purposes of this Agreement, an
occurrence, event, fact or circumstance (or any group, series or set of
occurrences, events, facts or circumstances) ("Occurrences") has a "Material
Adverse Effect" if such Occurrences, individually or in the aggregate, resulted
in, results in or may reasonably be expected to result in a material adverse
effect on or change in: (i) the business, assets, properties, condition
(financial or otherwise), results of operations or prospects of (x) the Company
or (y) the Company and the Subsidiaries taken as a whole, (ii) the ability of
Varlen or the Purchaser to consummate the Offer or the Merger or the other
transactions contemplated hereby, or (iii) the ability of the Company to perform
its obligations hereunder. For purposes of this Agreement, a fact shall have
been "Previously Disclosed" if it is contained in the Latest 10-K, the Proxy
Statement furnished by the Company to its shareholders in connection with the
Company's 1996 Annual Meeting of Shareholders (the "Latest Proxy Statement"),
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, as amended prior to the date hereof (the "Latest 10-Q"), or was otherwise
disclosed in writing by the Company to Varlen prior to the execution of this
Agreement.
Section 4.2 CAPITALIZATION. The authorized capital stock of the Company
consists of: (i) 15,000,000 Shares, of which, as of June 14, 1996, 10,207,440
Shares (including Restricted Shares) were issued and outstanding, and (ii)
1,000,000 shares of Preferred Stock, par value $1.00 per share, none of which
are issued or outstanding. All of the issued and outstanding Shares have been
validly
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issued and are fully paid and nonassessable and free of preemptive rights. As of
June 14, 1996, the Company had outstanding: (1) Options to purchase 442,000
Shares heretofore granted under the Company's Stock Option Plans and like number
of Shares reserved for issuance upon the exercise thereof, and (2) 62,576
Restricted Shares heretofore granted under the Company's Restricted Stock Plans.
Since January 31, 1996, the Company has not issued any Options, Restricted
Shares or shares of its capital stock except upon exercise of Options granted
prior to January 31, 1996 and except as Previously Disclosed with respect to
Shares issued under the Savings Plan. Except as set forth above: (A) there are
no shares of capital stock of the Company authorized, issued or outstanding and
(ii) there are no outstanding subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating the Company or any of its Subsidiaries to issue, transfer or sell any
shares of the capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of the Company. Following the Merger, the Company will have no obligation to
issue, transfer or sell any shares of its capital stock pursuant to any Stock
Incentive Plan, other employee benefit plan, or otherwise. All of the
outstanding shares of capital stock of each of the Subsidiaries have been
validly issued and are fully paid and nonassessable and are owned by either the
Company or another Subsidiary free and clear of all pledges, liens, security
interests, charges, claims, equities, options, proxies, voting restrictions,
rights of first refusal and other limitations on disposition or voting and
encumbrances of any kind. There are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock of
any of the Subsidiaries or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating any Subsidiary to issue, transfer or sell any such capital
stock or other securities. There are no voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of its
Subsidiaries.
Section 4.3 CAPITALIZATION OF SUBSIDIARIES. The name, jurisdiction of
incorporation or organization and percentage of outstanding capital stock owned,
directly or indirectly, by the Company, with respect to each direct and indirect
Subsidiary of the Company have been Previously Disclosed. Except as Previously
Disclosed, the Company and its Subsidiaries own no direct or indirect equity
interest in any corporation (other than direct or indirect subsidiaries of the
Company), partnership, joint venture or other entity, domestic or foreign, which
in the aggregate are material to the Company and its Subsidiaries taken as a
whole.
Section 4.4 AUTHORITY RELATIVE TO AGREEMENT. The Company has the requisite
power and authority (corporate and otherwise) to enter into this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by it of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and, except for the
requisite approval by the holders of Shares entitled to vote (if required under
the Virginia Act), or as provided herein, no other proceedings on the part of
the Company are necessary to authorize the execution, delivery and performance
of this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Section 4.5 NO CONFLICTS. (a) Neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby, nor compliance by the Company with any of the
provisions hereof, does or will: (i) violate, conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or right of amendment of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties
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or assets of the Company or any of its Subsidiaries under any of the terms,
conditions or provisions of: (x) the Charter or Bylaws of the Company or any of
its Subsidiaries, or (y) any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any of its subsidiaries is a party or to which any of them or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in Section 4.5(b), violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company and its Subsidiaries or any of their respective
properties or assets, except in the case of clause (i)(y) above, for the
Company's 7.50% Senior Notes due 2002 and the Company's 7.06% note due 2003, and
except, in the case of each of clauses (i)(y) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, in the
aggregate, do not have a Material Adverse Effect.
(b) Other than in connection with or in compliance with the provisions of
the Virginia Act, the Securities Act, the Exchange Act, the "takeover" or "blue
sky" laws of any state, the HSR Act and regulations of any states or foreign
jurisdictions under which a filing or consent may be required for Varlen's
acquisition of control of the Company or any of its Subsidiaries, no notice to,
filing with, or authorization, consent or approval of, any domestic or foreign
public body or authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement, except where the failure to give
such notices, make such filings or obtain authorizations, consents or approvals
do not have a Material Adverse Effect.
Section 4.6 COMPANY REPORTS AND FINANCIAL STATEMENTS. Since December 31,
1995, the Company has filed with the Commission all forms, reports, statements
and documents required to be filed by it pursuant to the Securities Act and the
rules and regulations promulgated thereunder and the Exchange Act and the rules
and regulations promulgated thereunder (collectively, the "Company Filings",
which term shall include (without limitation) the Latest 10-K, Latest 10-Q and
Latest Proxy Statement), all of which complied as of the date filed in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act (as appropriate). None of the Company Filings as of the dates they
were respectively filed with the Commission contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets included in the Company Filings (including, in each
case, any related notes) fairly presented the consolidated financial position of
the Company and its consolidated subsidiaries as of its respective dates and
each of the consolidated statements of income, shareholders' equity and cash
flows included in the Company Filings (including, in each case, any related
notes) fairly presented the consolidated results of operations and cash flows of
the Company and its Subsidiaries for the respective periods set forth therein,
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, subject (in the case of the
unaudited interim financial statements) to normal year-end audit adjustments.
Section 4.7 LITIGATION. Except as Previously Disclosed, as of the date
hereof there are no claims, actions, proceedings or, to the best knowledge of
the Company, investigations pending against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, administrative, governmental or regulatory
authority or body (collectively "Litigations"): (i) that are required to be
disclosed in any Company Filing and are not so disclosed, or (ii) that, if
adversely decided, would have a Material Adverse Effect.
Section 4.8 EMPLOYEE BENEFIT PLANS. (a) The Company Filings contain a
true and complete summary or list of or otherwise describe all material
employment contracts and other employee benefit arrangements to which the
Company or any of its Subsidiaries is a party with "change of control" or
similar provisions and all severance agreements with executive officers
(collectively, the "Change of Control Benefit and Severance Arrangements"). The
Company has Previously Disclosed all other employee benefit plans, agreements
and arrangements which are maintained or contributed to by the Company or any of
its Subsidiaries for its employees, officers or directors, including (without
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limitation) all bonus, incentive compensation, deferred compensation, profit
sharing, stock option, stock purchase, insurance, pension, retirement and other
employee benefit plans (collectively, the "Benefit Plans"). True and complete
copies of all such Change of Control Benefit and Severance Arrangements and
Benefit Plans, including (but not limited to) any trust instruments and/or
insurance contracts, if any, forming a part thereof, and all amendments thereto,
have been delivered to Varlen. The Company's estimate of the total amount of all
payments which may be payable under the Change of Control Benefit and Severance
Arrangements, other than upon cancellation of the Options and Restricted Shares
pursuant to Section 2.6, is $3,435,000.
(b) The Company has delivered to Varlen copies of each of its Benefit Plans
which are employee pension benefit plans (within the meaning of Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
including all amendments thereto to date ("Employee Pension Benefit Plans").
Except as required by law or as Previously Disclosed, there have been no
amendments or other changes in such Employee Pension Benefit Plans which would
for any period after December 31, 1995 increase coverage or benefits thereunder
in any material respect. Except as Previously Disclosed, each such Employee
Pension Benefit Plan: (i) is in material compliance with all of the provisions
of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), (ii)
has no accumulated funding deficiency (within the meaning of Section 302(a) of
ERISA), whether or not waived, and (iii) has not been involved in any non-exempt
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code. Except as Previously Disclosed, neither the Company nor any of
its Subsidiaries has incurred or has any reasonable basis to believe it will
incur any material liability to the Pension Benefit Guaranty Corporation with
respect to any funded Employee Pension Benefit Plan. Certified copies of the
most recent actuarial statements with respect to each Employee Pension Benefit
Plan subject to Title IV of ERISA have been previously provided to Varlen. Since
December 31, 1991, neither the Company nor any of its Subsidiaries has had any
obligation to contribute to any multiemployer plan (as defined in Section
4001(a)(3) of ERISA). Neither the Company nor any of its Subsidiaries provides
benefits under any employee welfare benefit plan (as such term is defined in
Section 3(1) of ERISA) to any person following the termination of employment,
except for: (A) "COBRA" continuation coverage obligations under Section 601 et
seq. of ERISA and Section 4980B of the Code, (B) the Company's and Subsidiaries'
severance plan for salaried employees, (C) retiree life insurance coverage, and
(D) retiree medical and dental coverages to age 65. The Company's and
Subsidiaries' aggregate annual expense for the fiscal year ended December 31,
1995 for all employee welfare benefit plans (x) providing for health and medical
benefits for the employees of the Company and its Subsidiaries, and (y)
described in the foregoing sentence, did not exceed (in the aggregate)
$2,547,000.
Section 4.9 TAXES. Except as Previously Disclosed, the Company and each of
its Subsidiaries (collectively, the "Group") has filed or been included in all
federal income tax returns and other material returns (collectively, "Tax
Returns") relating to Taxes (as hereinafter defined) required to be filed
(taking into account any extensions of time for filing or sending such Tax
Returns). Except as Previously Disclosed, the Group has paid or made provision
for (by a tax accrual or tax reserve on the most recent consolidated balance
sheet of the Group contained in the Company Filings), all Taxes (except for such
Taxes which if not so paid or provided for do not have a Material Adverse Effect
in respect of all taxable periods or portions thereof ending on or before the
date of such balance sheets. Except as Previously Disclosed, any material Taxes
incurred or accrued since December 31, 1992 have arisen in the ordinary course
of business. Except as Previously Disclosed, the Group is not delinquent in the
payment of any federal income or other material Taxes and there are no
outstanding deficiencies, assessments or written proposals for assessment of
federal income or other material Taxes proposed, asserted or assessed against
the Group; and, to the best knowledge of the Company, there are no events,
occurrences, facts or circumstances which could provide a basis for any such
deficiency, assessment or proposal. As used herein, "Taxes" means: (i) all net
income, gross income, gross receipts, sales, use, transfer, franchise, profits,
withholding, payroll, employment, excise, severance, property or windfall
profits taxes, or other taxes of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority (federal,
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state, local or foreign) upon the Company or any of its Subsidiaries with
respect to all periods or portions thereof ending on or before the Effective
Time, and/or (ii) any liability of the Company or any of its Subsidiaries for
the payment of any amounts of the type described in the immediately preceding
clause (i) as a result of being a member of an affiliated or combined group.
Section 4.10 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or as Previously Disclosed, since December 31, 1995 there has not
been: (i) any material adverse change in the business, assets, properties,
condition (financial or otherwise), results of operations or prospects of (x)
the Company or (y) the Company and the Subsidiaries taken as a whole; (ii) any
damage, destruction or loss (whether or not covered by insurance) having a
Material Adverse Effect; (iii) any change by the Company in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (iv) any declaration, payment or setting aside
for payment of any dividend or any redemption, purchase or other acquisition of
any shares of capital stock or securities of the Company other than as provided
or permitted in this Agreement and except for regular quarterly cash dividends
not in excess of $.07 per Share on the Shares; (v) any return of any capital or
other distribution of assets to shareholders of the Company as such; (vi) any
direct or indirect material purchase or other acquisition of stock, other
securities or other assets (other than purchases of such other assets in the
ordinary course of business and at arms-length purchase prices) of any person
and any direct or indirect loan, advance (other than advances to employees for
travel expenses in the ordinary course of business) or capital contribution to
any person in which the Company or any of its Subsidiaries has an equity
interest; (vii) any grant of any general increase in the compensation of its
directors, officers or employees or any increase in the compensation payable or
to become payable to any such director, officer or employee (including, in
either case, any such increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment or any Change of Control Benefit and Severance
Arrangement), except for (a) reasonable increases in the ordinary course of
business and consistent with past practice (but excluding increases pursuant to
any Change of Control Benefit and Severance Arrangement), and (b) increases
pursuant to collective bargaining agreements in existence as of the date of this
Agreement; or (viii) any agreement to take, whether in writing or otherwise, any
action which, if taken prior to the date hereof, would have made any
representation or warranty in this Article 4 untrue or incorrect in any material
respect. Since December 31, 1995 the Company and its Subsidiaries have conducted
their respective businesses only in the ordinary course.
Section 4.11 BROKERS AND FINDERS. Neither the Company nor any of its
officers, directors, employees or agents has employed any broker, finder,
investment banker or other person, and none of the foregoing have incurred any
liability for any brokerage fees, commissions or finders' fees, in connection
with the transactions contemplated hereby, except that the Company has engaged
Wheat, First Securities, Inc. to determine the fairness, from a financial point
of view, of the Offer price and Merger Consideration to the public shareholders
of the Company. The Schedule 14D-9 will contain a true and accurate description
of the fee arrangements between the Company and Wheat, First Securities, Inc.
Section 4.12 LIABILITIES. Except as disclosed in the Company Filings or
otherwise Previously Disclosed, the Company and its Subsidiaries do not have any
material direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise ("Liabilities"), of a kind required by generally accepted
accounting principles to be set forth in a financial statement, other than (i)
liabilities fully and adequately reflected or reserved against on the Company's
balance sheet included in the Latest 10-Q, (ii) liabilities incurred since March
31, 1996 in the ordinary course of business, and (iii) liabilities which are not
material to the Company and its Subsidiaries taken as a whole.
Section 4.13 CONTRACTS. All contracts and other agreements to which the
Company or any of its Subsidiaries is a party or by or to which either the
Company or any of its Subsidiaries or its or their assets or properties are
bound or subject and that are or were required to have been filed as exhibits to
the Company Filings have been so filed. All of such contracts and other
agreements are in full force
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and effect and neither the Company nor any subsidiary of the Company is in
default under any of them, nor, to the best knowledge of the Company, is any
other party to any such contract or other agreement in default thereunder, nor,
except as provided in Section 4.5, does any condition exist that with notice or
lapse of time or both would constitute a default thereunder, nor would the
transactions contemplated hereby constitute a default thereunder if such
defaults, individually or in the aggregate, have a Material Adverse Effect.
Section 4.14 BOARD ACTIONS. The Board of Directors of the Company has
taken the actions specified in Section 1.2(a) hereof. Neither the Offer, the
Merger nor any of the other transactions contemplated by this Agreement are or
after the date hereof will be subject to: (1) any of the restrictions or other
provisions of restrictions of Article 14, Sections 13.1-725-13.1-728 (AFFILIATED
TRANSACTIONS) of the Virginia Act; (2) any of the supermajority shareholder
voting provisions of Article I of the Company's Charter; or (3) any of the
restrictions or other provisions of Article 14.1, SectionSection
13.1-728.1-13.1-728.9 (CONTROL SHARE ACQUISITIONS) of the Virginia Act. The
Company has heretofore delivered to Varlen and the Purchaser a written opinion
of Virginia counsel to the Company reasonably satisfactory to Varlen with
respect to the foregoing matters. Neither the Company nor any of the members of
its Board of Directors (including the "disinterested director" members thereof)
shall take any action to: (A) subject Varlen, the Purchaser, their direct or
indirect subsidiaries, the Offer, the Merger or any of the other transactions
contemplated by this Agreement to be subject to the provisions of any takeover,
affiliated transaction, business combination, control share acquisition or other
provision of: (i) law or regulation adopted by the Commonwealth of Virginia
(including the Virginia Act) or any department or agency thereof, or (ii) the
Charter or Bylaws of the Company, or (B) increase (above two-thirds) the
shareholder vote required to approve the Merger.
Section 4.15 CASH AND CASH EQUIVALENTS. The aggregate amount of cash and
cash equivalents held by the Company and its Subsidiaries as reflected in the
financial reports at the end of May 1996 was not less than $13,665,000.
ARTICLE 5: CERTAIN COVENANTS
Section 5.1 CONDUCT OF BUSINESS. Except as otherwise expressly
contemplated hereby or as Previously Disclosed, the Company covenants and agrees
that, unless Varlen or the Purchaser shall otherwise agree in writing, prior to
the Effective Time or such earlier time as designees of the Purchaser constitute
a majority of the Board of Directors of the Company:
(A) the business of the Company and its Subsidiaries shall be conducted
only in, and the Company and its Subsidiaries shall not take any material
action except in, the ordinary course of business and consistent with past
practice, and the Company shall use its reasonable best efforts to maintain
and preserve its and its Subsidiaries' business organization, assets,
employees and advantageous business relationships;
(B) neither the Company nor any of its Subsidiaries shall: (1) amend or
propose to amend its articles of incorporation or bylaws; (2) split, combine
or reclassify any shares of its capital stock or declare, set aside or pay
any dividend payable in cash, stock or property with respect to its capital
stock, except as permitted by Section 4.10 and except for any dividend by a
wholly-owned Subsidiary payable to the Company or another wholly-owned
Subsidiary; (3) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to
acquire, any capital stock of any class of the Company or any of its
Subsidiaries other than Shares which the Company is required to issue
pursuant to the Options outstanding on June 14, 1996; (4) transfer, lease,
license, sell, mortgage, pledge, dispose of or encumber any material assets
of the Company or any of its Subsidiaries other than in the ordinary course
of business and consistent with past practices; (5) redeem, purchase or
otherwise acquire directly or indirectly any of the capital stock or other
equity securities of the Company; (6) adopt a plan of liquidation or
resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company or
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any of its Subsidiaries, except for mergers among wholly-owned Subsidiaries;
(7) acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof
or make any investment with respect thereto; (8) directly or indirectly: (i)
incur or modify any long-term indebtedness or short-term indebtedness for
money borrowed or other material liability other than in the ordinary course
of business and consistent with past practice, (ii) incur any additional
indebtedness for money borrowed other than in the ordinary course of
business and consistent with past practice, or (iii) make any loans or
advances other than in the ordinary course of business and consistent with
past practice and intercompany loans and advances among the Company and its
wholly-owned Subsidiaries; (9) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business and consistent with past practice; (10) waive,
release, grant or transfer any rights of value or modify or change in any
material respect any existing license, lease, contract or other document,
other than in the ordinary course of business and consistent with past
practice; or (11) enter into any material commitment or transaction, other
than in the ordinary course of business and consistent with past practice;
(C) neither the Company nor any of its Subsidiaries shall: (1) grant any
increase in the compensation payable or to become payable by the Company or
any of its Subsidiaries to any of its directors, executive officers or key
employees or adopt any new, or amend or otherwise increase the amounts
payable or to become payable under any existing, bonus, incentive
compensation, severance, deferred compensation, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee
benefit plan (including (but not limited to) the granting of stock options,
stock appreciation rights or restricted stock), or (2) enter into or amend
any employment or change-in-control agreement with, or, except in accordance
with the existing written policies and agreements of the Company, grant any
severance or termination pay to any director, officer or employee of the
Company or any of its Subsidiaries; and
(D) neither the Company nor any of its Subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any action
which would make any representation or warranty of the Company untrue or
incorrect in any material respect.
Section 5.2 PROXY STATEMENT. Promptly after the date of this Agreement,
the Company and Varlen shall properly prepare and the Company shall file with
the Commission as soon as is reasonably practicable a preliminary proxy
statement, together with a form of proxy, or (as directed by Varlen) a
preliminary information statement, with respect to a meeting of the Company's
shareholders at which such shareholders will be asked to approve this Agreement
and the Merger (if and to the extent required by the Virginia Act) and, as
promptly as practicable thereafter or as otherwise directed by Varlen, and
subject to compliance with the rules and regulations of the Commission, the
Company shall mail a definitive proxy statement or information statement (as
directed by Varlen) and related materials to the shareholders of the Company (if
and to the extent required by the Virginia Act and/or the Exchange Act). As used
herein, the term "Proxy Statement" shall mean such proxy or information
statement at the time it initially is mailed to the Company's shareholders and
all amendments or supplements thereto, if any, similarly filed and mailed. As
soon as practicable after the date hereof, the Company and Varlen shall promptly
and properly prepare and file any other filings required under the Exchange Act,
the Securities Act or any other federal or state securities or corporate laws
relating to the Offer, the Merger and the other transactions contemplated herein
(the "Other Filings"). Each of the parties hereto shall notify the other parties
hereto promptly of the receipt by it of any comments of the Commission and of
any request by the Commission for amendments or supplements to the Proxy
Statement or by the Commission or any other governmental official with respect
to any Other Filing or for additional information, and will supply the other
parties hereto with copies of all correspondence between it and its
representatives, on the one hand, and the Commission or the members of its staff
or any other appropriate governmental official, on the other hand, with respect
to the Proxy Statement and any Other Filings. The Company, Varlen and the
Purchaser each shall use its reasonable best efforts to obtain and furnish the
information required to be included in the Proxy Statement
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and any Other Filings; and the Company, after consultation with Varlen, shall
use its reasonable best efforts to respond promptly to any comments made by the
Commission or any other governmental official with respect to the Proxy
Statement, any Other Filings and any preliminary version thereof and cause the
Proxy Statement and any related materials to be mailed to its shareholders at
the earliest practicable date. The information provided and to be provided by
Varlen, the Purchaser and the Company, respectively, for use in the Proxy
Statement and any Other Filings shall not, on the date the Proxy Statement is
first mailed to the Company's shareholders or any Other Filing is filed with the
appropriate governmental official and, in the case of the Proxy Statement, on
the date of the meeting of the Company's shareholders referred to in Section 5.3
hereof, contain any statement which, at the time of and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omit to state any material fact in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication which has become false or misleading. Varlen, the
Company and the Purchaser each agree to correct any such information provided by
it for use in the Proxy Statement or any Other Filings which shall have become
false or misleading. The Proxy Statement shall comply as to form in all material
respects with all applicable requirements of the federal securities laws.
Section 5.3 ACTION OF COMPANY SHAREHOLDERS; VOTING OF SHARES. Promptly
after consummation of the Offer, the Company shall take all action necessary, in
accordance with the Virginia Act and its Charter and Bylaws, to convene a
meeting of its shareholders (the "Special Meeting") as promptly as practicable
to consider and vote upon the Merger (if and to the extent required by the
Virginia Act). The affirmative vote of shareholders required for approval of the
Merger shall be no greater than the holders of two-thirds of the votes entitled
to be cast. Unless in the written opinion of legal counsel to the Company (the
delivery of which shall be confirmed in writing to Varlen by such counsel) any
of the following actions would create a substantial risk of violating the
fiduciary duties of the Board of Directors to the shareholders of the Company:
(1) the Proxy Statement shall contain the recommendation of the Board of
Directors that the shareholders of the Company vote to adopt and approve the
Merger and this Agreement, and (ii) the Company shall, if proxies are solicited,
use its reasonable best efforts to solicit from its shareholders proxies in
favor of such adoption and approval and to take all other action necessary or,
in the reasonable judgment of Varlen, helpful to secure the vote or consent of
shareholders required by the Virginia Act to effect the Merger. At the Special
Meeting, Varlen, the Purchaser and their direct and indirect subsidiaries shall
vote, or cause to be voted, all of the Shares then owned by any of them in favor
of the Merger.
Section 5.4 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable this Agreement, the definitive agreements providing
for the Financing (the "Financing Agreements") and the transactions contemplated
hereby and thereby, and to cooperate with each other in connection with the
foregoing, including using its reasonable best efforts: (A) to obtain all
necessary exemptions, waivers, consents, authorizations and approvals from the
Department of Justice, the Federal Trade Commission and other governmental or
regulatory agencies or authorities and to make all necessary registrations and
filings (including (but not limited to) filings with governmental or regulatory
agencies or authorities, if any) and to take all reasonable steps, including the
use of such voting trusts as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any governmental agency or
authority; (B) to obtain all necessary exemptions, waivers, consents,
authorizations and approvals from other parties to material loan agreements,
leases and other contracts as are required to be obtained under the terms of
such instruments or under any federal, state or foreign law or regulations, (C)
to defend against and respond to any suit, action, proceeding or investigation
relating to this Agreement or the transactions contemplated hereby commenced by
any third party, (D) to effect all necessary registrations and filings and
submissions of information requested by governmental authorities, and (E) to
fulfill all conditions to this Agreement.
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Section 5.5 NO NEGOTIATIONS, ETC. Neither the Company nor any of its
Subsidiaries, nor any of their respective directors, officers, employees,
investment bankers, representatives or agents, shall, directly or indirectly,
make, solicit, initiate or encourage the initiation of, any inquiries or
proposals from, or provide any confidential information or participate in any
discussions or negotiations with, or otherwise cooperate in any way with or
assist, any person (other than Varlen and its subsidiaries, those third parties
Previously Disclosed and their respective directors, officers, employees,
investment bankers, commercial banks, representatives and agents) concerning any
merger, consolidation, other business combination, recapitalization, liquidation
or dissolution or any purchase or other acquisition or sale or other disposition
of assets (other than in the ordinary course of business) or shares of capital
stock of the Company or any of its Subsidiaries or any similar transaction
involving the Company or (except as Previously Disclosed) any Subsidiary or
division of the Company or any Subsidiary; PROVIDED, HOWEVER, that (i) nothing
contained in this Section 5.5 shall prohibit the Company or its Board of
Directors from taking and disclosing to the Company's shareholders a position
contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act, and
(ii) in the event that the Company shall receive an unsolicited proposal from a
third party which the Company's Board of Directors determines, based on the
advice of its legal counsel and independent financial advisor, is capable of
consummating such transaction, for the acquisition for cash of all the
outstanding Shares on terms that the Company's Board of Directors determines,
based on the advice of its financial advisor (the receipt of which advice shall
be confirmed in writing to Varlen by the Company), are economically superior to
those of the Offer and the Merger and which in the written opinion of legal
counsel to the Company (the delivery of which shall be confirmed in writing to
Varlen by such counsel) a failure to consider by the Board of Directors of the
Company would create a substantial risk of violating their fiduciary duties to
shareholders, the Company may provide information to such third party to the
same extent that such information has been provided to the Purchaser and Varlen.
The Company will promptly advise Varlen of, and communicate to Varlen the terms
of, any such inquiry or proposal the Company may receive, and will advise Varlen
prior to providing any such information.
Section 5.6 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Varlen, and Varlen and the Purchaser shall give prompt notice to the
Company, of (i) the obtaining by it of actual knowledge as to the matters set
forth in clauses (x) and (y) below, or (ii) the occurrence, or failure to occur,
of any event which occurrence or failure to occur would be likely to cause (x)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect, or (y) any material failure of the Company,
Varlen or the Purchaser, as the case may be, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or the
Financing Agreements; PROVIDED, HOWEVER, that no such notification shall affect
the representations or warranties or obligations of the parties or the
conditions to the obligations of the parties hereunder.
Section 5.7 ACCESS TO INFORMATION. (a) The Company shall, and shall cause
its Subsidiaries, officers, directors, employees and agents to, afford to
Varlen, the Purchaser and the financial institutions and others referred to in
Section 3.4 and to the officers, employees and agents of Varlen, the Purchaser
and such financial institutions and others complete access at all reasonable
times to, from the date hereof to the Effective Time, 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.
(b) Varlen and the Purchaser shall, and shall cause their officers,
employees, agents and representatives, (collectively, the "Varlen
Representatives") to, keep confidential all non-public, confidential or
proprietary information provided by the Company (other than any such information
which (i) is or becomes generally available to the public other than as a result
of disclosure by Varlen, the Purchaser or the Varlen Representatives, (ii)
becomes available to Varlen, the Purchaser or the Varlen Representatives on a
nonconfidential basis from a source other than the Company, which source has
represented to Varlen, the Purchaser or the Varlen Representatives that such
source is entitled to
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disclose it or (iii) was known to Varlen, the Purchaser or the Varlen
Representatives on a nonconfidential basis prior to its disclosure to Varlen,
the Purchaser or the Varlen Representatives) and all analyses, compilations,
data, studies or other documents based in whole or in part on any such furnished
information prepared by Varlen, the Purchaser or the Varlen Representatives
(collectively, the "Information"); and Varlen and the Purchaser shall not, and
shall cause the Varlen Representatives not to, without the prior written consent
of the Company, disclose the Information, in any manner whatsoever, in whole or
in part, or use the Information for any purpose other than evaluating the Offer,
the Merger and the other transactions contemplated by this Agreement, and
obtaining the Financing; PROVIDED, HOWEVER, that Varlen, the Purchaser and the
Varlen Representatives may provide such Information in response to judicial or
administrative process or applicable governmental laws, rules, regulations,
orders or ordinances, but only that portion of the Information which, on the
advice of counsel, is legally required to be furnished and provided that Varlen
notifies the Company of the obligation to provide such Information prior to such
disclosure and fully cooperates with the Company to protect the confidentiality
of such Information under applicable law; AND PROVIDED, FURTHER, HOWEVER, that
Varlen, the Purchaser and the Varlen Representatives may include some or all of
the Information in the Schedule 14D-1, Offer Documents and the Proxy Statement,
if advised by the counsel that it is legally necessary or advisable to do so.
The Information, and all copies thereof, will be destroyed or returned
immediately, without retaining any copies thereof, if this Agreement is
terminated.
(c) No investigation after the date hereof pursuant to this Section 5.7 or
otherwise shall affect any representations or warranties of the parties herein
or the conditions to the obligations of the parties hereto.
(d) During the period from the date of this Agreement to the Effective Time,
Varlen (at its discretion) may locate one or more of its representatives at the
Midlothian, Virginia offices of the Company. During such period the Company will
cause one or more of its designated representatives to consult as requested by
Varlen on a regular basis with such representatives of Varlen and to discuss the
general status of ongoing operations of the Company. The Company will promptly
notify Varlen of any significant change in the normal course of business or in
the operation of the properties of the Company and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or threat or settlement of
significant litigation, in each case involving the Company, and will keep Varlen
fully informed of such events and permit Varlen's Representatives access to all
materials prepared in connection therewith.
Section 5.8 CONFIDENTIALITY AND STANDSTILL AGREEMENTS. The Confidentiality
Agreement, dated March 27, 1996, between the Company and Varlen is hereby
terminated by the mutual consent of such parties, and shall no longer be of any
force or effect. The Company shall not consent to the termination or amendment
of the confidential information, nondisclosure or non-use provisions of any
similar agreement with a third party without the prior written consent of Varlen
or the Purchaser and shall use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
proper to maintain in full force and effect, and to enforce strict compliance
with, such confidential information, nondisclosure and non-use provisions. The
Company shall also use its reasonable best efforts to obtain a similar
confidential information, nondisclosure, non-use and standstill agreement from
any third party with or for whom the Company or any Subsidiary has taken any
action or received any proposal not prohibited under Section 5.5.
Section 5.9 INDEMNIFICATION AND INSURANCE. (a) The Charter 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
Charter and Bylaws, as amended to the date of this Agreement, which provisions
shall 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 its indemnification obligations
as set forth in this Section 5.9.
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(b) Varlen shall 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 (PROVIDED that Varlen may substitute therefor policies
of at least the same coverage containing terms and conditions which are not
materially less advantageous) with respect to matters occurring prior to the
Effective Time, to the extent available; PROVIDED, HOWEVER, that in no event
shall Varlen or the Company be required to expend more than an amount per year
equal to 150% of current annual premiums paid by the Company (which the Company
represents and warrants to be not more than $54,000) to maintain or procure
insurance coverage pursuant hereto.
(c) The provisions of this Section 5.9 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives, shall be binding upon the Surviving Corporation and
its successors and assigns and shall continue and survive the Effective Time
according to their terms.
ARTICLE 6: CONDITIONS
Section 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to consummate and effect the
Merger shall be subject to the fulfillment, at or prior to the Effective Time,
of each of the following conditions:
(A) this Agreement and the Merger shall have been approved and adopted
by the requisite vote or consent of the shareholders of the Company (if
required by the Virginia Act and the Company's Charter and Bylaws, subject
to Sections 1.2(a) and 4.14);
(B) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(C) no injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, nor any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, shall be in effect
which would make the acquisition or holding by Varlen or its subsidiaries of
the Shares or shares of common stock of the Surviving Corporation illegal or
otherwise prevent the consummation of the Merger.
Section 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to consummate and effect the Merger is also subject to
the fulfillment of the following condition: the representations and warranties
of Varlen and the Purchaser set forth in Article 3 shall be true and correct in
all material respects as of the Effective Time, and each of Varlen and the
Purchaser shall have performed in all material respects each obligation and
agreement and complied with each covenant to be performed and complied with by
it hereunder on or prior to the Effective Time.
Section 6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF VARLEN AND THE
PURCHASER. The obligations of Varlen and the Purchaser to consummate and effect
the Merger are also subject to the fulfillment of following conditions:
(A) the Purchaser shall have purchased Shares pursuant to the Offer;
(B) none of the occurrences, events, facts or circumstances set forth in
any of paragraphs (a) through (h) of ANNEX I hereto shall have occurred or
be prevailing at or prior to the Effective Time;
(C) the opinion of Virginia counsel to the Company referred to in
Section 4.14 hereof shall have been confirmed or reissued by such counsel,
as of the date of the Effective Time and without material modification or
qualification; and
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(D) the Company shall not have received demands for payment of the fair
value of Shares (pursuant to Article 15 (DISSENTER'S RIGHTS) of the Virginia
Act) with respect to more than 5% of the outstanding Shares.
ARTICLE 7: TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether prior to or after approval by the
shareholders of the Company:
(A) By mutual written consent of the Boards of Directors of Varlen and
the Company;
(B) By either the Company or Varlen if any court of competent
jurisdiction or other governmental body shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable best efforts to lift),
in each case, permanently restraining, enjoining or otherwise prohibiting
the Offer or the Merger and such order, decree, ruling or other action shall
have become final and non-appealable;
(C) By the Company, if the Offer shall have been terminated, or the
Offer shall have expired, without the purchase of any Shares thereunder
within two business days thereof and such non-purchase shall not have been
due to a failure to satisfy any of the conditions of the Offer as set forth
in ANNEX I; PROVIDED that the Company may not terminate this Agreement
pursuant to this Section 7.1(C) if the Company is in breach of this
Agreement;
(D) By the Company, if the Effective Time shall not have occurred on or
before December 31, 1996 due to a failure of any of the conditions to the
obligations of the Company to effect the Merger set forth in Section 6.1 or
6.2; PROVIDED that the Company may not terminate this Agreement pursuant to
this Section 7.1(D) if the Company's failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, in whole or in part,
the failure of the Effective Time to occur on or before such date;
(E) By the Company if: (1) any corporation, partnership, person, other
entity or, group (as defined in Section 13(d)(3) of the Exchange Act) other
than Varlen or the Purchaser or any of their respective subsidiaries or
affiliates (a "Qualified Person") shall have commenced (within the meaning
of Rule 14d-2 under the Exchange Act) a cash tender offer for any and all
Shares at a price in excess of $16.125 per Share, or (2) any Qualified
Person shall have made a bona fide written proposal involving a merger or
consolidation of the Company or the acquisition of all the Shares or all or
a substantial portion of its assets which would result in a cash
distribution to shareholders of the Company in excess of $16.125 per Share
(any such proposal described in subclause (1) or (2) being referred to as a
"Qualified Proposal"), and the Board of Directors of the Company shall have
been advised in a writing by its legal counsel (the delivery of which advice
shall have been confirmed in writing to Varlen by such counsel) that there
would be a substantial risk of liability for breach of their fiduciary
obligations to shareholders if they failed to recommend such offer or accept
such Qualified Proposal; PROVIDED, HOWEVER, that the Company may not
terminate this Agreement pursuant to this Section 7.1(E): (i) until the
expiration of five business days after notice of such Qualified Proposal has
been delivered to Varlen, or (ii) unless otherwise consented to in writing
by Varlen, if any such offer or Qualified Proposal is made in breach of, or
as a result of a breach of, Section 5.5;
(F) By either of Varlen or the Purchaser, if due to a failure to satisfy
any of the conditions of the Offer as set forth in ANNEX I: (i) Varlen or
any of its subsidiaries or affiliates shall not have commenced the Offer, or
shall have terminated the Offer, or (ii) the Offer shall have expired
without the purchase of any Shares thereunder within two business days
thereof, or (iii) Varlen shall have determined not to proceed with the
Merger; PROVIDED that neither Varlen nor the Purchaser may terminate this
Agreement pursuant to this Section 7.1(F) if either Varlen or the Purchaser
is in material breach of this Agreement;
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(G) By either of Varlen or the Purchaser, if the Effective Time shall
not have occurred on or before December 31, 1996 due to a failure of any of
the conditions to the obligations of Varlen and the Purchaser to effect the
Merger set forth in Section 6.1 or 6.3; PROVIDED that neither Varlen nor the
Purchaser may terminate this Agreement pursuant to this Section 7.1(G) if
Varlen's or the Purchaser's failure to fulfill any material obligation under
this Agreement has been the cause of, or resulted in, in whole or in part,
the failure of the Effective Time to occur on or before such date; or
(H) By either of Varlen or the Purchaser, if prior to the purchase of
Shares in the Offer, the Board of Directors of the Company shall have: (1)
withdrawn, or modified in a manner adverse to Varlen or the Purchaser, its
approval or recommendation of the Offer or the Merger or any of its other
actions taken in accordance with Section 1.2(a) and/or 4.14 hereof, (2)
taken any of the actions referred to in Section 1.2(a) and/or 4.14 hereof
for the benefit of any person (other than Varlen, the Purchaser or any of
their respective subsidiaries) or any transaction (other than the Offer and
Merger), or (3) resolved to do any of the foregoing.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 7.1: (i) this Agreement shall forthwith become
null and void, and there shall be no liability on the part of Varlen, the
Purchaser or the Company, except as set forth in this Section 7.2 and in
Sections 5.7(b) and 7.5; and (ii) the Purchaser shall terminate the Offer, if
still pending, without purchasing any additional Shares thereunder; PROVIDED,
HOWEVER, that the foregoing shall not relieve any party for liability for
damages actually incurred as a result of any breach of this Agreement.
Section 7.3 AMENDMENT. This Agreement 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 hereto and is previously approved by action of the Board of
Directors of each of the parties hereto; and PROVIDED FURTHER that if this
Agreement and the 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 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 Charter (except as may otherwise be provided herein).
Section 7.4 WAIVER. At any time prior to the Effective Time, whether
before or after the Special Meeting, any party hereto, by action taken by its
Board of Directors, may: (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, or (ii) subject to the
second proviso contained in Section 7.3, waive compliance with any of the
agreements of any other party or with any conditions of its own obligations. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party by a duly authorized officer.
Section 7.5 EXPENSES. Each party shall pay its own costs and expenses
relating to this Agreement and the transactions contemplated hereby, and nothing
in this Agreement shall preclude any such payment, except that if this Agreement
is terminated by the Company pursuant to Section 7.1(E) or if this Agreement
and/or the Offer is terminated by Varlen or the Purchaser by reason of the
occurrence of any Event (as defined in ANNEX I hereto) described in either (I)
paragraph (a), (b) or (g) of ANNEX I hereto, (ii) paragraph (c) of ANNEX I
hereto (but only if such Event is due, in whole or in part, to any (x) act of
the Company of any affiliate thereof, or (y) other Occurrence (as defined in
Section 4.1) not beyond the control of the Company or any affiliate thereof) or
(iii) clause (vi) of paragraph (c) of ANNEX I hereto, the Company shall pay to
Varlen, a termination fee of $6,500,000 plus an amount sufficient to reimburse
Varlen and its subsidiaries for all fees, costs and expenses (including
investment banking, professional and commitment fees) relating to this
Agreement, the Financing and the transactions contemplated hereby and thereby
(PROVIDED that the Company shall not be obligated to
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reimburse Varlen and its subsidiaries for more than $2,000,000 of such fees,
costs and expenses). Such termination fee shall be due and payable (1) on the
date of (and as a condition precedent to) any termination of this Agreement by
the Company as aforesaid, and (ii) within two business days after any
termination of this Agreement by Varlen or the Purchaser as aforesaid. Any such
reimbursement shall be due and payable within two business days after the
submission by Varlen to the Company of any invoice or statement therefor.
ARTICLE 8: GENERAL PROVISIONS
Section 8.1 CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to the
provisions of Article 7, and subject to the provisions of Article 6 hereof, the
closing of this Agreement shall take place at the offices of Mays & Valentine,
NationsBank Center, 1111 East Main Street, Richmond, Virginia 23218-1122, as
soon as practicable following the meeting of the shareholders of the Company or
other shareholder action referred to in Section 5.3 hereof, or at such other
place, time and date as the parties may mutually agree.
Section 8.2 PUBLIC STATEMENTS. The parties agree to consult with each
other prior to issuing any public announcement or statement with respect to the
Offer or the Merger, and shall not issue or make any such announcement or
statement to which the other parties shall reasonably object (subject to the
requirements of federal and state securities laws and to Section 5.2).
Section 8.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally or sent by guaranteed overnight service or telecopier to the parties
at the following addresses (or at such other addresses as shall be specified by
the parties by like notice):
If to Varlen, the Purchaser or (after the Effective Time) the Company:
Varlen Corporation
55 Shuman Boulevard, Suite 500
Naperville, Illinois 60566
ATTENTION: Richard L. Wellek
President & Chief Executive Officer
Telecopier No. (708) 420-7123
Telephone No. (708) 420-0400
with a copy to:
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
ATTENTION: Claude A. Baum, Esq.
Telecopier No. (212) 308-2041
Telephone No. (212) 326-3500
If to the Company (before the Effective Time):
Brenco, Incorporated
One Park West Circle, Suite 201
Midlothian, Virginia 23113
ATTENTION: Needham B. Whitfield
Chairman & Chief Executive Officer
Telecopier No. (804) 379-4668
Telephone No. (804) 379-2900
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with a copy to:
Mays & Valentine
NationsBank Center
1111 East Main Street
Richmond, Virginia 23218
ATTENTION: F. Claiborne Johnston, Jr., Esq.
Telecopier No. (804) 697-1214
Telephone No. (804) 697-1339
Section 8.4 INTERPRETATION. For purposes of this Agreement the Company
shall not be deemed to be an affiliate or subsidiary of the Purchaser or Varlen
and neither the Purchaser nor Varlen shall be deemed to be an affiliate of the
Company. The headings contained in this Agreement are for convenience of
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Article, Section and Annex references in this
Agreement are to the referenced Articles and Sections of, and Annexes to, this
Agreement, unless the context otherwise requires.
Section 8.5 REPRESENTATIONS AND WARRANTIES; ETC. The respective
representations and warranties of the Company, Varlen and the Purchaser
contained herein shall expire with, and be terminated and extinguished upon,
consummation of the Merger.
Section 8.6 MISCELLANEOUS. This Agreement: (i) constitutes the entire
agreement, and supersedes all other prior agreements and undertakings (both
written and oral), among the parties hereto, or any of them, with respect to the
subject matter hereof; (ii) except for Sections 2.6 and 5.9 hereof, is not
intended to confer upon any other person any rights or remedies hereunder; (iii)
shall not be assigned or delegated by any party hereto, except that the
Purchaser may assign all or any portion of its rights and obligations hereunder
to Varlen or to one or more direct or indirect wholly-owned subsidiaries of
Varlen which in a written instrument shall make all the representations and
warranties of the Purchaser set forth herein and shall agree to assume all of
the Purchaser's obligations hereunder and be bound by all of the terms and
conditions of this Agreement (PROVIDED, HOWEVER, that no such assignment or
delegation shall relieve the Purchaser of its obligations hereunder); and (iv)
shall be governed in all respects, including validity, interpretation and
effect, by the internal laws of the Commonwealth of Virginia, without giving
effect to the principles of conflict of laws thereof. This Agreement may be
executed in two or more counterparts, which together shall constitute a single
agreement.
Section 8.7 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be irreparably damaged in the
event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, each of the
parties hereto agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
subject matter jurisdiction, in addition to any other remedy to which such party
may be entitled, at law or in equity.
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IN WITNESS WHEREOF, Varlen, the Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers, thereunto duly authorized.
<TABLE>
<S> <C>
VARLEN CORPORATION BRENCO, INCORPORATED
By: ---------------------------- By: ----------------------------
Richard L. Wellek Needham B. Whitfield
President and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
</TABLE>
BAS, INC.
By:
- ----------------------------
Richard L. Wellek
President
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ANNEX I
(TO ACQUISITION AGREEMENT)
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Acquisition Agreement or the
Offer, and except as expressly limited below, the Purchaser: shall not be
required to commence or continue the Offer; or accept for payment, purchase or
pay for any Shares tendered; may postpone the acceptance for payment, the
purchase of, and/or payment for, Shares; and/or may amend (subject to the
restrictions contained in Section 1.1 of the Acquisition Agreement, dated as of
June 15, 1996 among Varlen, the Purchaser and the Company (as the same may be
modified, amended, supplemented and/or restated from time to time, the
"Acquisition Agreement")) or terminate the Offer; if: (1) there shall not have
been validly tendered and not withdrawn prior to the expiration of the Offer a
number of Shares which, together with the Shares beneficially owned by the
Purchaser and Varlen, represents two-thirds of the total voting power of all
shares of capital stock of the Company outstanding on a fully diluted basis, or
(2) any waiting period under the HSR Act applicable to the purchase of the
Shares pursuant to the Offer shall not have expired or been terminated, or (3)
at any time on or after June 1, 1996 and prior to the time of payment for any
such Shares (whether or not any Shares have theretofore been accepted for
payment or paid for pursuant to the Offer), any of the following events (each,
an "Event") shall have occurred (each of paragraphs (a) through (h) providing a
separate and independent condition to the Purchaser's obligations pursuant to
the Offer):
(a) the Company shall have authorized, recommended or proposed, or shall
have announced an intention to authorize, recommend or propose, or shall
have entered into an agreement or agreement in principle with respect to,
any merger, consolidation, other business combination, recapitalization,
liquidation or dissolution, or any purchase or other acquisition or sale or
other disposition of assets (other than in the ordinary course of business)
or shares of capital stock of the Company or any of its Subsidiaries, or any
similar transaction involving the Company or any Subsidiary or division of
the Company or any Subsidiary (other than the Merger and as Previously
Disclosed with respect to certain subsidiaries) (the foregoing being
collectively referred to as a "Business Combination"), any material change
in its capitalization, or any release or relinquishment of any material
contract or other rights not in the ordinary course of business; or
(b) (i) the Board of Directors of the Company shall have (x) modified or
amended in any respect its recommendation of the Offer, the Merger or any of
its other actions taken in accordance with Section 1.2(a) and/or 4.14 of the
Acquisition Agreement, or (y) adopted any resolution to do so, or (ii) the
opinion of Virginia counsel to the Company referred to in Section 4.14 of
the Acquisition Agreement shall have been disclaimed, disavowed, retracted
or revoked in any respect, or shall otherwise have been rendered inaccurate
or erroneous, or (iii) the Board of Directors of the Company shall have (x)
taken any of the actions referred to in Section 1.2(a) and/ or 4.14 of the
Acquisition Agreement for the benefit of any person, entity or group (as
defined in Section 13(d)(3) of the Exchange Act) (other than Varlen, the
Purchaser or any of their respective subsidiaries) or any Business
Combination (other than the Offer and the Merger), or (y) adopted any
resolution to do so; or
(c) it shall have been publicly disclosed, or Varlen, the Purchaser or
the Company shall have learned that: (i) any person, entity (including the
Company or any of its subsidiaries or affiliates) or group (as defined in
Section 13(d)(3) of the Exchange Act) (a "Person") shall have (x) acquired
or become the beneficial owner of more than 10% of the outstanding Shares
(other than those shareholders of the Company party to that certain
Shareholder Tender Agreement, dated as of June 15, 1996, between Varlen and
such shareholders (the "Permitted Shareholders")), or (y) been granted by
the Company any warrant, option or right, conditional or otherwise, to
acquire beneficial ownership of more than 10% of the outstanding Shares,
other than acquisitions by a Person who has publicly disclosed such
ownership in a Schedule 13D or 13G (or amendment thereto) on file with the
Commission prior to June 1, 1996, and other than for bona fide arbitrage
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purposes, or (ii) any such Person (other than, in the case of the following
clause (x), a Permitted Shareholder) who has publicly disclosed in such a
Schedule 13D or 13G any such ownership of more than 10% of the outstanding
Shares prior to such date shall have (x) acquired or become the beneficial
owner of, or proposed to acquire or become the beneficial owner of,
additional Shares, or (y) been granted by the Company any warrant, option or
right, conditional or otherwise, to acquire any Shares, or (iii) any new
group shall have been formed which beneficially owns more than 10% of the
Shares, or (iv) any Person shall have commenced, or publicly proposed to
commence, a tender offer for outstanding Shares, or publicly proposed any
Business Combination, or (v) any Person shall have commenced any
solicitation of proxies with respect to the Shares in opposition to the
Merger, or (vi) any Person shall have acquired or become the beneficial
owner of more than 50% of the outstanding Shares; or
(d) there shall be pending any action or proceeding before any court,
government or governmental authority or agency: (i) challenging or seeking
to make illegal, or to delay or otherwise directly or indirectly to restrain
or prohibit the making of the Offer, the acceptance for payment of, payment
for, or the purchase of, some or all of the Shares by Varlen, the Purchaser
or any other subsidiary or affiliate of Varlen or the consummation of the
Merger, or seeking to obtain material damages in connection with the Offer
or the Merger, or (ii) seeking to prohibit ownership or operation by Varlen,
the Purchaser or any other subsidiary or affiliate of Varlen of all or a
material portion of the business or assets of Varlen, the Company or any of
their respective subsidiaries or affiliates or to compel Varlen, the
Purchaser or any other subsidiary or affiliate of Varlen to dispose of or to
hold separately all or a material portion of the business or assets of
Varlen, the Company or any of their respective subsidiaries or affiliates,
as a result of the Offer or the Merger, or (iii) seeking to impose or
confirm limitations on the ability of Varlen, the Purchaser or any other
subsidiary or affiliate of Varlen effectively to exercise full rights of
ownership and control of any Shares (or any shares of capital stock of any
subsidiary of the Company) (including, without limitation, the right to vote
any such Shares (or shares of a subsidiary)) acquired pursuant to the Offer
or otherwise (directly or indirectly), on all matters properly presented to
the Company's shareholders (or any such subsidiary's shareholders), or (iv)
seeking to require divestiture by Varlen, the Purchaser or any other
subsidiary or affiliate of Varlen of any Shares, or (v) invalidating or
rendering unenforceable any material provision of the Acquisition Agreement,
or (vi) which otherwise might materially adversely affect Varlen, the
Company or any of their respective subsidiaries or affiliates; or
(e) there shall be any action taken, or any statute, rule, regulation,
judgment, order or injunction proposed, enacted, entered, enforced,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency (other than the
application of the waiting period provisions of the HSR Act to the Offer or
to the Merger) which may, directly or indirectly, result in any of the
consequences referred to in paragraph (d) above; or
(f) there shall have occurred: (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over-the-counter market, or (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, or (iii) any limitation (whether or not mandatory) by any
governmental authority on, or any other event which, in the sole judgment of
Varlen, might affect the extension of credit by banks or other lending
institutions in the United States, or (iv) any material change in the United
States or any other currency exchange rates or any suspension of, or
limitation on, the markets therefor, or (v) any extraordinary adverse change
in the financial markets or the market price of the Shares, or (vi) any
change in the general political, market, economic or financial conditions in
the United States or abroad that could, in the sole judgment of Varlen, have
a material adverse effect upon the business or operations of the Company or
any of its subsidiaries or affiliates or the trading of the Shares, or (vii)
a commencement of war, armed hostilities or
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<PAGE>
other international or national calamity directly or indirectly involving
the United States, or (viii) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof; or
(g) the representations and warranties of the Company in the Acquisition
Agreement shall not be true and correct in all material respects, or the
Company shall not have performed in all material respects each covenant and
complied with each agreement to be performed and complied with by the
Company under the Acquisition Agreement; or
(h) the Company and Varlen shall have agreed to terminate the Offer or
the Acquisition Agreement, or the Acquisition Agreement shall otherwise have
been terminated in accordance with it terms;
which, in the sole judgment of the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by the
Purchaser and Varlen) giving rise to any such condition, make it inadvisable to
proceed with acceptance for payment or purchase of or payment for any Shares
tendered or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Varlen and the
Purchaser and may be asserted by Varlen and the Purchaser regardless of the
circumstances giving rise to such condition, including (without limitation) any
action or inaction by Varlen or the Purchaser, or may be waived by Varlen or the
Purchaser in whole at any time or in part from time to time in their sole
discretion. The failure by Varlen or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right and may be asserted at any time and
from time to time. Any determination by Varlen or the Purchaser concerning any
Event shall be final and binding upon all parties.
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ANNEX II
(TO ACQUISITION AGREEMENT)
COMPANY BOARD RESOLUTIONS
RESOLVED, that the execution and delivery by any one or more of the officers
of the Company, in the name and on behalf of the Company, of the Acquisition
Agreement dated as of June 15, 1996 between (1) Varlen Corporation, a Delaware
corporation ("Parent"), (2) BAS, Inc., a Virginia corporation ("Purchaser"), and
(3) the Company, in the form of the draft presented to the Board, with such
changes, modifications, amendments, supplements and/or restatements thereto or
thereof as the signing officer of Corporation (upon the advice of counsel)
approves (collectively, "the Acquisition Agreement"), such approval to be
conclusively evidenced by his signature to such agreement, and the consummation
of the tender offer, merger and other transactions contemplated by the
Acquisition Agreement, are hereby authorized and approved in all respects; and
further
RESOLVED, that the Board hereby determines that the terms of the tender
offer, the merger and the Acquisition Agreement are fair to and in the best
interests of the shareholders of the Company and recommends that the
shareholders of the Company (1) accept the tender offer and tender their shares
pursuant to the tender offer and (2) approve the merger (if such approval is
required by Virginia law); and further
RESOLVED, that the execution and delivery by any one or more of the officers
of the Company, in the name and on behalf of the Company, of all documents,
agreements and instruments which are referenced in, or contemplated by, the
Acquisition Agreement, each in such form as the signing officers of the Company
shall (upon the advice of counsel) deem to be necessary or advisable in order to
carry into effect the tender offer, merger and other transactions contemplated
by the Acquisition Agreement, the approval of each such signing officer to be
conclusively evidenced by his signature to such documents, agreements and
instruments, are hereby authorized and approved in all respects; and further
RESOLVED, that, for the declared purpose of exempting Parent, Purchaser and
their respective direct and indirect subsidiaries (each, a "Parent Person") and
the tender offer, the merger and the other transactions contemplated by the
Acquisition Agreement from (1) the restrictions and other provisions of Article
14, 13.1-725- 728 (Affiliated Transactions) of the Code of Virginia ("Article
14") and (2) the provisions of 13.1-730 of Article 15 (Dissenter's Rights) of
the Code of Virginia, the following are hereby authorized and approved in all
respects: (1) the Company engaging with any Parent Person in any transaction
pursuant to the Acquisition Agreement which would constitute an "affiliated
transaction" (within the meaning of Article 14), (2) the tender offer and plan
of merger set forth in the Acquisition Agreement and (3) consummation of the
tender offer, merger and other transactions contemplated by the Acquisition
Agreement; and further
RESOLVED, that, for the declared purpose of qualifying the transactions
contemplated by the Acquisition Agreement as an "excepted acquisition", as that
term is defined and used in Va. Code 13.1-728.1, the plan of merger set forth in
the Acquisition Agreement and the tender offer, merger and other transactions
contemplated by the Acquisition Agreement are hereby authorized and approved in
all respects; and further
RESOLVED, that, for the declared purpose of exempting each Parent Person and
the tender offer, the merger and the other transactions contemplated by the
Acquisition Agreement from the supermajority shareholder vote requirement set
forth in Article I of the Articles of Incorporation, as amended, of the Company
("Article I"), any "business combination" within the meaning of Article I
provided for in the Acquisition Agreement with any Parent Person is hereby
authorized and approved in all respects; and further
RESOLVED, that the officers of the Company are hereby severally authorized
to do and to perform, or to cause to be done and performed, such other acts, and
to execute and deliver, or to cause
27
<PAGE>
to be executed and delivered, such other documents, agreements and instruments
(in each case in the name of the Company, on its behalf) as they, or any of
them, shall (upon the advice of counsel) deem to be necessary or advisable in
order to carry into effect the transactions contemplated by the foregoing
resolutions, including but not limited to such acts, executions and deliveries
to discharge obligations under, and to carry out and comply with, the terms and
conditions set forth in, or contemplated by, all of the documents, agreements
and instruments named in the foregoing resolutions.
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EXHIBIT D
SHAREHOLDER TENDER AGREEMENT
SHAREHOLDER TENDER AGREEMENT (as the same may be modified, amended,
supplemented and/or restated from time to time, this "Agreement"), dated as of
June 15, 1996, by and among (1) Varlen Corporation, a Delaware corporation
("Varlen"), and (2) each of the parties listed on the signature pages hereof
(each, a "Shareholder").
RECITALS
Varlen, BAS, Inc., a Virginia corporation wholly-owned by Varlen (the
"Purchaser"), and Brenco, Incorporated, a Virginia corporation (the "Company"),
have entered into an Acquisition Agreement, of even date herewith (as the same
may be modified, amended, supplemented and/or restated from time to time, the
"Acquisition Agreement"), which provides, upon the terms and subject to the
conditions thereof, for the acquisition by Purchaser of all of the Company's
outstanding Common Stock, par value $1.00 per share ("Common Stock"), through:
(A) a tender offer (as the same may be amended from time to time in accordance
with the Acquisition Agreement, the "Offer") for any and all outstanding shares
of Common Stock for $16.125 per share, net to the seller in cash and without
interest thereon (as such price may be increased from time to time pursuant to
the terms of any amended Offer, the "Offer Price"), and (B) a second step merger
pursuant to which the Purchaser will merge with and into the Company (the
"Merger") and all shares of Common Stock (other than shares held by Varlen, the
Purchaser or the Company or any direct or indirect subsidiary of Varlen, the
Purchaser or the Company, and shares held by any holder who properly exercises
and does not waive or withdraw dissenter's rights with respect to its shares
under the Virginia Stock Corporation Act (the "Virginia Act")) will be converted
into the right to receive the Offer Price in cash.
As of the date hereof, each Shareholder is the record and beneficial owner
of the number of shares of Common Stock set forth under such Shareholder's name
on the signature page hereto (the "Existing Shares"; and any shares of Common
Stock hereafter acquired by a Shareholder prior to the termination of this
Agreement being referred to herein as the "After-Acquired Shares"; and the
Existing Shares and After-Acquired Shares being collectively referred to herein
as the "Shares").
As a condition to the willingness of Varlen and the Purchaser to enter into
the Acquisition Agreement, Varlen has required that each Shareholder agree, and,
in order to induce Varlen and the Purchaser to enter into the Acquisition
Agreement, each Shareholder has agreed, severally and not jointly, to tender all
of such Shareholder's Shares pursuant to the Offer.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein and in the Acquisition Agreement contained, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Varlen and each Shareholder hereby agree as follows:
<PAGE>
ARTICLE 1: TENDER OF SHARES
SECTION 1.1 TENDER OF SHARES. Each Shareholder shall validly tender all
such Shareholder's Shares pursuant to the Offer before the expiration date
thereof and agrees not to withdraw any Shares so tendered without Varlen's prior
written consent; PROVIDED, HOWEVER, that each Shareholder may: (i) refrain from
so tendering its Shares, and may withdraw any Shares previously so tendered, if
and for so long as there shall have been commenced and not terminated a Superior
Offer (as defined in Section 1.3); and (ii) may tender its Shares pursuant to
such Superior Offer; AND PROVIDED FURTHER, HOWEVER, that in the event that (x)
any such Superior Offer shall have expired or been terminated without purchase
of such Shareholder's Shares, and (y) the Offer shall then be in effect, then
Shareholder shall again be subject to the provisions of this sentence.
SECTION 1.2 CHARITABLE CONTRIBUTIONS. Notwithstanding anything to the
contrary set forth in this Agreement, up to 50,000 Shares in the aggregate
(among all Shareholders) may be contributed by one or more Shareholders to one
or more charitable organizations and, if and to the extent so contributed, shall
not be required to be tendered pursuant to the Offer hereunder.
SECTION 1.3 SUPERIOR OFFER. For purposes of this Agreement, the term
"Superior Offer" shall mean a cash tender offer commenced (within the meaning of
Rule 14d-2 under the Exchange Act) by any corporation, partnership, person,
other entity or group (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (other than Varlen or the
Purchaser or any of their respective subsidiaries or affiliates) for any and all
shares of Common Stock at a price in excess of the then Offer Price.
ARTICLE 2: REPRESENTATIONS
AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder (as to itself only) hereby represents and warrants to, and
agrees with, Varlen as follows:
TITLE TO SHARES; NO OTHER SHARES. Such Shareholder is the record or
beneficial owner of the number of Existing Shares set forth below such
Shareholder's name on the signature page hereof (which are evidenced by the
Common Stock certificate(s) identified below such Shareholder's name on the
signature page hereof (the "Certificate")), free and clear of any pledge, lien,
security interest, charge, claim, equity, option, proxy, voting restriction,
right of first refusal or other limitation on disposition or encumbrance of any
kind, other than pursuant to this Agreement. The number of Existing Shares and
the Certificate set forth below such Shareholder's name on the signature page
hereof represent the only Shares and Certificate owned of record or beneficially
by such Shareholder as of the date hereof. Such Shareholder has full right,
power and authority to sell, pledge, transfer and deliver its Existing Shares
and Certificate pursuant to this Agreement, and upon any acquisition of any
After-Acquired Shares will have full right, power and authority to sell, pledge,
transfer and deliver such After-Acquired Shares (and the Common Stock
certificate(s) evidencing the same) pursuant to this Agreement. There are no
outstanding proxies with respect to Shares owned of record or beneficially by
such Shareholder.
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<PAGE>
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF VARLEN
Varlen hereby makes the same representations and warranties to each
Shareholder as Varlen has made to the Company in Article 3 of the Acquisition
Agreement with the same effect as though such representations and warranties
were herein set forth in full.
ARTICLE 4: TRANSFER OF SHARES; NO SOLICITATION
SECTION 4.1 TRANSFER OF SHARES. During the term of this Agreement, and
except as otherwise provided herein or with the prior written consent of Varlen,
each Shareholder shall not: (i) sell, pledge or otherwise dispose of any of its
Shares, (ii) deposit its Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares, (iii) grant any proxy,
power-of-attorney or other authorization in or with respect to such Shares, or
(iv) enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, assignment, transfer or other
disposition of any Shares.
SECTION 4.2 APPOINTMENT OF ATTORNEY-IN-FACT. In the event that any
Shareholder shall be in default of its obligations hereunder, such Shareholder
irrevocably appoints Varlen as such Shareholder's attorney-in-fact, with an
irrevocable instruction to Varlen (if and to the extent that such Shareholder is
required by the terms of this Agreement to do so): (i) validly to tender such
Shareholder's Shares pursuant to the Offer, and (ii) to execute any instrument
of transfer and/or other documents and do all such other acts and things as may
in the opinion of Varlen be necessary or expedient for the purpose of, or in
connection with, tendering such Shares pursuant to the Offer.
SECTION 4.3 NO SOLICITATION. Each Shareholder agrees to abide by the
terms of Section 5.5 of the Acquisition Agreement.
ARTICLE 5: TERMINATION
This Agreement shall terminate upon the earlier to occur of: (i) the
termination of the Acquisition Agreement, and (ii) the Effective Time (as
defined in the Acquisition Agreement) of the Merger. Upon such termination,
this Agreement shall have no further force or effect (other than Section 6.4,
which shall continue to apply to any case, action or proceeding relating to the
enforcement of this Agreement).
ARTICLE 6: GENERAL PROVISIONS
SECTION 6.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by guaranteed overnight service or telecopier to the parties
at the following addresses) or at such other addresses as shall be specified by
the parties by like notice):
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<PAGE>
If to Varlen:
Varlen Corporation
55 Shuman Boulevard, Suite 500
Naperville, Illinois 60566-7089
ATTENTION: Richard L. Wellek
President & Chief Executive Officer
Telecopier No. (708) 420-7123
Telephone No. (708) 420-0400
with a copy to:
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022
ATTENTION: Claude A. Baum, Esq.
Telecopier No. (212) 308-2041
Telephone No. (212) 326-3500
If to a Shareholder, to the address set forth below such Shareholder's name
on the signature pages hereof.
Section 6.2 INTERPRETATION. The headings contained in this Agreement
are for convenience of reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Article and Section references
in this Agreement are to the referenced Articles and Sections of this Agreement,
unless the context otherwise requires.
Section 6.3 MISCELLANEOUS. This Agreement: (i) constitutes the entire
agreement, and supersedes all other prior agreements and undertakings (both
written and oral), among the parties hereto, or any of them, with respect to the
subject matter hereof; (ii) is not intended to confer upon any other person any
rights or remedies hereunder; (iii) shall not be assigned or delegated by any
party hereto, except that Varlen may assign all or any portion of its rights and
obligations hereunder to one or more direct or indirect wholly-owned
subsidiaries of Varlen which in a written instrument shall make all the
representations and warranties of Varlen set forth herein and shall agree to
assume all of Varlen's obligations hereunder and be bound by all of the terms
and conditions of this Agreement (PROVIDED, HOWEVER, that no such assignment or
delegation shall relieve Varlen of its obligations hereunder); and (iv) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the Commonwealth of Virginia, without giving effect to the
principles of conflict of laws thereof. This Agreement may be executed in two
or more counterparts, which together shall constitute a single agreement.
Section 6.4 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the other parties hereto would be irreparably
damaged in the event any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached.
Accordingly, each of the parties hereto agrees that they each shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state
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<PAGE>
thereof having subject matter jurisdiction, in addition to any other remedy to
which such party may be entitled, at law or in equity.
IN WITNESS WHEREOF, Varlen and the Shareholders have caused this Agreement
to be executed as of the date first written above.
VARLEN CORPORATION
By:
---------------------------
Richard L. Wellek
President and
Chief Executive Officer
SHAREHOLDERS:
Name: Needham Bryan Whitfield
Number of Existing Shares: 91,917
Certificate No(s). See Annex III
Record Owner: Needham Bryan Whitfield
Address: One Park West Circle
Suite 201
Midlothian, Virginia 23113
ATTENTION: Needham Bryan Whitfield
Telecopier No. (804) 379-4668
Telephone No. (804) 379-2900
Name: Anne Whitfield Kenny
Number of Existing Shares: 443,800
Certificate No(s). See Annex IV
Record Owner: Anne Whitfield Kenny
Address: 206 Gun Club Road
Richmond, Virginia 23221
ATTENTION: Anne Whitfield Kenny
Telecopier No. N/A
Telephone No. (804) 359-5863
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<PAGE>
- ------------------------------------------
Needham B. Whitfield, individually and in
the various capacities set forth on the
attached Schedule I on behalf of the
various record and/or beneficial holders
of shares of Brenco Common Stock set
forth thereon.
- ------------------------------------------
Anne Whitfield Kenny, individually and in
the various capacities set forth on the
attached Schedule II on behalf of the
various record and/or beneficial holders
of the shares of Brenco Common Stock set
forth thereon.
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<PAGE>
Schedule I
NAME OF ACCOUNT (HOLDER) CAPACITY NUMBER OF SHARES*
- ------------------------ -------- -----------------
Needham B. Whitfield Direct 3,650
(Shares Held by Wheat First
Butcher Singer in Account
8349-8150)
Needham B. Whitfield Direct 200,000
(Shares Held by Wheat First
Butcher Singer in Account
8349-7975)
Trust F/B/O Theodore Co-Trustee (1) 38,472
Hatch Whitfield (u/a (Shares Held in
George Hendry Whitfield) NationsBank Trust Account
40-05-500-6500862)
Trust F/B/O Julia Co-Trustee (1) 38,472
Fatheree Whitfield (u/a (Shares Held in
George Hendry Whitfield) NationsBank Trust Account
40-05-500-6500870)
Trust F/B/O Sophia Co-Trustee (1) 57,708
Nazlee Whitfield (u/a (Shares Held in
George Hendry Whitfield) NationsBank Trust Account
40-05-500-6500888)
Trust F/B/O Alexander Co-Trustee (1) 57,708
Amr Whitfield (u/a (Shares Held in
George Hendry Whitfield) NationsBank Trust Account
40-05-500-6500896)
Rieman & Co. General Partner 15,082
Paka & Co. Trust General Partner 15,082
Sophia N. Whitfield Co-Trustee(2) 31,041
Irrevocable Trust
Sophia Whitfield & Co. General Partner 2,000
Sophia Whitfield & Co. General Partner 25,000
(Shares Held by Wheat First
Butcher Singer in Account
7389-4169)
<PAGE>
Schedule I
NAME OF ACCOUNT (HOLDER) CAPACITY NUMBER OF SHARES*
- ------------------------ -------- -----------------
Alexander Whitfield & Co. General Partner 25,000
(Shares Held by Wheat First
Butcher Singer in Account
1078-2326)
Alexander A. Whitfield Co-Trustee (2) 33,041
Irrevocable Trust
Theodore Hatch Whitfield Co-Trustee (3) 48,900
Trust u/w Mildred F. (Shares Held by Wheat First
Whitfield Butcher Singer in Account
8349-7756)
Julia Fatheree Whitfield Co-Trustee (3) 48,900
Trust u/w Mildred F. (Shares Held by Wheat First
Whitfield Butcher Singer in Account
8349-7734)
Custodian (under UGMA) Custodian 1,000
for Christopher D. Harper (Shares Held by Advest, Inc.
in Account 258-01599)
Custodian (under UGMA) Custodian 1,000
for Jonathan D. Harper (Shares Held by Advest, Inc.
in Account 258-01601)
The Micawber Foundation President 10,000
(Shares Held by Wheat First
Butcher Singer in Account
7757-6187)
Whitfield Foundation President 90,000
(Shares Held by Wheat First
Butcher Singer in Account
8350-3049)
Estate of Mildred F. Co-Executor (4) 250,000
Whitfield (Shares Held by Wheat First (Also reported by
Butcher Singer in Account Anne Whitfield
8350-2962) Kenny, as
Co-Executor)
<PAGE>
Footnotes:
(1) Needham B. Whitfield is co-trustee with NationsBank of Virginia, N.A.
Needham B. Whitfield has sole voting and dispositive powers with respect to
Brenco stock held in trust.
(2) Needham B. Whitfield is co-trustee with his wife, Maha S. Whitfield. Either
co-trustee may vote or sell Brenco shares held by trust.
(3) Needham B. Whitfield is co-trustee with William J. Newman, Jr. Needham B.
Whitfield has sole voting and dispositive powers with respect to Brenco
stock held in trust.
(4) Needham B. Whitfield is co-trustee with his sister Anne Whitfield Kenny.
Both co-executors must consent to sale of Brenco shares held by the estate.
* Shares for which no account information is given hereon are represented by
certificates set forth on Annex III.
<PAGE>
Schedule II
NAME OF ACCOUNT (HOLDER) CAPACITY NUMBER OF SHARES
------------------------ -------- ----------------
Anne Whitfield Kenny Direct 200,000(1)
Estate of Mildred F. Whitfield Co-Executor(2) 250,000(2)
Trust F/B/O of Anne Blackmon Co-Trustee(3) 76,944
Kenny (u/a George H. Whitfield)
Trust F/B/O Katherine Bryan Co-Trustee(3) 115,416
Kenny (u/a George H. Whitfield)
Anne Blackmon Kenny Trust Co-Trustee(4) 47,814(6)
(u/w/ Mildred F. Whitfield)
Kathryn Bryan Kenny Trust Co-Trustee(5) 47,811(6)
(u/w/ Mildred F. Whitfield)
Fatherree Foundation President 92,585(6)
- ---------------
(1) Held in an account at Wheat First Butcher Singer.
(2) Co-executor is Needham B. Whitfield and these shares are also included in
Schedule I for Needham B. Whitfield.
(3) Co-trustee is NationsBank of Virginia, N.A. Anne Whitfield Kenny has sole
voting and dispositive power with respect to Brenco Stock held in the
Trust; shares held in an account at NationsBank.
(4) Co-trustee is William J. Newman, Jr.; Anne Whitfield Kenny has sole voting
and dispositive power with respect to Brenco Stock held in the Trust.
(5) Co-trustee is William J. Newman, Jr.; Anne Whitfield Kenny has sole voting
and dispositive power with respect to Brenco Stock held in the Trust.
(6) Shares held in an account at Davenport & Company of Virginia, Inc..
<PAGE>
EXHIBIT E1
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996 by and
between Brenco, Incorporated, a Virginia corporation (the "Company"), and
Needham B. Whitfield ("Executive").
RECITALS
I. Executive currently serves as a key employee member of management of
the Company and his services and knowledge are valuable to the Company.
II. The Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its stockholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether Executive
might be hindered or distracted by personal uncertainties and risks created by
any such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company, the Board has authorized the Company to enter
into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the duties
and responsibilities of Executive (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach or (2) the commission by Executive of a felony
involving moral turpitude.
<PAGE>
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth in this Section 1(b) and specifying the
particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a
Change in Control: (A) any acquisition by the Company, (B) any acquisition
directly from the Company, (C) any acquisition by, or benefit distribution
from, an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (D) any
acquisition pursuant to any compensatory stock option or stock purchase
plan for employees, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (3) of
this Section (1)(c) shall be satisfied, or (F) any acquisition by the
Executive or any group of persons including the Executive; or (G) the
acquisition by members of the Whitfield Family (as hereinafter defined),
individually or collectively, of any direct or indirect beneficial
ownership in addition to the individual or collective beneficial ownership
of members of the Whitfield Family which exists on the date hereof; and
PROVIDED FURTHER that, for purposes of clause (A), if any Person (other
than the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company)
shall become the beneficial owner of fifty percent (50%) or more of the
Outstanding Company
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<PAGE>
Common Stock or fifty percent (50%) or more of the Outstanding Company
Voting Securities by reason of an acquisition by the Company and such
Person shall, after such acquisition by the Company, become the beneficial
owner of any additional shares of the Outstanding Company Common Stock or
any additional Outstanding Voting Securities, such additional beneficial
ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; PROVIDED, HOWEVER, that any individual who becomes
a director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and
PROVIDED FURTHER, that no individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than fifty percent (50%) of the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation
and more than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
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<PAGE>
corporation resulting from such reorganization, merger or consolidation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
of such corporation or twenty percent (20%) or more of the combined voting
power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the Corporation resulting from
such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, immediately after such
sale or other disposition, (A) more than fifty percent (50%) of the then
outstanding shares of common stock thereof and more than fifty percent
(50%) of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, twenty percent (20%) or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
thereof or twenty
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<PAGE>
percent (20%) or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition.
For purposes of Section 1(c)(1), "Whitfield Family" shall mean (I) Needham B.
Whitfield and members of his "immediate family" (as that term is defined in Rule
16a-1(e) under the Exchange Act), (ii) Anne Whitfield Kenny and members of her
immediate family, (iii) the Estate of Mildred F. Whitfield and (iv) and in each
of the foregoing instances, their respective personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
Notwithstanding anything contained in the Agreement to the contrary, it is
understood that the collective beneficial ownership of members of the Whitfield
Family as of the date hereof shall not constitute, or be construed or deemed to
constitute, a Change of Control.
Furthermore, notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") who effectuates a
Change in Control, then for all purposes of this Agreement, the date of a Change
in Control shall mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Company" means Brenco, Incorporated, a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or Executive, as the case may be, to the other, delivered
pursuant to Section 11 or (2) if Executive's employment by the Company
terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
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<PAGE>
(1) (i) the assignment to Executive of any duties inconsistent
in any material adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control, (ii) a material adverse change in Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or
involuntary termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect Executive
to any position with the Company held by Executive immediately prior to
such Change in Control;
(2) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same has been increased thereafter;
(3) any requirement of the Company that Executive (i) be based
anywhere more than thirty-five miles from the facility where Executive is
located at the time of the Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which Executive is
participating immediately prior to such Change in Control, unless Executive
is permitted to participate in other plans providing Executive with
substantially comparable benefits, or the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such
Change in Control, (iii) provide fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or (iv) provide Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
-6-
<PAGE>
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
In addition, a termination by Executive of his employment for any reason
during the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period shall be deemed to be termination by
Executive for Good Reason. For purposes of this Agreement, any good faith
determination of Good Reason made by Executive shall be conclusive; PROVIDED,
HOWEVER, that an isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(f)(1) through (5) which occurs prior to a
Change in Control, but was at the request of a Third Party who effectuates a
Change in Control, shall constitute Good Reason following a Change in Control
for purposes of this Agreement notwithstanding that it occurred prior to the
Change in Control.
(g) "Nonqualifying Termination" means a termination of Executive's
employment (1) by the Company for Cause, (2) by Executive for any reason other
than a Good Reason, (3) as a result of Executive's death, (4) by the Company due
to Executive's absence from his duties with the Company on a full-time basis for
at least one hundred eighty consecutive days as a result of Executive's
incapacity due to physical or mental illness or (5) as a result of Executive's
lawful mandatory retirement or (6) Executive's voluntary retirement pursuant to
any retirement incentive plan of the Company. The parties hereto expressly
understand and agree that a termination by Executive of his employment in
accordance with the first sentence of the second paragraph of Section 1(f) shall
be deemed to be a termination by the Executive for Good Reason and thus shall
not be a Nonqualifying Termination.
(h) "Pension Plan" means the Company's defined benefit pension plan
currently known as the "Brenco Retirement Plan" or any successor plan and any
other employee benefit plans of the Company that require any minimum period of
employment as a condition to the receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earliest to occur of (1) Executive's 62nd
birthday, (2) Executive's death, and (3) two years following such Change in
Control.
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<PAGE>
2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety days
following such Change in Control. For purposes of the foregoing subsection (a),
Good Reason shall be determined as if a Change in Control had occurred when such
attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to Executive (or Executive's beneficiary or estate) within
thirty days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i) Executive's
full annual base salary from the Company and its affiliated companies
through the Date of Termination, to the extent not theretofore paid, (ii)
Executive's annual bonus in an amount at least equal to the greatest of (A)
the average bonus (annualized for any fiscal year consisting of less than
twelve full months or with respect to which Executive has been employed by
the Company for less than twelve full months) paid or payable, including by
reason of any deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or such
portion thereof during which Executive performed services for the Company
if Executive shall have been employed by the Company for less than such
three fiscal year period) immediately preceding the fiscal year in which
the Change in Control occurs, or (B) 50% of Executive's target bonus for
the fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's Date of
Termination occurs, multiplied by (D) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is
three hundred sixty-five or three hundred sixty-six, as applicable, and
(iii) any compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest
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and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; PLUS
(2) a lump-sum cash amount equal to (i) one times Executive's
highest annual rate of base salary from the Company and its affiliated
companies in effect during the twelve-month period prior to the Date of
Termination; PROVIDED, HOWEVER, that in the event there are fewer than
twelve whole months remaining from the Date of Termination to the date of
Executive's 62nd birthday, the amount payable under this Section 3(a) (2)
shall be calculated by multiplying the amount otherwise payable by a
fraction the numerator of which is the number of months, including a
partial month (with a partial month being expressed as a fraction the
numerator of which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so remaining and
the denominator of which is twelve; PROVIDED FURTHER, that any amount paid
pursuant to this Section 3(a) (2) shall be paid in lieu of any other amount
of severance relating to salary or bonus compensation to be received by
Executive upon termination of employment of Executive under any severance
plan, policy, employment agreement or arrangement of the Company; AND
PROVIDED FURTHER that in the event of a termination of employment during
the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period in accordance with the last
paragraph of Section 1(f) hereof, the amount payable under this Section
3(a)(2) shall be reduced by one-half.
(b) (1) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination other than by reason
of a Nonqualifying Termination, Executive shall not be fully vested in his
accrued benefit under the Pension Plan, the Company shall pay to Executive
within thirty days following the Date of Termination a lump sum cash amount
equal to the actuarial equivalent of his unvested accrued benefit under the
Brenco Retirement Plan as of such date. Such lump sum cash amount shall be
computed using the same actuarial methods and assumptions then in use for
purposes of computing benefits under the Brenco Retirement Plan, provided
that the interest rate used in making such computation shall not be greater
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than the interest rate permitted under Section 417(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
(2) In addition to the payments to be made pursuant to paragraph (a)
of this Section 3, if on the Date of Termination other than by reason of a
Nonqualifying Termination, Executive shall not be fully vested in the
employer contributions made on his behalf under any defined contribution
plan of the Company, the Company shall pay to Executive within thirty days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; PROVIDED, HOWEVER,
that if any payment pursuant to this Section 3(b) (2) may or would result
in such payment being deemed a transaction which is subject to Section
16(b) of the Exchange Act, the Company shall make such payment so as to
meet the conditions for an exemption from such Section 16(b) as set forth
in the rules (and interpretative and no-action letters relating thereto)
under Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of Termination;
provided that for purposes of valuing common stock of the Company that may
be a part of any such plan, if the common stock of the Company is traded
on a national securities exchange or The Nasdaq National Market on the Date
of Termination, the value of a share of common stock of the Company shall
be the closing price on the national securities exchange or NASDAQ on the
Date of Termination or, if such date is not a trading day, on the
immediately preceding trading day.
(3) For a period of one year commencing on the Date of
Termination, the Company shall continue to keep in full force and effect
(or otherwise provide) all policies of medical, accident, disability and
life insurance with respect to Executive and his dependents with the same
level of coverage, upon the same terms and otherwise to the same extent as
such policies shall have been in effect immediately prior to the Date of
Termination (or, if more favorable to Executive, immediately prior to the
Change in Control), and the Company and Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such
costs were shared immediately prior to the Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to Executive within thirty days following the Date of Termination, a cash
amount
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equal to the sum of (1) Executive's full annual base salary from the Company
through the Date of Termination, to the extent not theretofore paid and (2) any
compensation previously deferred by Executive other than pursuant to a tax-
qualified plan (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, Executive under this Agreement or
under any other plan or agreement which became payable or are taken into account
as a result of the Change in Control (the "Payments") shall be reduced (but not
below zero) to the extent necessary so that no payment to be made, or benefit to
be provided, to Executive or for his benefit under this Agreement or any other
plan or agreement shall be subject to the imposition of an excise tax under
Section 4999 of the Code (such reduced amount is hereinafter referred to as the
"Limited Payment Amount"). Unless Executive shall have given prior written
notice specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
(b) All determinations required to be made under this Section 4 shall
be made by the Company's public accounting firm (the "Accounting Firm"). The
Accounting Firm shall provide its calculations, together with detailed
supporting documentation, both to the Company and Executive within fifteen days
after the receipt of notice from the Company that there has been a Payment (or
at such earlier times as is requested by the Company) and, with respect to any
Limited Payment Amount, a reasonable opinion to Executive that he is not
required to report any excise tax on his federal income tax return with respect
to the Limited Payment Amount (collectively, the "Determination"). In the event
that the Accounting Firm is serving as an accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized public accounting firm to make the
determination required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees, costs and expenses
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(including, but not limited to, the costs of retaining experts) of the
Accounting Firm shall be borne by the Company. The Determination by the
Accounting Firm shall be binding upon the Company and Executive (except as
provided in paragraph (c) below).
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Executive by the Company, which are in excess of the limitations
provided in Section 4 (hereinafter referred to as an "Excess Payment"), such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment and Executive shall repay the
Excess Payment to the Company on demand, together with interest on the Excess
Payment at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt
of such Excess Payment until the date of such repayment. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 4. In the event that it is
determined (i) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (ii) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with the
Company or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute, subject to the conditions set forth in
the following sentences, together with interest in an amount equal to the prime
rate of Crestar
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Bank from time to time in effect, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives Executive's statement for such fees and expenses through the
date of payment thereof. The Company shall have no obligation to reimburse
Executive for legal fees and expenses pursuant to this Section 6 in the event
that a court of competent jurisdiction ultimately determines that Executive's
position asserted in any contest or dispute litigated by Executive was without
merit. Executive hereby agrees that, in the event of such a determination,
Executive will repay the Company the amount of any legal fees or expenses
advanced by the Company to Executive prior to such determination.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective on
the date hereof and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 7; PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the first to occur of (i) Executive's 62nd birthday,
(ii) Executive's death or (iii) termination of Executive's Employment with the
Company prior to a Change in Control (except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least one
hundred twenty days after notice thereunder is given by the Company to Executive
in accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED, FURTHER, that in no event
shall this Agreement be terminated without the consent of Executive following a
Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its subsidiaries,
and if Executive's employment with the Company shall terminate prior to a Change
in Control, Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of Executive's employment during the
two-year period following a Change in Control shall be subject to all of the
provisions of this Agreement.
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9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by Executive
during Executive's employment by the Company or any of its affiliated companies
and which shall not be or become public knowledge (other than by acts by
Executive or representatives of Executive in violation of this Agreement).
After termination of Executive's employment with the Company, Executive shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to Executive under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to Executive (or his beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall constitute Good
Reason hereunder and shall entitle Executive to compensation and other benefits
from the Company in the same amount and on the same terms as Executive would be
entitled hereunder if Executive's employment were terminated following a Change
in Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the date Good Reason occurs, and
shall be the Date of Termination if requested by Executive.
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(c) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so
appointed, to Executive's estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
________________
________________
________________
________________
If to the Company:
Brenco, Incorporated
Suite 201
One Park West Circle
Midlothian, VA 23113
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance therewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the Termination Date (which date shall be not
less than fifteen days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of
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Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and, such amounts shall not be reduced whether or not Executive obtains other
employment.
(b) If there shall be any dispute between the Company and Executive
in the event of any termination of Executive's employment, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, that the
determination by Executive of the existence of Good Reason was not made in good
faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other beneficiaries, as
the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by Executive with Good Reason;
PROVIDED, HOWEVER, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of Executive to repay all such amounts to which Executive is
ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia without regard
to the
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principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive
or the Company to insist upon strict compliance with any provision of this
Agreement or to assert any right Executive or the Company may have hereunder,
including without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement. The rights of, and benefits
payable to, Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, Executives,
his estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
BRENCO, INCORPORATED
BY:
------------------------------------------
TITLE:
---------------------------------------
EXECUTIVE
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EXHIBIT E2
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996 by and
between Brenco, Incorporated, a Virginia corporation (the "Company"), and J.
Craig Rice ("Executive").
RECITALS
I. Executive currently serves as a key employee member of management of
the Company and his services and knowledge are valuable to the Company.
II. The Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its stockholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether Executive
might be hindered or distracted by personal uncertainties and risks created by
any such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company, the Board has authorized the Company to enter
into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the duties
and responsibilities of Executive (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach or (2) the commission by Executive of a felony
involving moral turpitude.
<PAGE>
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth in this Section 1(b) and specifying the
particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a
Change in Control: (A) any acquisition by the Company, (B) any acquisition
directly from the Company, (C) any acquisition by, or benefit distribution
from, an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (D) any
acquisition pursuant to any compensatory stock option or stock purchase
plan for employees, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (3) of
this Section (1)(c) shall be satisfied, or (F) any acquisition by the
Executive or any group of persons including the Executive; or (G) the
acquisition by members of the Whitfield Family (as hereinafter defined),
individually or collectively, of any direct or indirect beneficial
ownership in addition to the individual or collective beneficial ownership
of members of the Whitfield Family which exists on the date hereof; and
PROVIDED FURTHER that, for purposes of clause (A), if any Person (other
than the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company)
shall become the beneficial owner of fifty percent (50%) or more of the
Outstanding Company
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Common Stock or fifty percent (50%) or more of the Outstanding Company
Voting Securities by reason of an acquisition by the Company and such
Person shall, after such acquisition by the Company, become the beneficial
owner of any additional shares of the Outstanding Company Common Stock or
any additional Outstanding Voting Securities, such additional beneficial
ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; PROVIDED, HOWEVER, that any individual who becomes
a director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and
PROVIDED FURTHER, that no individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than fifty percent (50%) of the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation
and more than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
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corporation resulting from such reorganization, merger or consolidation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
of such corporation or twenty percent (20%) or more of the combined voting
power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the Corporation resulting from
such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, immediately after such
sale or other disposition, (A) more than fifty percent (50%) of the then
outstanding shares of common stock thereof and more than fifty percent
(50%) of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, twenty percent (20%) or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
thereof or twenty
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percent (20%) or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition.
For purposes of Section 1(c)(1), "Whitfield Family" shall mean (I) Needham B.
Whitfield and members of his "immediate family" (as that term is defined in Rule
16a-1(e) under the Exchange Act), (ii) Anne Whitfield Kenny and members of her
immediate family, (iii) the Estate of Mildred F. Whitfield and (iv) and in each
of the foregoing instances, their respective personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
Notwithstanding anything contained in the Agreement to the contrary, it is
understood that the collective beneficial ownership of members of the Whitfield
Family as of the date hereof shall not constitute, or be construed or deemed to
constitute, a Change of Control.
Furthermore, notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") who effectuates a
Change in Control, then for all purposes of this Agreement, the date of a Change
in Control shall mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Company" means Brenco, Incorporated, a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or Executive, as the case may be, to the other, delivered
pursuant to Section 11 or (2) if Executive's employment by the Company
terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
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(1) (i) the assignment to Executive of any duties inconsistent
in any material adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control, (ii) a material adverse change in Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or
involuntary termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect Executive
to any position with the Company held by Executive immediately prior to
such Change in Control;
(2) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same has been increased thereafter;
(3) any requirement of the Company that Executive (i) be based
anywhere more than thirty-five miles from the facility where Executive is
located at the time of the Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which Executive is
participating immediately prior to such Change in Control, unless Executive
is permitted to participate in other plans providing Executive with
substantially comparable benefits, or the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such
Change in Control, (iii) provide fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or (iv) provide Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
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(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
In addition, a termination by Executive of his employment for any reason
during the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period shall be deemed to be termination by
Executive for Good Reason. For purposes of this Agreement, any good faith
determination of Good Reason made by Executive shall be conclusive; PROVIDED,
HOWEVER, that an isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(f)(1) through (5) which occurs prior to a
Change in Control, but was at the request of a Third Party who effectuates a
Change in Control, shall constitute Good Reason following a Change in Control
for purposes of this Agreement notwithstanding that it occurred prior to the
Change in Control.
(g) "Nonqualifying Termination" means a termination of Executive's
employment (1) by the Company for Cause, (2) by Executive for any reason other
than a Good Reason, (3) as a result of Executive's death, (4) by the Company due
to Executive's absence from his duties with the Company on a full-time basis for
at least one hundred eighty consecutive days as a result of Executive's
incapacity due to physical or mental illness or (5) as a result of Executive's
lawful mandatory retirement or (6) Executive's voluntary retirement pursuant to
any retirement incentive plan of the Company. The parties hereto expressly
understand and agree that a termination by Executive of his employment in
accordance with the first sentence of the second paragraph of Section 1(f) shall
be deemed to be a termination by the Executive for Good Reason and thus shall
not be a Nonqualifying Termination.
(h) "Pension Plan" means the Company's defined benefit pension plan
currently known as the "Brenco Retirement Plan" or any successor plan and any
other employee benefit plans of the Company that require any minimum period of
employment as a condition to the receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earliest to occur of (1) Executive's 62nd
birthday, (2) Executive's death, and (3) two years following such Change in
Control.
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2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety days
following such Change in Control. For purposes of the foregoing subsection (a),
Good Reason shall be determined as if a Change in Control had occurred when such
attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to Executive (or Executive's beneficiary or estate) within
thirty days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i) Executive's
full annual base salary from the Company and its affiliated companies
through the Date of Termination, to the extent not theretofore paid, (ii)
Executive's annual bonus in an amount at least equal to the greatest of (A)
the average bonus (annualized for any fiscal year consisting of less than
twelve full months or with respect to which Executive has been employed by
the Company for less than twelve full months) paid or payable, including by
reason of any deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or such
portion thereof during which Executive performed services for the Company
if Executive shall have been employed by the Company for less than such
three fiscal year period) immediately preceding the fiscal year in which
the Change in Control occurs, or (B) 50% of Executive's target bonus for
the fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's Date of
Termination occurs, multiplied by (D) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is
three hundred sixty-five or three hundred sixty-six, as applicable, and
(iii) any compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest
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and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; PLUS
(2) a lump-sum cash amount equal to (i) three times Executive's
highest annual rate of base salary from the Company and its affiliated
companies in effect during the twelve-month period prior to the Date of
Termination; PROVIDED, HOWEVER, that in the event there are fewer than
thirty-six whole months remaining from the Date of Termination to the date
of Executive's 62nd birthday, the amount payable under this Section 3(a)
(2) shall be calculated by multiplying the amount otherwise payable by a
fraction the numerator of which is the number of months, including a
partial month (with a partial month being expressed as a fraction the
numerator of which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so remaining and
the denominator of which is thirty-six; PROVIDED FURTHER, that any amount
paid pursuant to this Section 3(a) (2) shall be paid in lieu of any other
amount of severance relating to salary or bonus compensation to be received
by Executive upon termination of employment of Executive under any
severance plan, policy, employment agreement or arrangement of the Company;
AND PROVIDED FURTHER that in the event of a termination of employment
during the 30-day period immediately following the first anniversary of the
date of commencement of the Termination Period in accordance with the last
paragraph of Section 1(f) hereof, the amount payable under this Section
3(a)(2) shall be reduced by one-half.
(b) (1) In addition to the payments to be made pursuant to
paragraph (a) of this Section 3, if on the Date of Termination other than
by reason of a Nonqualifying Termination, Executive shall not be fully
vested in his accrued benefit under the Pension Plan, the Company shall pay
to Executive within thirty days following the Date of Termination a lump
sum cash amount equal to the actuarial equivalent of his unvested accrued
benefit under the Brenco Retirement Plan as of such date. Such lump sum
cash amount shall be computed using the same actuarial methods and
assumptions then in use for purposes of computing benefits under the Brenco
Retirement Plan, provided that the interest rate used in making such
computation shall not be greater than the interest rate permitted under
Section 417(e) of the Internal Revenue Code of 1986, as amended (the
"Code").
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(2) In addition to the payments to be made pursuant to paragraph (a)
of this Section 3, if on the Date of Termination other than by reason of a
Nonqualifying Termination, Executive shall not be fully vested in the
employer contributions made on his behalf under any defined contribution
plan of the Company, the Company shall pay to Executive within thirty days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; PROVIDED, HOWEVER,
that if any payment pursuant to this Section 3(b) (2) may or would result
in such payment being deemed a transaction which is subject to Section
16(b) of the Exchange Act, the Company shall make such payment so as to
meet the conditions for an exemption from such Section 16(b) as set forth
in the rules (and interpretative and no-action letters relating thereto)
under Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of Termination;
provided that for purposes of valuing common stock of the Company that may
be a part of any such plan, if the common stock of the Company is traded on
a national securities exchange or The Nasdaq National Market on the Date of
Termination, the value of a share of common stock of the Company shall be
the closing price on the national securities exchange or NASDAQ on the
Date of Termination or, if such date is not a trading day, on the
immediately preceding trading day.
(3) For a period of three years commencing on the Date of
Termination, the Company shall continue to keep in full force and effect
(or otherwise provide) all policies of medical, accident, disability and
life insurance with respect to Executive and his dependents with the same
level of coverage, upon the same terms and otherwise to the same extent as
such policies shall have been in effect immediately prior to the Date of
Termination (or, if more favorable to Executive, immediately prior to the
Change in Control), and the Company and Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such
costs were shared immediately prior to the Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to Executive within thirty days following the Date of Termination, a cash
amount equal to the sum of (1) Executive's full annual base salary from the
Company through the Date of Termination, to the extent not theretofore paid and
(2) any compensation previously deferred by
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Executive other than pursuant to a tax-qualified plan (together with any
interest and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid.
4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, Executive under this Agreement or
under any other plan or agreement which became payable or are taken into account
as a result of the Change in Control (the "Payments") shall be reduced (but not
below zero) to the extent necessary so that no payment to be made, or benefit to
be provided, to Executive or for his benefit under this Agreement or any other
plan or agreement shall be subject to the imposition of an excise tax under
Section 4999 of the Code (such reduced amount is hereinafter referred to as the
"Limited Payment Amount"). Unless Executive shall have given prior written
notice specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
(b) All determinations required to be made under this Section 4 shall
be made by the Company's public accounting firm (the "Accounting Firm"). The
Accounting Firm shall provide its calculations, together with detailed
supporting documentation, both to the Company and Executive within fifteen days
after the receipt of notice from the Company that there has been a Payment (or
at such earlier times as is requested by the Company) and, with respect to any
Limited Payment Amount, a reasonable opinion to Executive that he is not
required to report any excise tax on his federal income tax return with respect
to the Limited Payment Amount (collectively, the "Determination"). In the event
that the Accounting Firm is serving as an accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized public accounting firm to make the
determination required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees, costs and expenses (including,
but not limited to, the costs of retaining experts) of the Accounting Firm shall
be borne by the Company. The Determination by the Accounting Firm shall be
binding upon the
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Company and Executive (except as provided in paragraph (c) below).
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Executive by the Company, which are in excess of the limitations
provided in Section 4 (hereinafter referred to as an "Excess Payment"), such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment and Executive shall repay the
Excess Payment to the Company on demand, together with interest on the Excess
Payment at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt
of such Excess Payment until the date of such repayment. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 4. In the event that it is
determined (i) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (ii) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with the
Company or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute, subject to the conditions set forth in
the following sentences, together with interest in an amount equal to the prime
rate of Crestar Bank from time to time in effect, but in no event higher than
the maximum legal rate permissible under applicable law, such interest to accrue
from the date the Company receives Executive's
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statement for such fees and expenses through the date of payment thereof. The
Company shall have no obligation to reimburse Executive for legal fees and
expenses pursuant to this Section 6 in the event that a court of competent
jurisdiction ultimately determines that Executive's position asserted in any
contest or dispute litigated by Executive was without merit. Executive hereby
agrees that, in the event of such a determination, Executive will repay the
Company the amount of any legal fees or expenses advanced by the Company to
Executive prior to such determination.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective on
the date hereof and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 7; PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the first to occur of (i) Executive's 62nd birthday,
(ii) Executive's death or (iii) termination of Executive's Employment with the
Company prior to a Change in Control (except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least one
hundred twenty days after notice thereunder is given by the Company to Executive
in accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED, FURTHER, that in no event
shall this Agreement be terminated without the consent of Executive following a
Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its subsidiaries,
and if Executive's employment with the Company shall terminate prior to a Change
in Control, Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of Executive's employment during the
two-year period following a Change in Control shall be subject to all of the
provisions of this Agreement.
9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the
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Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by Executive during Executive's employment by the
Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). After termination of Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 9 constitute
a basis for deferring or withholding any amounts otherwise payable to Executive
under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to Executive (or his beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall constitute Good
Reason hereunder and shall entitle Executive to compensation and other benefits
from the Company in the same amount and on the same terms as Executive would be
entitled hereunder if Executive's employment were terminated following a Change
in Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the date Good Reason occurs, and
shall be the Date of Termination if requested by Executive.
(c) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts
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would be payable to Executive hereunder had Executive continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to such person or persons appointed in writing by
Executive to receive such amounts or, if no person is so appointed, to
Executive's estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
________________
________________
________________
________________
If to the Company:
Brenco, Incorporated
Suite 201
One Park West Circle
Midlothian, VA 23113
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance therewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the Termination Date (which date shall be not
less than fifteen days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
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12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and, such amounts shall not be reduced whether or not Executive obtains other
employment.
(b) If there shall be any dispute between the Company and Executive
in the event of any termination of Executive's employment, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, that the
determination by Executive of the existence of Good Reason was not made in good
faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other beneficiaries, as
the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by Executive with Good Reason;
PROVIDED, HOWEVER, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of Executive to repay all such amounts to which Executive is
ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia without regard
to the principle of conflicts of laws. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of
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this Agreement, which other provisions shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive
or the Company to insist upon strict compliance with any provision of this
Agreement or to assert any right Executive or the Company may have hereunder,
including without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement. The rights of, and benefits
payable to, Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, Executives,
his estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
BRENCO, INCORPORATED
BY:
------------------------------------------
TITLE:
---------------------------------------
EXECUTIVE
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EXHIBIT E3
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996 by and
between Brenco, Incorporated, a Virginia corporation (the "Company"), and Jacob
M. Feichtner ("Executive").
RECITALS
I. Executive currently serves as a key employee member of management of
the Company and his services and knowledge are valuable to the Company.
II. The Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its stockholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether Executive
might be hindered or distracted by personal uncertainties and risks created by
any such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company, the Board has authorized the Company to enter
into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the duties
and responsibilities of Executive (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach or (2) the commission by Executive of a felony
involving moral turpitude.
<PAGE>
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth in this Section 1(b) and specifying the
particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a
Change in Control: (A) any acquisition by the Company, (B) any acquisition
directly from the Company, (C) any acquisition by, or benefit distribution
from, an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (D) any
acquisition pursuant to any compensatory stock option or stock purchase
plan for employees, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (3) of
this Section (1)(c) shall be satisfied, or (F) any acquisition by the
Executive or any group of persons including the Executive; or (G) the
acquisition by members of the Whitfield Family (as hereinafter defined),
individually or collectively, of any direct or indirect beneficial
ownership in addition to the individual or collective beneficial ownership
of members of the Whitfield Family which exists on the date hereof; and
PROVIDED FURTHER that, for purposes of clause (A), if any Person (other
than the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company)
shall become the beneficial owner of fifty percent (50%) or more of the
Outstanding Company
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Common Stock or fifty percent (50%) or more of the Outstanding Company
Voting Securities by reason of an acquisition by the Company and such
Person shall, after such acquisition by the Company, become the beneficial
owner of any additional shares of the Outstanding Company Common Stock or
any additional Outstanding Voting Securities, such additional beneficial
ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; PROVIDED, HOWEVER, that any individual who becomes
a director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and
PROVIDED FURTHER, that no individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than fifty percent (50%) of the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation
and more than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
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corporation resulting from such reorganization, merger or consolidation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
of such corporation or twenty percent (20%) or more of the combined voting
power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the Corporation resulting from
such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, immediately after such
sale or other disposition, (A) more than fifty percent (50%) of the then
outstanding shares of common stock thereof and more than fifty percent
(50%) of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, twenty percent (20%) or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
thereof or twenty
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percent (20%) or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition.
For purposes of Section 1(c)(1), "Whitfield Family" shall mean (I) Needham B.
Whitfield and members of his "immediate family" (as that term is defined in Rule
16a-1(e) under the Exchange Act), (ii) Anne Whitfield Kenny and members of her
immediate family, (iii) the Estate of Mildred F. Whitfield and (iv) and in each
of the foregoing instances, their respective personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
Notwithstanding anything contained in the Agreement to the contrary, it is
understood that the collective beneficial ownership of members of the Whitfield
Family as of the date hereof shall not constitute, or be construed or deemed to
constitute, a Change of Control.
Furthermore, notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") who effectuates a
Change in Control, then for all purposes of this Agreement, the date of a Change
in Control shall mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Company" means Brenco, Incorporated, a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or Executive, as the case may be, to the other, delivered
pursuant to Section 11 or (2) if Executive's employment by the Company
terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
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(1) (i) the assignment to Executive of any duties inconsistent
in any material adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control, (ii) a material adverse change in Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or
involuntary termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect Executive
to any position with the Company held by Executive immediately prior to
such Change in Control;
(2) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same has been increased thereafter;
(3) any requirement of the Company that Executive (i) be based
anywhere more than thirty-five miles from the facility where Executive is
located at the time of the Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which Executive is
participating immediately prior to such Change in Control, unless Executive
is permitted to participate in other plans providing Executive with
substantially comparable benefits, or the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such
Change in Control, (iii) provide fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or (iv) provide Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
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(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
In addition, a termination by Executive of his employment for any reason
during the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period shall be deemed to be termination by
Executive for Good Reason. For purposes of this Agreement, any good faith
determination of Good Reason made by Executive shall be conclusive; PROVIDED,
HOWEVER, that an isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(f)(1) through (5) which occurs prior to a
Change in Control, but was at the request of a Third Party who effectuates a
Change in Control, shall constitute Good Reason following a Change in Control
for purposes of this Agreement notwithstanding that it occurred prior to the
Change in Control.
(g) "Nonqualifying Termination" means a termination of Executive's
employment (1) by the Company for Cause, (2) by Executive for any reason other
than a Good Reason, (3) as a result of Executive's death, (4) by the Company due
to Executive's absence from his duties with the Company on a full-time basis for
at least one hundred eighty consecutive days as a result of Executive's
incapacity due to physical or mental illness or (5) as a result of Executive's
lawful mandatory retirement or (6) Executive's voluntary retirement pursuant to
any retirement incentive plan of the Company. The parties hereto expressly
understand and agree that a termination by Executive of his employment in
accordance with the first sentence of the second paragraph of Section 1(f) shall
be deemed to be a termination by the Executive for Good Reason and thus shall
not be a Nonqualifying Termination.
(h) "Pension Plan" means the Company's defined benefit pension plan
currently known as the "Brenco Retirement Plan" or any successor plan and any
other employee benefit plans of the Company that require any minimum period of
employment as a condition to the receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earliest to occur of (1) Executive's 62nd
birthday, (2) Executive's death, and (3) two years following such Change in
Control.
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2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety days
following such Change in Control. For purposes of the foregoing subsection (a),
Good Reason shall be determined as if a Change in Control had occurred when such
attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to Executive (or Executive's beneficiary or estate) within
thirty days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i) Executive's
full annual base salary from the Company and its affiliated companies
through the Date of Termination, to the extent not theretofore paid, (ii)
Executive's annual bonus in an amount at least equal to the greatest of (A)
the average bonus (annualized for any fiscal year consisting of less than
twelve full months or with respect to which Executive has been employed by
the Company for less than twelve full months) paid or payable, including by
reason of any deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or such
portion thereof during which Executive performed services for the Company
if Executive shall have been employed by the Company for less than such
three fiscal year period) immediately preceding the fiscal year in which
the Change in Control occurs, or (B) 50% of Executive's target bonus for
the fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's Date of
Termination occurs, multiplied by (D) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is
three hundred sixty-five or three hundred sixty-six, as applicable, and
(iii) any compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest
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and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; PLUS
(2) a lump sum cash amount equal to the Executive's highest
annual rate of base salary from the company and its affiliated companies
in effect during the twelve-month period prior to the Date of Termination
multiplied by the number of years, including any partial year, remaining
from the Date of Termination to the date of the Executive's 62nd birthday
(with any partial year being expressed as a fraction the numerator of which
is the number of days remaining in such year and the denominator of which
is 365); provided, however, that any amount paid pursuant to this Section
3(a)(2) shall be paid in lieu of any other amount of severance relating to
salary or bonus compensation to be received by Executive upon termination
of employment of Executive under any severance plan, policy, employment
agreement or arrangement of the Company; AND PROVIDED FURTHER that in the
event of a termination of employment during the 30-day period immediately
following the first anniversary of the date of commencement of the
Termination Period in accordance with the last paragraph of Section 1(f)
hereof, the amount payable under this Section 3(a)(2) shall be reduced by
one-half.
(b) (1) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination other than by reason
of a Nonqualifying Termination, Executive shall not be fully vested in his
accrued benefit under the Pension Plan, the Company shall pay to Executive
within thirty days following the Date of Termination a lump sum cash amount
equal to the actuarial equivalent of his unvested accrued benefit under the
Brenco Retirement Plan as of such date. Such lump sum cash amount shall be
computed using the same actuarial methods and assumptions then in use for
purposes of computing benefits under the Brenco Retirement Plan, provided
that the interest rate used in making such computation shall not be greater
than the interest rate permitted under Section 417(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
(2) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination other than by reason
of a Nonqualifying Termination, Executive shall not be fully vested in the
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employer contributions made on his behalf under any defined contribution
plan of the Company, the Company shall pay to Executive within thirty days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; PROVIDED, HOWEVER,
that if any payment pursuant to this Section 3(b) (2) may or would result
in such payment being deemed a transaction which is subject to Section
16(b) of the Exchange Act, the Company shall make such payment so as to
meet the conditions for an exemption from such Section 16(b) as set forth
in the rules (and interpretative and no-action letters relating thereto)
under Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of Termination;
provided that for purposes of valuing common stock of the Company that may
be a part of any such plan, if the common stock of the Company is traded on
a national securities exchange or The Nasdaq National Market on the Date of
Termination, the value of a share of common stock of the Company shall be
the closing price on the national securities exchange or NASDAQ on the Date
of Termination or, if such date is not a trading day, on the immediately
preceding trading day.
(3) For a period commencing on the Date of Termination and
continuing until the Executive's 62nd birthday, the Company shall continue
to keep in full force and effect (or otherwise provide) all policies of
medical, accident, disability and life insurance with respect to Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination (or, if more favorable to
Executive, immediately prior to the Change in Control), and the Company and
Executive shall share the costs of the continuation of such insurance
coverage in the same proportion as such costs were shared immediately prior
to the Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to Executive within thirty days following the Date of Termination, a cash
amount equal to the sum of (1) Executive's full annual base salary from the
Company through the Date of Termination, to the extent not theretofore paid and
(2) any compensation previously deferred by Executive other than pursuant to a
tax-qualified plan (together with any interest and earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid.
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4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, Executive under this Agreement or
under any other plan or agreement which became payable or are taken into account
as a result of the Change in Control (the "Payments") shall be reduced (but not
below zero) to the extent necessary so that no payment to be made, or benefit to
be provided, to Executive or for his benefit under this Agreement or any other
plan or agreement shall be subject to the imposition of an excise tax under
Section 4999 of the Code (such reduced amount is hereinafter referred to as the
"Limited Payment Amount"). Unless Executive shall have given prior written
notice specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
(b) All determinations required to be made under this Section 4 shall
be made by the Company's public accounting firm (the "Accounting Firm"). The
Accounting Firm shall provide its calculations, together with detailed
supporting documentation, both to the Company and Executive within fifteen days
after the receipt of notice from the Company that there has been a Payment (or
at such earlier times as is requested by the Company) and, with respect to any
Limited Payment Amount, a reasonable opinion to Executive that he is not
required to report any excise tax on his federal income tax return with respect
to the Limited Payment Amount (collectively, the "Determination"). In the event
that the Accounting Firm is serving as an accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized public accounting firm to make the
determination required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees, costs and expenses (including,
but not limited to, the costs of retaining experts) of the Accounting Firm shall
be borne by the Company. The Determination by the Accounting Firm shall be
binding upon the Company and Executive (except as provided in paragraph (c)
below).
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(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Executive by the Company, which are in excess of the limitations
provided in Section 4 (hereinafter referred to as an "Excess Payment"), such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment and Executive shall repay the
Excess Payment to the Company on demand, together with interest on the Excess
Payment at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt
of such Excess Payment until the date of such repayment. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 4. In the event that it is
determined (i) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (ii) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with the
Company or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute, subject to the conditions set forth in
the following sentences, together with interest in an amount equal to the prime
rate of Crestar Bank from time to time in effect, but in no event higher than
the maximum legal rate permissible under applicable law, such interest to accrue
from the date the Company receives Executive's statement for such fees and
expenses through the date of payment thereof. The Company shall have no
obligation to reimburse Executive for legal fees and expenses pursuant to this
Section 6
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in the event that a court of competent jurisdiction ultimately determines that
Executive's position asserted in any contest or dispute litigated by Executive
was without merit. Executive hereby agrees that, in the event of such a
determination, Executive will repay the Company the amount of any legal fees or
expenses advanced by the Company to Executive prior to such determination.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective on
the date hereof and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 7; PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the first to occur of (i) Executive's 62nd birthday,
(ii) Executive's death or (iii) termination of Executive's Employment with the
Company prior to a Change in Control (except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least one
hundred twenty days after notice thereunder is given by the Company to Executive
in accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED, FURTHER, that in no event
shall this Agreement be terminated without the consent of Executive following a
Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its subsidiaries,
and if Executive's employment with the Company shall terminate prior to a Change
in Control, Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of Executive's employment during the
two-year period following a Change in Control shall be subject to all of the
provisions of this Agreement.
9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by Executive
during Executive's employment by the Company or any of its affiliated
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companies and which shall not be or become public knowledge (other than by acts
by Executive or representatives of Executive in violation of this Agreement).
After termination of Executive's employment with the Company, Executive shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to Executive under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to Executive (or his beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall constitute Good
Reason hereunder and shall entitle Executive to compensation and other benefits
from the Company in the same amount and on the same terms as Executive would be
entitled hereunder if Executive's employment were terminated following a Change
in Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the date Good Reason occurs, and
shall be the Date of Termination if requested by Executive.
(c) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
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such person or persons appointed in writing by Executive to receive such amounts
or, if no person is so appointed, to Executive's estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
________________
________________
________________
________________
If to the Company:
Brenco, Incorporated
Suite 201
One Park West Circle
Midlothian, VA 23113
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance therewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the Termination Date (which date shall be not
less than fifteen days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder
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shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against Executive or others.
In no event shall Executive be obligated to seek other employment or take other
action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not Executive obtains other employment.
(b) If there shall be any dispute between the Company and Executive
in the event of any termination of Executive's employment, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, that the
determination by Executive of the existence of Good Reason was not made in good
faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other beneficiaries, as
the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by Executive with Good Reason;
PROVIDED, HOWEVER, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of Executive to repay all such amounts to which Executive is
ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia without regard
to the principle of conflicts of laws. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which other provisions shall remain in
full force and effect.
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15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. Failure by
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right Executive or the Company may have
hereunder, including without limitation, the right of Executive to terminate
employment for Good Reason, shall not be deemed to be a waiver of such provision
or right or any other provision or right of this Agreement. The rights of, and
benefits payable to, Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, Executives,
his estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
BRENCO, INCORPORATED
BY:
------------------------------------------
TITLE:
---------------------------------------
EXECUTIVE
---------------------------------------------
---------------------------------------------
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EXHIBIT E4
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996 by and
between Brenco, Incorporated, a Virginia corporation (the "Company"), and Howard
J. Bush ("Executive").
RECITALS
I. Executive currently serves as a key employee member of management of
the Company and his services and knowledge are valuable to the Company.
II. The Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its stockholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether Executive
might be hindered or distracted by personal uncertainties and risks created by
any such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company, the Board has authorized the Company to enter
into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the duties
and responsibilities of Executive (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach or (2) the commission by Executive of a felony
involving moral turpitude.
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Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth in this Section 1(b) and specifying the
particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a
Change in Control: (A) any acquisition by the Company, (B) any acquisition
directly from the Company, (C) any acquisition by, or benefit distribution
from, an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (D) any
acquisition pursuant to any compensatory stock option or stock purchase
plan for employees, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (3) of
this Section (1)(c) shall be satisfied, or (F) any acquisition by the
Executive or any group of persons including the Executive; or (G) the
acquisition by members of the Whitfield Family (as hereinafter defined),
individually or collectively, of any direct or indirect beneficial
ownership in addition to the individual or collective beneficial ownership
of members of the Whitfield Family which exists on the date hereof; and
PROVIDED FURTHER that, for purposes of clause (A), if any Person (other
than the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company)
shall become the beneficial owner of fifty percent (50%) or more of the
Outstanding Company
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Common Stock or fifty percent (50%) or more of the Outstanding Company
Voting Securities by reason of an acquisition by the Company and such
Person shall, after such acquisition by the Company, become the beneficial
owner of any additional shares of the Outstanding Company Common Stock or
any additional Outstanding Voting Securities, such additional beneficial
ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; PROVIDED, HOWEVER, that any individual who becomes
a director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and
PROVIDED FURTHER, that no individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than fifty percent (50%) of the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation
and more than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
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corporation resulting from such reorganization, merger or consolidation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
of such corporation or twenty percent (20%) or more of the combined voting
power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the Corporation resulting from
such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, immediately after such
sale or other disposition, (A) more than fifty percent (50%) of the then
outstanding shares of common stock thereof and more than fifty percent
(50%) of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, twenty percent (20%) or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
thereof or twenty
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percent (20%) or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition.
For purposes of Section 1(c)(1), "Whitfield Family" shall mean (I) Needham B.
Whitfield and members of his "immediate family" (as that term is defined in Rule
16a-1(e) under the Exchange Act), (ii) Anne Whitfield Kenny and members of her
immediate family, (iii) the Estate of Mildred F. Whitfield and (iv) and in each
of the foregoing instances, their respective personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
Notwithstanding anything contained in the Agreement to the contrary, it is
understood that the collective beneficial ownership of members of the Whitfield
Family as of the date hereof shall not constitute, or be construed or deemed to
constitute, a Change of Control.
Furthermore, notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") who effectuates a
Change in Control, then for all purposes of this Agreement, the date of a Change
in Control shall mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Company" means Brenco, Incorporated, a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or Executive, as the case may be, to the other, delivered
pursuant to Section 11 or (2) if Executive's employment by the Company
terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
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(1) (i) the assignment to Executive of any duties inconsistent
in any material adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control, (ii) a material adverse change in Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or
involuntary termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect Executive
to any position with the Company held by Executive immediately prior to
such Change in Control;
(2) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same has been increased thereafter;
(3) any requirement of the Company that Executive (i) be based
anywhere more than thirty-five miles from the facility where Executive is
located at the time of the Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which Executive is
participating immediately prior to such Change in Control, unless Executive
is permitted to participate in other plans providing Executive with
substantially comparable benefits, or the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such
Change in Control, (iii) provide fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or (iv) provide Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
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(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
In addition, a termination by Executive of his employment for any reason
during the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period shall be deemed to be termination by
Executive for Good Reason. For purposes of this Agreement, any good faith
determination of Good Reason made by Executive shall be conclusive; PROVIDED,
HOWEVER, that an isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(f)(1) through (5) which occurs prior to a
Change in Control, but was at the request of a Third Party who effectuates a
Change in Control, shall constitute Good Reason following a Change in Control
for purposes of this Agreement notwithstanding that it occurred prior to the
Change in Control.
(g) "Nonqualifying Termination" means a termination of Executive's
employment (1) by the Company for Cause, (2) by Executive for any reason other
than a Good Reason, (3) as a result of Executive's death, (4) by the Company due
to Executive's absence from his duties with the Company on a full-time basis for
at least one hundred eighty consecutive days as a result of Executive's
incapacity due to physical or mental illness or (5) as a result of Executive's
lawful mandatory retirement or (6) Executive's voluntary retirement pursuant to
any retirement incentive plan of the Company. The parties hereto expressly
understand and agree that a termination by Executive of his employment in
accordance with the first sentence of the second paragraph of Section 1(f) shall
be deemed to be a termination by the Executive for Good Reason and thus shall
not be a Nonqualifying Termination.
(h) "Pension Plan" means the Company's defined benefit pension plan
currently known as the "Brenco Retirement Plan" or any successor plan and any
other employee benefit plans of the Company that require any minimum period of
employment as a condition to the receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earliest to occur of (1) Executive's 62nd
birthday, (2) Executive's death, and (3) two years following such Change in
Control.
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2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety days
following such Change in Control. For purposes of the foregoing subsection (a),
Good Reason shall be determined as if a Change in Control had occurred when such
attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to Executive (or Executive's beneficiary or estate) within
thirty days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i) Executive's
full annual base salary from the Company and its affiliated companies
through the Date of Termination, to the extent not theretofore paid, (ii)
Executive's annual bonus in an amount at least equal to the greatest of (A)
the average bonus (annualized for any fiscal year consisting of less than
twelve full months or with respect to which Executive has been employed by
the Company for less than twelve full months) paid or payable, including by
reason of any deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or such
portion thereof during which Executive performed services for the Company
if Executive shall have been employed by the Company for less than such
three fiscal year period) immediately preceding the fiscal year in which
the Change in Control occurs, or (B) 50% of Executive's target bonus for
the fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's Date of
Termination occurs, multiplied by (D) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is
three hundred sixty-five or three hundred sixty-six, as applicable, and
(iii) any compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest
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and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; PLUS
(2) a lump-sum cash amount equal to (i) two times Executive's
highest annual rate of base salary from the Company and its affiliated
companies in effect during the twelve-month period prior to the Date of
Termination; PROVIDED, HOWEVER, that in the event there are fewer than
twenty-four whole months remaining from the Date of Termination to the date
of Executive's 62nd birthday, the amount payable under this Section 3(a)
(2) shall be calculated by multiplying the amount otherwise payable by a
fraction the numerator of which is the number of months, including a
partial month (with a partial month being expressed as a fraction the
numerator of which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so remaining and
the denominator of which is twenty-four; PROVIDED FURTHER, that any amount
paid pursuant to this Section 3(a) (2) shall be paid in lieu of any other
amount of severance relating to salary or bonus compensation to be received
by Executive upon termination of employment of Executive under any
severance plan, policy, employment agreement or arrangement of the Company;
AND PROVIDED FURTHER that in the event of a termination of employment
during the 30-day period immediately following the first anniversary of the
date of commencement of the Termination Period in accordance with the last
paragraph of Section 1(f) hereof, the amount payable under this Section
3(a)(2) shall be reduced by one-half.
(b) (1) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination other than by reason
of a Nonqualifying Termination, Executive shall not be fully vested in his
accrued benefit under the Pension Plan, the Company shall pay to Executive
within thirty days following the Date of Termination a lump sum cash amount
equal to the actuarial equivalent of his unvested accrued benefit under the
Brenco Retirement Plan as of such date. Such lump sum cash amount shall be
computed using the same actuarial methods and assumptions then in use for
purposes of computing benefits under the Brenco Retirement Plan, provided
that the interest rate used in making such computation shall not be greater
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than the interest rate permitted under Section 417(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
(2) In addition to the payments to be made pursuant to paragraph (a)
of this Section 3, if on the Date of Termination other than by reason of a
Nonqualifying Termination, Executive shall not be fully vested in the
employer contributions made on his behalf under any defined contribution
plan of the Company, the Company shall pay to Executive within thirty days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; PROVIDED, HOWEVER,
that if any payment pursuant to this Section 3(b) (2) may or would result
in such payment being deemed a transaction which is subject to Section
16(b) of the Exchange Act, the Company shall make such payment so as to
meet the conditions for an exemption from such Section 16(b) as set forth
in the rules (and interpretative and no-action letters relating thereto)
under Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of Termination;
provided that for purposes of valuing common stock of the Company that may
be a part of any such plan, if the common stock of the Company is traded
on a national securities exchange or The Nasdaq National Market on the Date
of Termination, the value of a share of common stock of the Company shall
be the closing price on the national securities exchange or NASDAQ on the
Date of Termination or, if such date is not a trading day, on the
immediately preceding trading day.
(3) For a period of two years commencing on the Date of
Termination, the Company shall continue to keep in full force and effect
(or otherwise provide) all policies of medical, accident, disability and
life insurance with respect to Executive and his dependents with the same
level of coverage, upon the same terms and otherwise to the same extent as
such policies shall have been in effect immediately prior to the Date of
Termination (or, if more favorable to Executive, immediately prior to the
Change in Control), and the Company and Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such
costs were shared immediately prior to the Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to Executive within thirty days following the Date of Termination, a cash
amount
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equal to the sum of (1) Executive's full annual base salary from the Company
through the Date of Termination, to the extent not theretofore paid and (2) any
compensation previously deferred by Executive other than pursuant to a tax-
qualified plan (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, Executive under this Agreement or
under any other plan or agreement which became payable or are taken into account
as a result of the Change in Control (the "Payments") shall be reduced (but not
below zero) to the extent necessary so that no payment to be made, or benefit to
be provided, to Executive or for his benefit under this Agreement or any other
plan or agreement shall be subject to the imposition of an excise tax under
Section 4999 of the Code (such reduced amount is hereinafter referred to as the
"Limited Payment Amount"). Unless Executive shall have given prior written
notice specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
(b) All determinations required to be made under this Section 4 shall
be made by the Company's public accounting firm (the "Accounting Firm"). The
Accounting Firm shall provide its calculations, together with detailed
supporting documentation, both to the Company and Executive within fifteen days
after the receipt of notice from the Company that there has been a Payment (or
at such earlier times as is requested by the Company) and, with respect to any
Limited Payment Amount, a reasonable opinion to Executive that he is not
required to report any excise tax on his federal income tax return with respect
to the Limited Payment Amount (collectively, the "Determination"). In the event
that the Accounting Firm is serving as an accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized public accounting firm to make the
determination required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees, costs and expenses
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(including, but not limited to, the costs of retaining experts) of the
Accounting Firm shall be borne by the Company. The Determination by the
Accounting Firm shall be binding upon the Company and Executive (except as
provided in paragraph (c) below).
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Executive by the Company, which are in excess of the limitations
provided in Section 4 (hereinafter referred to as an "Excess Payment"), such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment and Executive shall repay the
Excess Payment to the Company on demand, together with interest on the Excess
Payment at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt
of such Excess Payment until the date of such repayment. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 4. In the event that it is
determined (i) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (ii) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with the
Company or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute, subject to the conditions set forth in
the following sentences, together with interest in an amount equal to the prime
rate of Crestar
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Bank from time to time in effect, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives Executive's statement for such fees and expenses through the
date of payment thereof. The Company shall have no obligation to reimburse
Executive for legal fees and expenses pursuant to this Section 6 in the event
that a court of competent jurisdiction ultimately determines that Executive's
position asserted in any contest or dispute litigated by Executive was without
merit. Executive hereby agrees that, in the event of such a determination,
Executive will repay the Company the amount of any legal fees or expenses
advanced by the Company to Executive prior to such determination.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective on
the date hereof and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 7; PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the first to occur of (i) Executive's 62nd birthday,
(ii) Executive's death or (iii) termination of Executive's Employment with the
Company prior to a Change in Control (except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least one
hundred twenty days after notice thereunder is given by the Company to Executive
in accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED, FURTHER, that in no event
shall this Agreement be terminated without the consent of Executive following a
Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its subsidiaries,
and if Executive's employment with the Company shall terminate prior to a Change
in Control, Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of Executive's employment during the
two-year period following a Change in Control shall be subject to all of the
provisions of this Agreement.
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9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by Executive
during Executive's employment by the Company or any of its affiliated companies
and which shall not be or become public knowledge (other than by acts by
Executive or representatives of Executive in violation of this Agreement).
After termination of Executive's employment with the Company, Executive shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to Executive under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to Executive (or his beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall constitute Good
Reason hereunder and shall entitle Executive to compensation and other benefits
from the Company in the same amount and on the same terms as Executive would be
entitled hereunder if Executive's employment were terminated following a Change
in Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the date Good Reason occurs, and
shall be the Date of Termination if requested by Executive.
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(c) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so
appointed, to Executive's estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
________________
________________
________________
________________
If to the Company:
Brenco, Incorporated
Suite 201
One Park West Circle
Midlothian, VA 23113
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance therewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the Termination Date (which date shall be not
less than fifteen days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of
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Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and, such amounts shall not be reduced whether or not Executive obtains other
employment.
(b) If there shall be any dispute between the Company and Executive
in the event of any termination of Executive's employment, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, that the
determination by Executive of the existence of Good Reason was not made in good
faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other beneficiaries, as
the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by Executive with Good Reason;
PROVIDED, HOWEVER, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of Executive to repay all such amounts to which Executive is
ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia without regard
to the
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principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive
or the Company to insist upon strict compliance with any provision of this
Agreement or to assert any right Executive or the Company may have hereunder,
including without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement. The rights of, and benefits
payable to, Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, Executives,
his estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
BRENCO, INCORPORATED
BY:
------------------------------------------
TITLE:
---------------------------------------
EXECUTIVE
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---------------------------------------------
---------------------------------------------
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EXHIBIT E5
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996 by and
between Brenco, Incorporated, a Virginia corporation (the "Company"), and Donald
E. Fitzsimmons ("Executive").
RECITALS
I. Executive currently serves as a key employee member of management of
the Company and his services and knowledge are valuable to the Company.
II. The Board (as defined in Section 1) has determined that it is in the
best interests of the Company and its stockholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether Executive
might be hindered or distracted by personal uncertainties and risks created by
any such possible Change in Control, and to encourage Executive's full attention
and dedication to the Company, the Board has authorized the Company to enter
into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by Executive of the duties
and responsibilities of Executive (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach or (2) the commission by Executive of a felony
involving moral turpitude.
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Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-quarters of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the Executive
was guilty of the conduct set forth in this Section 1(b) and specifying the
particulars thereof in detail.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a
Change in Control: (A) any acquisition by the Company, (B) any acquisition
directly from the Company, (C) any acquisition by, or benefit distribution
from, an employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, (D) any
acquisition pursuant to any compensatory stock option or stock purchase
plan for employees, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if,
immediately after such reorganization, merger or consolidation, each of the
conditions described in clauses (i), (ii) and (iii) of subsection (3) of
this Section (1)(c) shall be satisfied, or (F) any acquisition by the
Executive or any group of persons including the Executive; or (G) the
acquisition by members of the Whitfield Family (as hereinafter defined),
individually or collectively, of any direct or indirect beneficial
ownership in addition to the individual or collective beneficial ownership
of members of the Whitfield Family which exists on the date hereof; and
PROVIDED FURTHER that, for purposes of clause (A), if any Person (other
than the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company)
shall become the beneficial owner of fifty percent (50%) or more of the
Outstanding Company
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Common Stock or fifty percent (50%) or more of the Outstanding Company
Voting Securities by reason of an acquisition by the Company and such
Person shall, after such acquisition by the Company, become the beneficial
owner of any additional shares of the Outstanding Company Common Stock or
any additional Outstanding Voting Securities, such additional beneficial
ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; PROVIDED, HOWEVER, that any individual who becomes
a director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and
PROVIDED FURTHER, that no individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than fifty percent (50%) of the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation
and more than fifty percent (50%) of the combined voting power of the then
outstanding securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (other than the Company, any employee benefit plan (or
related trust) sponsored or maintained by the Company or the
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corporation resulting from such reorganization, merger or consolidation (or
any corporation controlled by the Company), or any Person which
beneficially owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty percent (20%) or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
of such corporation or twenty percent (20%) or more of the combined voting
power of the then outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the Corporation resulting from
such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, immediately after such
sale or other disposition, (A) more than fifty percent (50%) of the then
outstanding shares of common stock thereof and more than fifty percent
(50%) of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, twenty percent (20%) or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding shares of common stock
thereof or twenty
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percent (20%) or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale or
other disposition.
For purposes of Section 1(c)(1), "Whitfield Family" shall mean (I) Needham B.
Whitfield and members of his "immediate family" (as that term is defined in Rule
16a-1(e) under the Exchange Act), (ii) Anne Whitfield Kenny and members of her
immediate family, (iii) the Estate of Mildred F. Whitfield and (iv) and in each
of the foregoing instances, their respective personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
Notwithstanding anything contained in the Agreement to the contrary, it is
understood that the collective beneficial ownership of members of the Whitfield
Family as of the date hereof shall not constitute, or be construed or deemed to
constitute, a Change of Control.
Furthermore, notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") who effectuates a
Change in Control, then for all purposes of this Agreement, the date of a Change
in Control shall mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Company" means Brenco, Incorporated, a Virginia corporation.
(e) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or Executive, as the case may be, to the other, delivered
pursuant to Section 11 or (2) if Executive's employment by the Company
terminates by reason of death, the date of death of Executive.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
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(1) (i) the assignment to Executive of any duties inconsistent
in any material adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control, (ii) a material adverse change in Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or
involuntary termination of Executive from the Company otherwise than as
expressly permitted by this Agreement or any failure to re-elect Executive
to any position with the Company held by Executive immediately prior to
such Change in Control;
(2) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same has been increased thereafter;
(3) any requirement of the Company that Executive (i) be based
anywhere more than thirty-five miles from the facility where Executive is
located at the time of the Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which Executive is
participating immediately prior to such Change in Control, unless Executive
is permitted to participate in other plans providing Executive with
substantially comparable benefits, or the taking of any action by the
Company which would adversely affect Executive's participation in or
materially reduce Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such
Change in Control, (iii) provide fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or (iv) provide Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices
of the Company and its affiliated companies as in effect for Executive
immediately prior to such Change in Control; or
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(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
In addition, a termination by Executive of his employment for any reason
during the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period shall be deemed to be termination by
Executive for Good Reason. For purposes of this Agreement, any good faith
determination of Good Reason made by Executive shall be conclusive; PROVIDED,
HOWEVER, that an isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(f)(1) through (5) which occurs prior to a
Change in Control, but was at the request of a Third Party who effectuates a
Change in Control, shall constitute Good Reason following a Change in Control
for purposes of this Agreement notwithstanding that it occurred prior to the
Change in Control.
(g) "Nonqualifying Termination" means a termination of Executive's
employment (1) by the Company for Cause, (2) by Executive for any reason other
than a Good Reason, (3) as a result of Executive's death, (4) by the Company due
to Executive's absence from his duties with the Company on a full-time basis for
at least one hundred eighty consecutive days as a result of Executive's
incapacity due to physical or mental illness or (5) as a result of Executive's
lawful mandatory retirement or (6) Executive's voluntary retirement pursuant to
any retirement incentive plan of the Company. The parties hereto expressly
understand and agree that a termination by Executive of his employment in
accordance with the first sentence of the second paragraph of Section 1(f) shall
be deemed to be a termination by the Executive for Good Reason and thus shall
not be a Nonqualifying Termination.
(h) "Pension Plan" means the Company's defined benefit pension plan
currently known as the "Brenco Retirement Plan" or any successor plan and any
other employee benefit plans of the Company that require any minimum period of
employment as a condition to the receipt of retirement benefits thereunder.
(i) "Termination Period" means the period of time beginning with a
Change in Control and ending on the earliest to occur of (1) Executive's 62nd
birthday, (2) Executive's death, and (3) two years following such Change in
Control.
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2. OBLIGATIONS OF EXECUTIVE. Executive agrees that in the event any
person or group attempts a Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety days
following such Change in Control. For purposes of the foregoing subsection (a),
Good Reason shall be determined as if a Change in Control had occurred when such
attempted Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to Executive (or Executive's beneficiary or estate) within
thirty days following the Date of Termination, as compensation for services
rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (i) Executive's
full annual base salary from the Company and its affiliated companies
through the Date of Termination, to the extent not theretofore paid, (ii)
Executive's annual bonus in an amount at least equal to the greatest of (A)
the average bonus (annualized for any fiscal year consisting of less than
twelve full months or with respect to which Executive has been employed by
the Company for less than twelve full months) paid or payable, including by
reason of any deferral, to Executive by the Company and its affiliated
companies in respect of the three fiscal years of the Company (or such
portion thereof during which Executive performed services for the Company
if Executive shall have been employed by the Company for less than such
three fiscal year period) immediately preceding the fiscal year in which
the Change in Control occurs, or (B) 50% of Executive's target bonus for
the fiscal year in which the Change in Control occurs, or (C) 50% of
Executive's target bonus for the fiscal year in which Executive's Date of
Termination occurs, multiplied by (D) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is
three hundred sixty-five or three hundred sixty-six, as applicable, and
(iii) any compensation previously deferred by Executive other than pursuant
to a tax-qualified plan (together with any interest
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and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; PLUS
(2) a lump-sum cash amount equal to (i) one times Executive's
highest annual rate of base salary from the Company and its affiliated
companies in effect during the twelve-month period prior to the Date of
Termination; PROVIDED, HOWEVER, that in the event there are fewer than
twelve whole months remaining from the Date of Termination to the date of
Executive's 62nd birthday, the amount payable under this Section 3(a) (2)
shall be calculated by multiplying the amount otherwise payable by a
fraction the numerator of which is the number of months, including a
partial month (with a partial month being expressed as a fraction the
numerator of which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so remaining and
the denominator of which is twelve; PROVIDED FURTHER, that any amount paid
pursuant to this Section 3(a) (2) shall be paid in lieu of any other amount
of severance relating to salary or bonus compensation to be received by
Executive upon termination of employment of Executive under any severance
plan, policy, employment agreement or arrangement of the Company; AND
PROVIDED FURTHER that in the event of a termination of employment during
the 30-day period immediately following the first anniversary of the date
of commencement of the Termination Period in accordance with the last
paragraph of Section 1(f) hereof, the amount payable under this Section
3(a)(2) shall be reduced by one-half.
(b) (1) In addition to the payments to be made pursuant to paragraph
(a) of this Section 3, if on the Date of Termination other than by reason
of a Nonqualifying Termination, Executive shall not be fully vested in his
accrued benefit under the Pension Plan, the Company shall pay to Executive
within thirty days following the Date of Termination a lump sum cash amount
equal to the actuarial equivalent of his unvested accrued benefit under the
Brenco Retirement Plan as of such date. Such lump sum cash amount shall be
computed using the same actuarial methods and assumptions then in use for
purposes of computing benefits under the Brenco Retirement Plan, provided
that the interest rate used in making such computation shall not be greater
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than the interest rate permitted under Section 417(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
(2) In addition to the payments to be made pursuant to paragraph (a)
of this Section 3, if on the Date of Termination other than by reason of a
Nonqualifying Termination, Executive shall not be fully vested in the
employer contributions made on his behalf under any defined contribution
plan of the Company, the Company shall pay to Executive within thirty days
following the Date of Termination a lump sum cash amount equal to the value
of the unvested portion of such employer contributions; PROVIDED, HOWEVER,
that if any payment pursuant to this Section 3(b) (2) may or would result
in such payment being deemed a transaction which is subject to Section
16(b) of the Exchange Act, the Company shall make such payment so as to
meet the conditions for an exemption from such Section 16(b) as set forth
in the rules (and interpretative and no-action letters relating thereto)
under Section 16 of the Exchange Act. The value of any such unvested
employer contributions shall be determined as of the Date of Termination;
provided that for purposes of valuing common stock of the Company that may
be a part of any such plan, if the common stock of the Company is traded on
a national securities exchange or The Nasdaq National Market on the Date of
Termination, the value of a share of common stock of the Company shall be
the closing price on the national securities exchange or NASDAQ on the Date
of Termination or, if such date is not a trading day, on the immediately
preceding trading day.
(3) For a period of one year commencing on the Date of
Termination, the Company shall continue to keep in full force and effect
(or otherwise provide) all policies of medical, accident, disability and
life insurance with respect to Executive and his dependents with the same
level of coverage, upon the same terms and otherwise to the same extent as
such policies shall have been in effect immediately prior to the Date of
Termination (or, if more favorable to Executive, immediately prior to the
Change in Control), and the Company and Executive shall share the costs of
the continuation of such insurance coverage in the same proportion as such
costs were shared immediately prior to the Date of Termination.
(c) If during the Termination Period the employment of Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to Executive within thirty days following the Date of Termination, a cash
amount
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equal to the sum of (1) Executive's full annual base salary from the Company
through the Date of Termination, to the extent not theretofore paid and (2) any
compensation previously deferred by Executive other than pursuant to a tax-
qualified plan (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
4. EXCISE TAX LIMITATION. (a) Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, Executive under this Agreement or
under any other plan or agreement which became payable or are taken into account
as a result of the Change in Control (the "Payments") shall be reduced (but not
below zero) to the extent necessary so that no payment to be made, or benefit to
be provided, to Executive or for his benefit under this Agreement or any other
plan or agreement shall be subject to the imposition of an excise tax under
Section 4999 of the Code (such reduced amount is hereinafter referred to as the
"Limited Payment Amount"). Unless Executive shall have given prior written
notice specifying a different order to the Company, the Company shall reduce or
eliminate the Payments to Executive by first reducing or eliminating those
payments or benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other plan,
arrangement or agreement governing Executive's rights and entitlements to any
benefits or compensation.
(b) All determinations required to be made under this Section 4 shall
be made by the Company's public accounting firm (the "Accounting Firm"). The
Accounting Firm shall provide its calculations, together with detailed
supporting documentation, both to the Company and Executive within fifteen days
after the receipt of notice from the Company that there has been a Payment (or
at such earlier times as is requested by the Company) and, with respect to any
Limited Payment Amount, a reasonable opinion to Executive that he is not
required to report any excise tax on his federal income tax return with respect
to the Limited Payment Amount (collectively, the "Determination"). In the event
that the Accounting Firm is serving as an accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized public accounting firm to make the
determination required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees, costs and expenses
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<PAGE>
(including, but not limited to, the costs of retaining experts) of the
Accounting Firm shall be borne by the Company. The Determination by the
Accounting Firm shall be binding upon the Company and Executive (except as
provided in paragraph (c) below).
(c) If it is established pursuant to a final determination of a court
or an Internal Revenue Service (the "IRS") proceeding which has been finally and
conclusively resolved, that Payments have been made to, or provided for the
benefit of, Executive by the Company, which are in excess of the limitations
provided in Section 4 (hereinafter referred to as an "Excess Payment"), such
Excess Payment shall be deemed for all purposes to be a loan to Executive made
on the date Executive received the Excess Payment and Executive shall repay the
Excess Payment to the Company on demand, together with interest on the Excess
Payment at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of Executive's receipt
of such Excess Payment until the date of such repayment. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
Determination, it is possible that Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made under this Section 4. In the event that it is
determined (i) by the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS or (ii) pursuant to a determination by a
court, that an Underpayment has occurred, the Company shall pay an amount equal
to such Underpayment to Executive within ten days of such determination together
with interest on such amount at the applicable federal rate from the date such
amount would have been paid to Executive until the date of payment.
5. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of Executive's employment with the
Company or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute, subject to the conditions set forth in
the following sentences, together with interest in an amount equal to the prime
rate of Crestar
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<PAGE>
Bank from time to time in effect, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives Executive's statement for such fees and expenses through the
date of payment thereof. The Company shall have no obligation to reimburse
Executive for legal fees and expenses pursuant to this Section 6 in the event
that a court of competent jurisdiction ultimately determines that Executive's
position asserted in any contest or dispute litigated by Executive was without
merit. Executive hereby agrees that, in the event of such a determination,
Executive will repay the Company the amount of any legal fees or expenses
advanced by the Company to Executive prior to such determination.
7. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective on
the date hereof and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 7; PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the first to occur of (i) Executive's 62nd birthday,
(ii) Executive's death or (iii) termination of Executive's Employment with the
Company prior to a Change in Control (except as otherwise provided hereunder).
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least one
hundred twenty days after notice thereunder is given by the Company to Executive
in accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED, FURTHER, that in no event
shall this Agreement be terminated without the consent of Executive following a
Change in Control.
8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its subsidiaries,
and if Executive's employment with the Company shall terminate prior to a Change
in Control, Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of Executive's employment during the
two-year period following a Change in Control shall be subject to all of the
provisions of this Agreement.
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<PAGE>
9. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by Executive
during Executive's employment by the Company or any of its affiliated companies
and which shall not be or become public knowledge (other than by acts by
Executive or representatives of Executive in violation of this Agreement).
After termination of Executive's employment with the Company, Executive shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to Executive under this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to Executive (or his beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall constitute Good
Reason hereunder and shall entitle Executive to compensation and other benefits
from the Company in the same amount and on the same terms as Executive would be
entitled hereunder if Executive's employment were terminated following a Change
in Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the date Good Reason occurs, and
shall be the Date of Termination if requested by Executive.
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<PAGE>
(c) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so
appointed, to Executive's estate.
11. NOTICE. (a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to Executive:
________________
________________
________________
________________
If to the Company:
Brenco, Incorporated
Suite 201
One Park West Circle
Midlothian, VA 23113
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance therewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the
Company or Executive, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the Termination Date (which date shall be not
less than fifteen days after the giving of such notice). The failure by
Executive or the Company to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of
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<PAGE>
Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and, such amounts shall not be reduced whether or not Executive obtains other
employment.
(b) If there shall be any dispute between the Company and Executive
in the event of any termination of Executive's employment, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause, that the
determination by Executive of the existence of Good Reason was not made in good
faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other beneficiaries, as
the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by Executive with Good Reason;
PROVIDED, HOWEVER, that the Company shall not be required to pay any disputed
amounts pursuant to this paragraph except upon receipt of an undertaking by or
on behalf of Executive to repay all such amounts to which Executive is
ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Virginia without regard
to the
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<PAGE>
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive
or the Company to insist upon strict compliance with any provision of this
Agreement or to assert any right Executive or the Company may have hereunder,
including without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement. The rights of, and benefits
payable to, Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, Executives,
his estate or his beneficiaries under any other employee benefit plan or
compensation program of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
BRENCO, INCORPORATED
BY:
--------------------------------
TITLE:
-----------------------------
EXECUTIVE
-----------------------------------
-----------------------------------
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<PAGE>
EXHIBIT F
BRENCO, INCORPORATED
EXECUTIVE RETIREMENT INCENTIVE PLAN
Amended and Restated Effective March 22, 1996
Brenco, Incorporated (the "Company"), hereby amends and restates the
Brenco, Incorporated Executive Retirement Incentive Plan which was originally
adopted effective January 1, 1995 (the "Plan"), effective March 22, 1996.
1. DEFINITIONS.
A. "ACTUARIAL VALUE" - means "Actuarial Value" as defined in the
Retirement Plan.
B. "AVERAGE COMPENSATION" - means "Average Compensation" as defined in
the Retirement Plan except that, for purposes of the Plan, Average Compensation
shall include 100% of any bonuses, commissions or other cash incentives received
by a Participant instead of 75% as prescribed in the Retirement Plan, and shall
be determined without regard to the "Compensation Limit" contained in the Plan.
<PAGE>
C. "BASE BENEFIT" - means an amount equal to three percent (3%) of a
Participant's Average Compensation multiplied by his Years of Benefit Service,
up to a maximum of 20 years, determined at the time that benefit payments
commence under the Plan.
D. "CHANGE IN CONTROL" - means the occurrence of a "Change In Control" as
defined in the Change In Control Agreements entered into by the Company and
referenced on Addendum A attached hereto, as amended from time to time.
E. "COMMITTEE" - means the Compensation Committee of the Board of
Directors of the Employer.
F. "EMPLOYER" - means Brenco, Incorporated and any of its affiliates.
G. "OFFSET BENEFIT" - means an amount equal to the sum of (i) the single
life annuity retirement benefit which would be payable to the Participant under
the Retirement Plan, and (ii) the benefits which a Participant would be entitled
to receive under the Social Security Act at age 62, both of which to be
determined as of the time that benefit
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<PAGE>
payments commence under the Plan on the same basis (i.e. monthly or annual) that
the Base Benefit is computed.
H. "NORMAL RETIREMENT AGE" - means age 62.
I. "PARTICIPANT" - means an employee designated by the Committee as
eligible to participate in the Plan. Except as may be provided in Addendum A
attached hereto, the Committee may at any time terminate an employee's
designation as a Participant, in which case such employee's "Base Benefit" will
be frozen, but his "Offset Benefit" may continue to increase. A Participant
shall cease being a Participant in the event that his employment terminates
prior to his attaining age 55 other than on account of his death or disability
or as provided in Addendum A attached hereto.
J. "PLAN ADMINISTRATOR" - means Brenco, Incorporated.
K. "PLAN YEAR" - means the calendar year.
L. "RETIREMENT PLAN" - means the Brenco Retirement Plan.
M. "TRUST" - means the Trust established by the Employer pursuant to
Section 14 of the Plan.
N. "YEAR OF VESTING SERVICE" - means "Year of Vesting Service" as
determined under the Retirement Plan for vesting purposes.
3
<PAGE>
O. "YEAR OF BENEFIT SERVICE" - means "Year of Benefit Service" as
determined under the Retirement Plan for benefit accrual purposes.
2. PURPOSE. The Plan is intended to advance the interests of the Company
by providing a financial incentive to certain officers and other key executive
employees to retire from the Company at or before attaining the Normal
Retirement Age.
3. ADMINISTRATION OF PLAN. The Plan shall be administered by the
Committee. The Committee shall have the right to interpret the Plan, and all
decisions of the Committee with respect to the Plan shall be binding on all
Participants.
4. ELIGIBILITY AND PARTICIPATION. The Committee may from time to time
select employees who shall participate in the Plan. In selecting employees the
Committee shall consider the position and responsibilities of the eligible
employees, the total cash compensation and value of their services to the
Company, and such other factors as the Committee deems pertinent.
5. ELIGIBILITY FOR RETIREMENT INCENTIVE BENEFIT PAYMENTS AND COMPUTATION
OF BENEFIT AMOUNT. In order for a Participant to be eligible to receive the
Retirement Incentive Benefit described below, except as
4
<PAGE>
provided in Sections 7, 8 and 9 below, and Addendum A attached hereto, he must
(a) retire before the first day of the calendar quarter next following the date
on which he attains the Normal Retirement Age, (b) have at least five (5) Years
of Vesting Service on the date that he retires, and (c) be at least fifty five
(55) years old on the date that he retires.
The Retirement Incentive Benefit shall be an amount equal to the excess, if
any, of the Participant's Base Benefit over the Participant's Offset Benefit.
6. PAYMENTS FOLLOWING RETIREMENT ON OR BEFORE THE NORMAL RETIREMENT AGE.
If the conditions set forth in Section 5 are satisfied, the Retirement Incentive
Benefit shall be payable monthly for the Participant's life commencing on the
first day of the calendar quarter next following the date that the Participant
retires.
If Retirement Incentive Benefit payment commence before the first day of
the calendar quarter next following the date that the Participant attains the
Normal Retirement Age, the Retirement Incentive Benefit payment shall be reduced
in accordance with the table set forth below:
Age When Payments Commence Percentage of Benefit Payable *
-------------------------- -------------------------------
5
<PAGE>
62 100%
61 95%
60 90%
59 85%
58 80%
57 75%
56 68.8%
55 63.2%
*adjusted on a monthly basis for payments which commence between
birthdates.
After taking into account the reduction described above, if any, the
Retirement Incentive Benefit shall be paid in such form as the Participant
elects among the forms of payment available under the Retirement Plan; provided,
however, that such payments will be reduced, in accordance with computations
made by an actuary engaged by the Plan Administrator, in the event that the
benefit is paid in any form other than a Single Life Annuity for the life of the
Participant.
7. PAYMENTS FOLLOWING A PARTICIPANT'S DISABILITY. In the event that a
Participant's employment terminates on account of his disability, as
6
<PAGE>
defined in the Retirement Plan, before benefit payments have commenced pursuant
to Section 6 above, Retirement Incentive Benefit Payments will commence on the
date that benefit payments are first made to the Participant under the
Retirement Plan.
8. PAYMENTS TO A SPOUSE FOLLOWING A PARTICIPANT'S DEATH. If a
Participant dies after benefit payments have commenced under the Plan, his
spouse or other beneficiary will be entitled to receive benefit payments only if
the form of benefit payment originally selected by the Participant provides for
the continuation of benefit payments.
If a Participant who has been married to his spouse for at least one year
at the time of his death dies after attaining age 55 with at least five (5)
Years of Vesting Service before benefit payments have commenced under the Plan,
the Participant's spouse will receive benefit payments under the Plan commencing
on the first day of the calendar month immediately following the month in which
the Participant died. Such benefit shall be in the form of a single life
annuity payable monthly for the life of the Spouse. The amount of such annuity
shall equal the survivor annuity to which the spouse would have been entitled
under the Plan determined as if benefit payments to the Participant had
commenced on the day preceding the day of
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<PAGE>
his death under the Joint and 50% Spouse Survivor Annuity form of payment.
If a Participant who has been married to his spouse for at least one year
at the time of his death dies prior to attaining age 55 with at least five (5)
Years of Vesting Service, the Participant's spouse will receive benefit payments
under the Plan commencing on the first day of the calendar month in which the
Participant would have attained age 55 had he survived. Such benefit shall be
in the form of a single life annuity payable monthly for the life of the spouse.
The amount of such annuity shall equal the survivor annuity to which the spouse
would have been entitled under the Plan determined as if the Participant had
died on the day following the day that benefit payments to the Participant
commenced after he had attained age 55 under the Joint and 50% Spouse Survivor
Annuity form of payment.
9. PAYMENTS TO A DESIGNATED BENEFICIARY FOLLOWING A PARTICIPANT'S DEATH.
In the event that a Participant who has at least five (5) Years of Vesting
Service dies before benefit payments commence under the Plan, his designated
beneficiary may be entitled to receive a Supplemental Death Benefit. The
Supplemental Death Benefit is an amount, payable in
8
<PAGE>
the form of sixty (60) guaranteed monthly payments, equal to the Actuarial Value
of the excess of:
(i) The Actuarial Value of the guaranteed ten-year certain portion of
the benefit payment to which the Participant would have been entitled under
the Ten-Year Certain and Life Annuity form of payment had he commenced
receiving benefit payments under the Plan on the first day of the calendar
month coinciding with or next following the later of:
(A) the date of his death, or
(B) the first date on which he could have retired and received
benefit payments under the Plan, over
(ii) The Actuarial Value of the benefit payable to the Participant's
spouse, if any, payable under Section 8 of the Plan.
If the Participant dies after attaining age 55, the benefit payable
hereunder, if any, will commence on the first day of the calendar month
immediately following the month in which the Participant dies.
If the Participant dies prior to attaining age 55, the benefit payable
hereunder, if any, will commence on the first day of the calendar month
immediately following the month in which the Participant would have attained age
55 had he survived.
9
<PAGE>
10. CASH-OUT PROVISION. In the event that the present value of any
benefit payable under this Plan, as determined by an actuary engaged by the Plan
Administrator for this purpose, is $20,000 or less, such present value shall be
paid to the Participant, his spouse and/or his designated beneficiary as the
case may be, in a single lump sum payment as soon as practicable after such
determination is made.
11. NON-COMPETE PROVISION. The continuation of benefit payments under the
Plan will cease, and the right to all future payments under the Plan will be
forfeited, if the Participant, without the written consent of the Company
directly or indirectly enters into or in any manner takes part in any business,
profession or other endeavor which shall be in competition with the business of
the Company, either as an employee, agent, independent contractor, owner or
otherwise in any state or foreign country in which the Company is conducting
business.
12. LIMITATION ON BENEFITS. No Participant, spouse or beneficiary shall
have any right to receive benefits under the Plan prior to the termination of
the Participant's employment.
Except as provided in Addendum A attached hereto, in the event that a
Participant's employment terminates (i) before he attains the
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<PAGE>
age of fifty five (55) for any reason other than his death or disability, or
(ii) on or after the first day of the calendar quarter next following the date
that he attains the Normal Retirement Age, or in the event that a Participant
breaches the noncompete provision in paragraph 11, all rights of the
Participant, his spouse and/or his beneficiary shall be forfeited and all
obligations of the Company to make payments or further payments under the Plan
shall cease.
The Plan shall not give the Participant, his spouse, his beneficiary
or anyone else any right or claim to specific assets of the Company, regardless
of whether the Company establishes a separate account or otherwise provides for
funding its liability hereunder.
The Plan may be modified or amended by the Company at any time,
provided however, the benefits payable to any Participant under the Plan
determined as of the time of such modification or amendment, and the benefit
rights granted and the benefits potentially payable after a Change In Control as
provided in Addendum A attached hereto, shall not be reduced by such
modification or amendment unless such Participant consents in writing to such
reduction.
11
<PAGE>
13. WAIVER OF VESTING AND BENEFIT ACCRUAL LIMITATIONS. The Committee may,
in its sole discretion, waive, modify or amend all or any portion of the
provisions of the Plan that have the effect of limiting the amount or the timing
of payments that are to be made under the Plan. Such action by the Committee
may be made on a case by case basis or may be made with respect to all
Participants.
14. ESTABLISHMENT OF TRUST. On or before May 1, 1996, the Company shall
establish the Trust, in the form attached hereto as Exhibit A, to fund
Retirement Incentive Benefits under the Plan.
15. CHANGE IN CONTROL PROVISIONS. In the event that there is a Change In
Control, the provisions of the Plan shall be modified in accordance with the
provisions set forth in Addendum A attached hereto.
16. MISCELLANEOUS PROVISIONS.
(a) The Plan shall be governed by the laws of the Commonwealth of
Virginia.
(b) Each Participant shall designate a beneficiary, in writing, in
such form as the Company may prescribe. The Company may rely on such
beneficiary designation until such time that it is revoked, in writing, by
the Participant. In the event that a Participant fails to designate a
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<PAGE>
beneficiary, the Company shall make all payments which would have been
made to the Participant's designated beneficiary to such Participant's
estate.
(c) No benefit payable under this Plan shall be subject in any manner
to alienation, sale, transfer, assignment, pledge, attachment, or
encumbrance of any kind.
(d) Nothing contained in this Plan shall be construed as a contract
of employment between the Company and any Participant, or as a right of any
Participant to be continued in employment by the Company, or as a
limitation on the right of the Company to discharge any of its employees
with or without cause.
IN WITNESS WHEREOF, the Plan has been duly amended and restated as of
the 22nd day of March, 1996.
Brenco, Incorporated
By ________________________
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<PAGE>
ADDENDUM A
CHANGE IN CONTROL PROVISIONS
1. CHANGE IN CONTROL AGREEMENTS. For purposes of this Addendum A, the
Change In Control Agreements entered into by the Company and referenced in
paragraph D of Section 1 of the Plan are those Change In Control Agreements
dated as of March 22, 1996 for the following Participants (the "Listed
Participants"):
Jacob M. Feichtner
Donald Fitzsimmons
Robert V. Lawrence
J. Craig Rice
2. ADDITIONAL RIGHTS AFTER A CHANGE IN CONTROL. In the event that a
Change In Control occurs, the following provisions will apply in
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<PAGE>
determining the entitlement to and payment of benefits under the Plan for or
with respect to the Listed Participants.
A. LISTED PARTICIPANT'S CONTINUED PARTICIPATION. The Committee may not
terminate a Listed Participant's designation as Participant.
B. ADDITIONAL YEARS OF BENEFIT SERVICE AND ELIMINATION OF BENEFIT
REDUCTION FOR EARLY RETIREMENT FOR JACOB M. FEICHTNER. In the event that the
employment of Jacob M. Feichtner ("Feichtner") terminates on or before June 30,
1999 and within two years after the occurrence of the Change In Control and such
termination of employment is not a "Nonqualifying Termination" as defined in the
Change In Control Agreement between the Company and Feichtner dated as of March
22, 1996, then the following shall apply:
(1) His Years of Benefit Service shall be determined as if his
employment terminated on June 30, 1999.
(2) The Offset Benefit attributable to the Retirement Plan shall be
calculated with the reduction for payment prior to age 62 under the
Retirement Plan (determined as though
15
<PAGE>
his accrued benefit under the Retirement Plan commenced on the first day of
the calendar quarter next following the date of his termination of
employment) before it is subtracted from the Base Benefit to determine the
amount of the Retirement Incentive Benefit.
(3) The Retirement Incentive Benefit payable to him shall not be
reduced in accordance with the reduction for payment before Normal
Retirement Age provisions of Section 6 of the Plan.
C. ELIMINATION OF BENEFIT REDUCTION FOR EARLY RETIREMENT FOR ROBERT V.
LAWRENCE. In the event that the employment of Robert V. Lawrence ("Lawrence")
terminates on or before March 31, 2000 and within two years after the occurrence
of the Change In Control and such termination of employment is not a
"Nonqualifying Termination" as defined in the Change In Control Agreement
between the Company and Lawrence dated as of March 22, 1996, then the following
shall apply:
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(1) The Offset Benefit attributable to the Retirement Plan shall be
calculated with the reduction for payment prior to age 62 under the
Retirement Plan (determined as though his accrued benefit under the
Retirement Plan commenced on the first day of the calendar quarter next
following the date of his termination of employment) before it is
subtracted from the Base Benefit to determine the amount of the Retirement
Incentive Benefit.
(2) The Retirement Incentive Benefit payable to him shall not be
reduced in accordance with the reduction for payment before Normal
Retirement Age provisions of Section 6 of the Plan.
D. ACCELERATION OF VESTING AND OTHER RIGHTS FOR J. CRAIG RICE. In the
case of J. Craig Rice ("Rice"), if he terminates before the first day of the
calendar quarter next following the date on which he attains the Normal
Retirement Age, then the following shall apply:
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(1) The age and service eligibility requirements set forth in
Sections 5 of the Plan and the forfeiture on termination of employment rule
set forth in Section 12 of the Plan shall be waived.
(2) He shall be eligible to receive his Retirement Incentive Benefit
at the later of age 55 or his termination of employment (or any earlier
date permitted in the event of his disability) if then alive.
(3) If he dies (whether before or after his termination of
employment) before his benefit payments under the Plan have commenced to
him, his spouse or other beneficiary shall be entitled to receive such
death benefits as may then be provided to them under Sections 8 and 9 of
the Plan.
(4) The non-competition provisions of Section 11 of the Plan shall
apply to him only if he voluntarily resigns other than for "Good Reason" as
defined in the Change In Control Agreement between the Company and Rice
dated as of March 22, 1996 (but determined without regard to the first
sentence of the second paragraph
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of Section 1(f) of the Change In Control Agreement which provides for a 30-
day window after the first anniversary of the Change In Control during
which his voluntarily termination will be deemed Good Reason).
E. ACCELERATION OF VESTING AND OTHER RIGHTS FOR DONALD FITZSIMMONS. In
the case of Donald Fitzsimmons ("Fitzsimmons"), if he terminates before the
first day of the calendar quarter next following the date on which he attains
the Normal Retirement Age, then the following shall apply:
(1) The age and service eligibility requirements set forth in
Sections 5 of the Plan and the forfeiture on termination of employment rule
set forth in Section 12 of the Plan shall be waived.
(2) He shall be eligible to receive his Retirement Incentive Benefit
at the later of age 55 or his termination of employment (or any earlier
date permitted in the event of his disability) if then alive.
(3) If he dies (whether before or after his termination of
employment) before his benefit payments under the Plan
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have commenced to him, his spouse or other beneficiary shall be entitled to
receive such death benefits as may then be provided to them under Sections
8 and 9 of the Plan.
(4) The non-competition provisions of Section 11 of the Plan shall
apply to him only if he voluntarily resigns other than for "Good Reason" as
defined in the Change In Control Agreement between the Company and
Fitzsimmons dated as of March 22, 1996 (but determined without regard to
the first sentence of the second paragraph of Section 1(f) of the Change In
Control Agreement which provides for a 30-day window after the first
anniversary of the Change In Control during which his voluntarily
termination will be deemed Good Reason).
3. REQUIREMENT TO FULLY FUND THE TRUST. Within ninety (90) days
following the date that a Change In Control occurs, the Company shall contribute
to the Trust an amount equal to the unfunded actuarial liability of the Plan,
determined in accordance with sound actuarial principles as of the date that
such Change In Control occurs. On or before March 31 of each
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year following the year in which a Change In Control occurs, the Company shall
contribute to the Trust an amount equal to the unfunded actuarial liability of
the Plan as of the December 31 next preceding.
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EXHIBIT G
TRUST AGREEMENT FOR
BRENCO, INCORPORATED EXECUTIVE RETIREMENT INCENTIVE PLAN
THIS TRUST AGREEMENT, made and entered into this 31st of May, 1996, by and
between BRENCO, INCORPORATED, a Virginia corporation, (hereinafter called the
"Employer") and CRESTAR BANK of Richmond, Virginia (hereinafter called the
"Trustee").
WITNESSETH:
THAT WHEREAS, the Employer has established a non-qualified incentive
retirement plan known as the Brenco, Incorporated Executive Retirement Incentive
Plan (the "Plan").
WHEREAS, the Employer has incurred or expects to incur liability under the
terms of the Plan with respect to the individuals participating in the Plan;
WHEREAS, the Employer wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Employer's creditors in the event the Employer is
Insolvent, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended (the "Act");
WHEREAS, it is the intention of the Employer to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST FUND AND FUNDING.
(a) The Employer hereby deposits with the Trustee in trust the sum of
$100, which shall become the principal of the Trust to be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by the Employer, provided,
however, that it shall become irrevocable upon a Change In Control, as defined
herein.
(c) The Trust is intended to be a grantor trust, of which the Employer is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A (that is, Section 671 et seq.) of the Code, and shall be construed
accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of the Employer and shall be used
exclusively for the uses and purposes of Plan participants and general creditors
as herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership or security interest in, any
assets of the Trust. Any rights created under the Plan and this Trust Agreement
shall be mere unsecured contractual rights of Plan participants and their
beneficiaries against the Employer. Any assets held by the Trust will be
subject to the claims of the Employer's general creditors under federal and
state law in the event of the Employer is Insolvent, as defined in Section 3(a)
herein.
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(e) During the existence of the Trust, the Employer at least annually
based on its fiscal year and in one or more payments as determined by it shall
be obligated to make additional deposits of cash or other property in trust with
the Trustee to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement in an amount equal to the
"annual deposit amount". For purposes hereof:
(1) The "annual deposit amount" for a fiscal year is equal to (A)
minus (B) plus (C), as follows:
(A) the amount accrued by the Employer on its financial
statements in accordance with generally accepted accounting principles as
its annual expense for its obligations under the Plan (currently the "net
periodic pension cost" as defined in Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 87 - Employers' Accounting
for Pensions),
(B) the investment earnings, realized and unrealized, of the
Trust for the year, and
(C) the expenses (exclusive of benefit payments to Plan
participants and beneficiaries) paid by the Trust during the year.
(2) The Employer shall make such additional contributions to the
Trust as may be required by the Plan.
(3) The Trustee shall not be required to determine the amount of the
Employer's contribution for any year or to enforce the duty of the Employer
to make such contributions; but the Trustee shall provide the Employer with
such information as it may reasonably require to determine the amount of
its contribution.
(4) The Trustee shall have, but is not required to exercise, and each
Plan participant or beneficiary shall have, the right to compel such
additional deposits.
(f) The Employer, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits.
2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Committee pursuant to the
applicable Plan provisions and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plan.
(b) The Committee shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
(c) In lieu of payment by the Trust, the Employer may make payment of
benefits directly to Plan participants or their beneficiaries as they become due
under the terms of the Plan. The Employer shall notify the
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Trustee of its decision to make payment of benefits directly prior to the time
amounts are payable to Plan participants or their beneficiaries and shall notify
the Trustee of the time and amount of payment when such payment is actually
made.
(d) If the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, the Employer shall make the balance of each such payment as it falls due.
The Trustee shall notify the Employer where principal and earnings are not
sufficient.
(e) The Administrative Committee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits from the Trust pursuant to the
terms of the Plan and shall pay or cause to be paid amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Employer or, if agreed to by the Trustee, the
Trustee. When tax withholding is required, unless otherwise agreed to by the
Trustee, the Trustee shall make the benefit payment in the net amount payable to
the Plan participant or beneficiary (that is, the amount payable after
applicable tax withholding) and shall provide a second payment to cover the tax
withholding payable as the Administrative Committee directs.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN THE
EMPLOYER IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Employer is Insolvent. The Employer shall be
considered "Insolvent" for purposes of this Trust Agreement if (1) the Employer
is unable to pay its debts as they become due, or (2) the Employer is subject to
a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Employer under federal and state law as set
forth below, and at any time the Trustee has actual knowledge, or has
determined, that the Employer is Insolvent, the Trustee shall deliver any
undistributed principal and income in the Trust to satisfy such claims as a
court of competent jurisdiction or other competent authority shall direct.
(1) The Board of Directors and the Chief Executive Officer of the
Employer shall have the duty to inform the Trustee in writing that the
Employer is Insolvent. If a person claiming to be a creditor of the
Employer alleges in writing to the Trustee that the Employer has become
Insolvent, the Trustee shall independently determine whether the Employer
is Insolvent and, pending such determination, the Trustee shall discontinue
payment of benefits to Plan participants or their beneficiaries. The
Trustee may in all events rely on such evidence concerning the Employer's
solvency as may be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination concerning the
Employer's solvency. Unless otherwise provided by the Committee and the
Chief Executive Officer of the Employer, the Administrative Committee shall
monitor and provide notice to the Trustee regarding whether the Employer is
Insolvent or not Insolvent.
(2) Unless the Trustee has actual knowledge that the Employer is
Insolvent, or has received notice from the Employer or a person claiming to
be a creditor alleging that the Employer is Insolvent, the Trustee shall
have no duty to inquire whether the Employer is Insolvent.
(3) If at any time the Trustee has actual knowledge, or has
determined, that the Employer is Insolvent, the Trustee shall discontinue
payments to Plan participants or their beneficiaries and shall hold the
assets of the Trust for the benefit of the Employer's general creditors.
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(4) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has actual knowledge, or has
determined, that the Employer is not Insolvent or, as applicable, is no
longer Insolvent.
(5) Nothing in this Trust Agreement shall in any way diminish any
rights of Plan participants or their beneficiaries to pursue their rights
as general creditors of the Employer with respect to benefits due under the
Plan or otherwise.
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Employer in lieu of the payments
provided for hereunder during any such period of discontinuance.
4. PAYMENTS TO THE EMPLOYER.
Except as provided in Section 3 or 12 hereof, after the Trust has become
irrevocable, the Employer shall have no right or power to direct the Trustee to
return to the Employer or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plan.
5. INVESTMENT AUTHORITY.
(a) The Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by the Employer. All rights associated
with assets of the Trust shall be exercised by the Trustee, any Investment
Manager designated by the Employer pursuant to Section 8(h) hereof or the
Administrative Committee pursuant to Section 8(i) hereof, and shall in no event
be exercisable by or rest with Plan participants or their beneficiaries, except
that voting rights with respect to Trust assets may be exercised by the Employer
in its discretion during periods before the Trust becomes irrevocable.
(b) During periods before the Trust becomes irrevocable, the Employer
shall have the right at anytime, and from time to time in its sole discretion,
to substitute assets of equal fair market value and of equal or greater
liquidity for any asset held by the Trust. This right is exercisable by the
Employer in a nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity.
6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
7. ACCOUNTING BY THE TRUSTEE.
(a) The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Employer or the Administrative Committee and the Trustee.
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(b) All such accounts, books and records shall be open to inspection and
audit at all reasonable times by the Employer and the Administrative Committee.
(c) Within sixty (60) days following the close of each fiscal year of the
Employer and within sixty (60) days after the removal or resignation of the
Trustee, the Trustee shall deliver to the Employer and the Administrative
Committee a written account of its administration of the Trust during such year
or during the period from the close of the last preceding year to the date of
such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
(d) The Employer and the Administrative Committee shall be deemed to have
accepted the Trustee's account as fully accurate and as meeting the provisions
of this Trust Agreement if neither the Employer nor the Administrative
Committee has made any written objection to the account within ninety (90) days
of their receipt of the account.
8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Employer which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Employer, the Committee or the Administrative Committee. In the
event of a dispute between the Employer, the Committee or the Administrative
Committee and any person claiming an interest in or right under the Trust, the
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Employer agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Employer does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain payment from
the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Trustee or the Employer generally) with respect to any of its duties or
obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein, provided,
however, that if an insurance policy is held as an asset of the Trust, the
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee or other than to a Plan
participant as provided in the Plan, or to loan to any person the proceeds of
any borrowing against such policy.
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(f) Notwithstanding the provisions of Section 8(e) above, the Trustee may
loan to the Employer the proceeds of any borrowing against an insurance policy
held as an asset of the Trust.
(g) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
(h) Notwithstanding any other provision hereof (other than Section 8(g)
hereof):
(1) The Administrative Committee may appoint one or more Investment
Managers to manage all or any portion of the assets of the Trust. The
appointment of any such Investment Manager shall be by written agreement,
which shall specify the scope of the powers and duties of such Investment
Manager, shall contain reasonable provisions for the termination of such
appointment, may require or allow any Investment Manager to perform asset
custodial services for all or part of the Trust, and shall be executed by
the parties thereto and acknowledged by the Trustee.
(2) In the event an Investment Manager is appointed for all or part
of the assets of the Trust, the Trustee shall follow the directions of the
Investment Manager in managing and controlling the assets of the Trust
subject to the direction and control of the Investment Manager. The
Investment Manager shall be governed by the powers and restrictions imposed
on the Trustee in its management and control of the Fund.
(3) In the event an Investment Manager is appointed for all or part
of the assets of the Trust, the Trustee shall not be liable or responsible
for the control or management of the assets of the Trust subject to the
direction and control of the Investment Manager, except to the extent the
Trustee may fail or refuse to carry out the lawful directions or
instructions of the Investment Manager.
(4) For purposes hereof, the term "Investment Manager" means a person
who is registered as an investment advisor under the Investment Advisors
Act of 1940, a bank as defined in the Investment Advisors Act of 1940, or
an insurance company qualified to perform investment advisory services
under the laws of more than one State.
(i) Notwithstanding any other provision hereof (other than Section 8(g)
hereof):
(1) The Administrative Committee may direct the Trustee with respect
to the management of the assets of the Trust.
(2) In the event the Administrative Committee directs the Trustee
with respect to the management of the assets of the Trust, the Trustee
shall follow the directions of the Administrative Committee in managing and
controlling the assets of the Trust. The Administrative Committee shall be
governed by the powers and restrictions imposed on the Trustee in its
management and control of the Fund.
(3) In the event the Administrative Committee directs the Trustee
with respect to the management of the assets of the Trust, the Trustee
shall not be liable or responsible for the control or management of the
assets of the Trust subject to the direction and control of the
Administrative Committee, except to the extent the Trustee may fail or
refuse to carry out the lawful directions or instructions of the
Administrative Committee.
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9. TRUSTEE COMPENSATION AND EXPENSES OF THE PLAN AND TRUST.
(a) The Trustee shall be entitled to such reasonable compensation for its
services as shall be agreed upon by the Employer and the Trustee. The Trustee
shall also be entitled to receive its reasonable expenses incurred with respect
to the administration of the Trust, including fees incurred by the Trustee
pursuant to Sections 8(c) and (d) of this Trust Agreement.
(b) Any taxes on the income of the Trust shall be considered an expense of
the Trust and may be paid by the Employer or by the trust as provided herein.
(c) The Employer, in its discretion, may pay any or all administrative
expenses of the Plan and/or the Trust, including but not limited to the
Trustee's compensation and expenses. If not so paid, such compensation and
expenses shall be paid from the Trust.
10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the Employer,
which shall be effective sixty (60) days after receipt of such notice unless the
Employer and the Trustee agree otherwise.
(b) The Trustee may be removed by the Employer on sixty (60) days notice
or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed as soon as practicable after receipt
of notice of resignation, removal or transfer, unless the Employer extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
11. APPOINTMENT OF SUCCESSOR TRUSTEE.
(a) Subject to the requirements of Section 11(b), if the Trustee resigns
or is removed in accordance with Section 10(a) or (b) hereof or dies or
otherwise ceases to exist, the Employer shall appoint any independent third
party as a successor to replace the Trustee upon resignation, removal or death.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Employer or the successor
Trustee to evidence the transfer. For purposes hereof:
(1) A person (whether an individual or entity) is "independent" only
if the person is not the Employer, an officer, director or employee of the
Employer or any Affiliated Employer, a Plan participant or beneficiary, a
member of the "family" (within the meaning of Section 4975(e)(6) of the
Code) of any of the preceding persons, any person who would be a "related
or subordinate party" (within the meaning of Section 672(c) of the Code) to
the Employer.
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(2) An "Affiliated Employer" is any person which would be a member of
the "controlled group of corporations" (within the meaning of Section
414(b) of the Code) which includes the Employer or is under "common
control" (within the meaning of Section 414(c) of the Code) with the
Employer, in each case determined on the basis of the words "80 percent" in
Section 1563(a)(1) of the Code being replaced by "50 percent".
(b) If a Change In Control occurs, as defined herein, the Trustee may not
be removed by the Employer unless an independent bank or trust company is
appointed as the successor Trustee. If the Trustee resigns after a Change In
Control occurs, the Employer shall appoint an independent bank or trust company
to serve as the successor Trustee.
(c) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Employer shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Employer. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1(b) hereof
unless the Employer has obtained the written consent of all Plan participants
and beneficiaries entitled to Plan benefits (whether then or thereafter payable)
at the time in question.
(b) Except as expressly provided herein, the Trust shall not terminate
until the date on which Plan participants and their beneficiaries are no longer
entitled to benefits pursuant to the terms of the Plan unless sooner revoked in
accordance with Section 1(b) hereof. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Employer.
(c) Upon written consent of Plan participants and beneficiaries entitled
to Plan benefits (whether then or thereafter payable) at the time in question,
the Employer may terminate this Trust prior to the time all benefit payments
under the Plan have been made. All assets in the Trust at termination shall be
returned to the Employer.
(d) Notwithstanding the foregoing, the Trustee may declare the Trust to be
terminated and take all appropriate action in connection therewith at any time
the Trust has no assets.
13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
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(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia.
(d) The Administrative Committee shall operate as follows and have the
following responsibilities and duties:
(1) The Administrative Committee shall appoint from its members a
Chairman and a Secretary. The Secretary shall keep records as may be
necessary of the acts and resolutions of such committee and be prepared to
furnish reports thereof to the Employer and the Trustee. Except as
otherwise provided, all instruments executed on behalf of such committee
may be executed by its Chairman or Secretary, and the Trustee may assume
that such committee, its Chairman or Secretary are the persons who were
last designated as such to them in writing by the Plan Sponsor or its
Chairman or Secretary.
(2) The Administrative Committee's action in all matters, questions
and decisions shall be determined by a majority vote of its members
qualified to act thereon. They may meet informally or take any action
without the necessity of meeting as a group.
(3) The Administrative Committee shall be responsible for such
matters regarding administration and management of the Trust and the Plan
as are expressly assigned to it.
(e) The Committee is empowered to settle claims against the Trust and to
make such equitable adjustments in a Plan participant's or Beneficiary's rights
or entitlements under the Plan as it deems appropriate in the event an error or
omission is discovered or claimed in the operation or administration of the
Plan.
(f) The Committee may construe this Trust Agreement, correct defects,
supply omissions or reconcile inconsistencies to the extent necessary to
effectuate the Plan and the Trust and such action shall be conclusive.
(g) The Committee is empowered to delegate any or all of its duties to the
Administrative Committee.
14. DEFINITIONS.
The following words and terms as used in this Trust Agreement shall have
the meaning set forth below, unless a different meaning is clearly required by
the context:
(a) "Administrative Committee" means an administrative committee
consisting of at least two individuals appointed, and subject to removal or
replacement at any time, by the Committee to administer certain aspects of the
Plan and/or the Trust generally or on behalf of the Committee. The Committee
itself may serve as the Administrative Committee, and the Committee shall serve
as the Administrative Committee whenever two appointed individuals are not
serving as the Administrative Committee.
(b) "Effective Date" means the date as of which this Trust Agreement
becomes effective, which shall be the date first stated above.
(c) "Employer" means Brenco, Incorporated, a Virginia corporation (or its
successor).
(d) "Change In Control" has the meaning assigned to it in the Plan.
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(e) "Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time, or the corresponding section of any subsequent
Internal Revenue Code, and, to the extent not inconsistent therewith,
regulations issued thereunder.
(f) "Committee" means the "Committee" defined in the Plan.
(g) "Insolvent" has the meaning assigned to it in Section 3(a) hereof.
(h) "Investment Manager" has the meaning assigned to it in Section 8(h)
hereof.
(i) "Plan" means the non-qualified incentive retirement plan known as the
Brenco, Incorporated Executive Retirement Incentive Plan, as amended and
restated effective March 22, 1996 and as the same may be amended from time to
time.
(j) "Trust" means the trust fund established for the Plan pursuant to this
Trust Agreement, which shall be known as the "Brenco, Incorporated Executive
Retirement Incentive Trust".
(k) "Trustee" means the person(s) serving from time to time as trustee of
this Trust, which as of the Effective Date is Crestar Bank of Richmond,
Virginia.
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IN WITNESS WHEREOF, the Employer, pursuant to the resolution duly adopted
by its Board of Directors, has caused its name to be signed to this Trust
Agreement by its duly authorized officer with its corporate seal hereunto
affixed and attested by its Secretary or Assistant Secretary, and the Trustee
has caused his name to be signed and his seal hereunto affixed as of the day and
year above written.
BRENCO, INCORPORATED, Employer
By: (SEAL)
-----------------------------
Its
-------------------------
Attest:
- ---------------------------------
Its
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CRESTAR BANK, Trustee
-----------------------------
Its
-------------------------
Attest:
- ---------------------------------
Its
---------------------------
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EXHIBIT H
BRENCO, INCORPORATED
1987 Restricted Stock Plan
As Amended and Restated Effective March 22, 1996
Section 1. Establishment, Purpose, and Effective Date of Plan
1.1 ESTABLISHMENT. Brenco, Incorporated hereby establishes a stock
incentive plan for key Employees, as described herein, which shall be known as
the Brenco, Incorporated 1987 Restricted Stock Plan (hereinafter called the
"Plan").
1.2 PURPOSE. The purpose of the Plan is to enable the Company to attract,
retain, and motivate key Employees who provide valuable services to the Company,
and to provide such Employees with a means of acquiring or increasing a
proprietary interest in the Company so that they will have an increased
incentive to work for the long-term success of the Company.
1.3 SHAREHOLDER APPROVAL. The Plan shall become effective as of April 16,
1987, subject to approval by the shareholders of the Company.
Section 2. Definitions
Whenever used herein, the following terms shall have the meanings set forth
below:
(a) "Board" means the Board of Directors of Brenco, Incorporated.
(b) "Change in Control" means the occurrence of a "Change in Control" as
defined in the Change in Control Agreements entered into by the Company with
certain Employees dated as of March 22, 1996, as amended from time to time.
(c) "Committee" means a Committee of the Board consisting of three or more
members of the Board who are not, and who have not been at any time within one
year prior to appointment to the Committee, eligible to receive Stock under the
Plan, or Stock, stock options, or stock appreciation rights under another
company plan.
(d) "Company" means Brenco, Incorporated, a Virginia corporation, as well
as any subsidiary more than 50% of whose total combined voting stock of all
classes is owned by Brenco, Incorporated either directly or through one or more
of its subsidiaries.
(e) "Employee" means any key executive in charge of a principal division,
business unit, or department of the Company, and any other individual who
performs similar managerial and professional functions for the Company.
(f) "Grantee" means an Employee who shall have received a grant of
restricted Stock under the Plan.
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(g) "Period of Restriction" means the period during which the transfer of
shares of restricted Stock granted under the Plan is restricted pursuant to
Section 7 hereof.
(h) "Stock" means the Common Stock, par value of $1.00 per share, of the
Company.
Section 3. Eligibility and Participation
Grantees shall be limited to Employees as determined by the Committee.
Section 4. Administration
The Committee shall be responsible for the administration of the Plan. The
Committee, by majority action thereof, is authorized to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to the Plan,
provide for conditions and assurances deemed necessary or advisable to protect
the interests of the Company, and to make all other determinations necessary or
advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. Determinations,
interpretations, or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever.
Section 5. Stock Subject to the Plan
5.1 NUMBER. The total number of shares of Stock that may be issued under
the Plan may not exceed 200,000 subject to adjustment as provided in Section
5.3. Those shares may consist, in whole or in part, of authorized but unissued
Stock or shares of Stock reacquired by the Company, including shares purchased
in the open market, not reserved for any other purpose.
5.2 UNUSED STOCK. In the event any shares of Stock subject to grants made
under the Plan are reacquired by the Company pursuant to Section 8 of the Plan,
such reacquired shares again shall become available for issuance under the Plan.
5.3 ADJUSTMENTS IN CAPITALIZATION. In the event of reorganization,
recapitalization, stock split, stock dividend, merger, consolidation,
combination or exchange of shares, rights, offering or any other change
affecting the Stock, the Committee may make, subject to approval of the Board,
appropriate changes in the aggregate number of shares issuable under this Plan,
and in the number of shares subject to restricted Stock grants then outstanding
under this Plan.
Section 6. Duration of the Plan
Subject to the Board's right to terminate the Plan pursuant to Section 10
hereof, the Plan shall remain in effect until all Stock acquired by Grantees
pursuant to the provisions of the Plan shall have been released from
restrictions pursuant to Section 7.4, Section 8, or Section 11 hereof.
Notwithstanding the foregoing, no awards of Stock may be granted under the Plan
after the tenth (10th) anniversary of the Plan's effective date.
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Section 7. Restricted Stock
7.1 GRANT OF RESTRICTED STOCK. Subject to Section 3 and 5.1 hereof, the
Committee, at any time and from time to time, may grant shares of restricted
Stock under the Plan to such Employees and in such amounts as it shall
determine. Each grant of restricted Stock shall be in writing and signed by a
duly authorized officer of the Company. Certificates for the Stock so granted
shall be registered in the name of the Grantee and deposited by him, together
with a stock power endorsed in blank, with the Company under such restrictions
as the Committee shall determine pursuant to the provisions of Section 7. Upon
release or expiration of such restrictions, the Company shall redeliver to the
Grantee the Stock so deposited by him.
7.2 TRANSFERABILITY. Except as contemplated by Sections 8, 9.2, and 11
hereof, the shares of restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated for the
Period of Restriction determined by the Committee in accordance with Section 7.3
which shall be specified in writing in the restricted Stock grant.
7.3 PERIOD OF RESTRICTION. The Period of Restriction for each restricted
Stock grant shall not exceed five years or such lesser period as may be
necessary to satisfy any performance goals which may be specified by the
Committee; provided, however, that except as otherwise provided in Section 7.5,
8, and 11 hereof, the Period of Restriction shall not be less than two years.
7.4 REMOVAL OF RESTRICTIONS. Except as otherwise provided in Sections
7.5, 8, and 11 hereof, shares of restricted Stock covered by each restricted
Stock grant made under this Plan shall become freely transferable by the Grantee
after the last day of the Period of Restriction.
7.5 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any shares granted pursuant to the Plan as it may deem advisable
including, without limitation, restrictions under applicable federal or state
securities laws, and may legend the Stock certificate(s) to give appropriate
notice of such restrictions.
7.6 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 7.5 hereof, each certificate representing shares of
restricted Stock granted pursuant to this Plan shall bear the following legend:
"The sale or other transfer of shares of Stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is subject
to certain restrictions on transfer set forth in the 1987 Brenco, Incorporated
Restricted Stock Plan, rules of administration adopted pursuant to such Plan,
and a restricted Stock grant dated . . . . A copy of the Plan, such rules, and
such restricted Stock grant may be obtained from the Secretary of the Company."
Once the shares are released from the restrictions pursuant to Section 7.4
hereof, the Grantee shall be entitled to have the legend required by this
Section 7.6 removed from his Stock certificate(s).
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7.7 VOTING RIGHTS. During the Period of Restriction, Grantees holding
shares of restricted Stock granted hereunder may exercise full voting rights
with respect to those shares.
7.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Grantees holding shares of restricted Stock granted hereunder shall be entitled
to receive currently all dividends and other distributions paid with respect to
those shares while they are so held. If any such dividends or distributions are
paid in shares, the shares shall be registered in the name of the Grantee and
deposited with the Company as provided in Section 7.1 hereof and the shares
shall be subject to the same restrictions on transferability as the shares of
restricted Stock with respect to which they were paid.
Section 8. Termination of Employment
8.1 TERMINATION OF EMPLOYMENT DUE TO DEATH OR PERMANENT AND TOTAL
DISABILITY. In the event that the employment with the Company of a Grantee is
terminated because of death or permanent and total disability, any remaining
Period of Restriction applicable to the restricted Stock of such Grantee
pursuant to Section 7 hereof shall automatically terminate and, except as
otherwise provided in Section 7.5, the shares of Stock shall thereby be free of
restrictions and freely transferable.
8.2 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event the
employment with the Company of a Grantee is terminated because of retirement as
defined in the Company's Retirement Plan during the Period of Restriction, the
restrictions applicable to the shares of restricted Stock of such Grantee
pursuant to Section 7 hereof shall terminate, in the sole discretion of the
Committee, with respect to a number of shares (rounded to the nearest whole
number) up to the total number of restricted shares granted to such Grantee,
multiplied by the number of full months which have elapsed since the date of
grant divided by the maximum number of full months of the Period of Restriction.
All remaining shares shall be forfeited and returned to the Company; provided,
however, that the Committee may, in its sole discretion, waive the restrictions
remaining on any or all such remaining shares.
8.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY, OR
RETIREMENT. In the event that the employment with the Company of a Grantee is
terminated for any reason other than those set forth in Sections 8.1 and 8.2
hereof during the Period Of Restriction, then any shares of restricted Stock of
such Grantee still subject to restrictions at the date of such termination shall
automatically be forfeited and returned to the Company; provided, however, that,
in the event of an involuntary termination of the employment of a Grantee by the
Company, the Committee may, in its sole discretion, waive the automatic
forfeiture of any or all such shares and/or may add such new restrictions to
such shares as it deems appropriate.
Section 9. Rights of Employees; Recipients of Grants
9.1 EMPLOYMENT. Nothing in this Plan or in any grant of restricted Stock
shall interfere with or limit in any way the right of the Company to terminate
any Employee's or
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Grantee's employment at any time, nor confer upon any Employee or Grantee any
right to continue in the employ of the Company.
9.2 NONTRANSFERABILITY OF RESTRICTED STOCK. No rights or shares of
restricted Stock granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will or by
the laws of descent and distribution until the termination of the applicable
Period of Restriction. All rights granted to a Grantee under the Plan shall be
exercisable during his lifetime only by such Grantee. Upon the death of a
Grantee, his legal representative or beneficiary may exercise his rights under
the Plan.
Section 10. Amendment and Termination
The Board, upon recommendation of the Committee, at any time may terminate,
and at any time and from time to time and in any respect, may amend or modify
the Plan, provided, however, that no such action of the Board, without approval
of shareholders may:
(a) Increase the maximum number of shares of Stock that may be issued
under the Plan except as provided in Section 5.3 of the Plan.
(b) Extend the period during which shares of Stock may be granted under
the Plan.
(c) Modify the requirements as to eligibility for participation under the
Plan.
(d) Increase materially the benefits accruing to Grantees under the Plan.
(e) Increase materially the cost of the Plan.
(f) Withdraw the administration of the Plan from the Committee.
(g) Change the provision in the Plan as to the qualification for
membership on the Committee.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Stock theretofore granted under the Plan without the
consent of the Grantee.
Section 11. Change in Control
In the event of a Change in Control, all restrictions shall lapse on shares
of restricted Stock which have been granted under the Plan, and thereafter such
shares shall be freely transferable by the Grantee, subject to applicable
federal and state securities laws.
Section 12. Tax Withholding
The Company, as appropriate, shall have the right to withhold any Federal,
State, or local taxes required by law to be withheld with respect to any awards
under the Plan; the Grantee or
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other person receiving such restricted Stock may be required to pay to the
Company, as appropriate, the amount of any such taxes which the Company is
required to withhold with respect to such restricted Stock.
Section 13. Indemnification
Each person who is or shall have been a member of the Committee or of the
Board shall be indemnified and held harmless by the Company from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him in
connection with any claim, action, suit, or proceeding to which he may be a
party by reason or any action taken or failure to act under the Plan. The
foregoing right of indemnification shall not be exclusive of any rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Section 14. Governing Law
The Plan, and all grants and other documents delivered hereunder, shall be
construed in accordance with and governed by the laws of Virginia.
Section 15. Expenses of Plan
The expenses of administering the Plan shall be borne by the Company.
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EXHIBIT I
BRENCO, INCORPORATED
1988 STOCK OPTION PLAN
As Amended and Restated Effective March 22, 1996
1. DEFINITIONS. The following terms shall have the meanings set forth in
this Paragraph unless the context requires a different meaning:
1.1 "Agreement" means a written agreement (including any amendment or
supplement thereto) between Brenco and a Participant specifying the terms and
conditions of an Option or SAR granted to such Participant.
1.2 "Board" means the Board of Directors of Brenco.
1.3 "Change in Control" means the occurrence of a "Change in Control" as
defined in the Change in Control Agreements entered into by the Company with
certain employees of the Company as of March 22, 1996, as amended from time to
time.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Committee" means a committee, consisting of not less than three
persons appointed by the Board to administer the Plan. No member of the
Committee shall be eligible to participate, and no person shall become a member
of the Committee if, within one year prior thereto, he shall have been eligible
to participate in the Plan or in any other plan of Brenco or any Subsidiary
entitling the participants therein to acquire Options or SARs of Brenco. A
majority of the members of the Committee shall constitute a quorum, and all
actions of the Committee shall be taken by a majority of those members voting.
In the event that the Board chooses not to establish a Committee to
administer the Plan, the word "Committee" as used herein shall mean the Board;
provided, however, that any grants of awards under the Plan may be made by the
Board only if a majority of those acting are not eligible to participate in the
Plan or any other plan of Brenco or any Subsidiary entitling the Participants
therein to acquire Options or SARs of Brenco.
1.6 "Common Stock" means the Common Stock of Brenco.
1.7 "Brenco" means Brenco, Incorporated, a Virginia Corporation.
1.8 "Fair Market Value" means, on any given date, the closing sales price
of Common Stock as quoted in the NASDAQ National Market System, on the date in
question if it is a trading date, or if not, on the first trading day prior to
such day. If the Common Stock is not quoted in the NASDAQ National Market
System, Fair Market Value shall mean the mean between the closing bid and asked
prices as reported by NASDAQ on the date in question if it is a trading date, or
if not, the first trading date prior to such day. If either such valuation
method is inapplicable for any reason, the Fair Market Value shall be determined
by the Committee using any reasonable method in good faith.
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1.9 "Grant Date" means the date as of which an Option or SAR is granted
under the Plan.
1.10 "Incentive Stock Option" means an Option that qualifies as an
Incentive Stock Option under Section 422A of the Code.
1.11 "Non Qualified Stock Option" means an Option which is not an Incentive
Stock Option.
1.12 "Option" means the right of the holder to purchase from Brenco a
stated number of shares of Common Stock at the price set forth in an Agreement,
which right shall be designated as either an Incentive Stock Option or Non
Qualified Stock Option.
1.13 "Participant" means an employee of Brenco or a Subsidiary, including
an employee who is a member of the Board, who satisfies the requirements of
Paragraph 3 and is selected by the Committee to receive an Option.
1.14 "Plan" means Brenco, Incorporated 1988 Stock Option Plan.
1.15 "SAR" means a stock appreciation right (which may be granted only in
conjunction with an Option) that entitles the holder to receive, with respect to
each share of Common Stock encompassed by the exercise of such SAR, the increase
in the Fair Market Value of such shares to be payable in shares of Common Stock,
subject to such limitations in amounts as the Committee may designate in the
Agreement.
1.16 "Subsidiary" means any corporation at least 50% of the total combined
voting power of which is owned by Brenco, either directly or through one or more
of its Subsidiaries, within the meaning of Section 425(f) of the Code and rules
and regulations thereunder.
2. PURPOSE. The Plan is intended to aid Brenco and its Subsidiaries in
attracting and retaining key executive officers and management personnel with
exceptional ability by enabling such executive officers and management personnel
to acquire a proprietary interest in Brenco and to have an additional incentive
to promote its success, as well as to encourage them to remain in the employ of
Brenco or a Subsidiary.
3. ELIGIBILITY. Any executive officer or other key employee of Brenco or
one of its Subsidiaries is eligible to be granted one or more Options or SARs if
so employed at the time of such grant. Directors of Brenco who are employees
and are not members of the Committee are eligible for awards under the Plan.
4. SHARES SUBJECT TO OPTIONS OR SARS. The maximum aggregate number of
shares of Common Stock with respect to which Options may be granted under this
Plan shall not exceed 1,100,000 shares, except as may be adjusted pursuant to
Paragraph 10. Upon the exercise of any Option or SAR, Brenco may deliver to the
Participant authorized but unissued shares of
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Common Stock. If an Option is terminated, in whole or in part, for any reason
other than its exercise or the exercise of a related SAR, the number of shares
of Common Stock allocated to the Option or portion thereof may be reallocated to
other Options and SARs to be granted under this Plan. Shares which are subject
to Options in connection with which SARs also have been granted shall be counted
only once in applying the above aggregate share limitation.
5. ADMINISTRATION. The Plan shall be administered by the Committee which
shall have all the powers necessary for such administration, including without
limitation, the power:
(a) To determine, consistent with the terms and conditions of the Plan,
annually or otherwise from time to time, in consultation with management of
Brenco, (i) which executive officers and key employees of Brenco and its
Subsidiaries shall be Participants to whom Options and SARs shall be granted;
(ii) the number of shares which may be purchased under each Option or with
respect to which SARs may be granted; (iii) the per share Option exercise price;
(iv) the duration of Options and SARs; (v) the time or times at which each
Option or SAR may be exercised and (vi) whether Options shall be Incentive Stock
Options or Nonqualified Stock Options;
(b) To interpret the Plan, to prescribe, amend and rescind rules,
regulations and guidelines relating to it, and to make all other determinations
necessary or advisable for its administration, all of which decisions made or
actions taken shall be binding and conclusive; and
(c) To keep, or cause to be kept, appropriate records of all
determinations made and actions taken pursuant to the Plan.
The express grant in this Plan of any specific power to the Committee shall
not be construed as limiting any power or authority of the Committee. No member
of the Committee shall be liable for any act done in good faith with respect to
this Plan or any Agreement, Option or SAR.
6. TERMS AND CONDITIONS OF OPTIONS. All Options and SARs granted by the
Committee shall be evidenced by Agreements in such forms as the Committee from
time to time shall approve, subject to the following terms and conditions:
(a) Each Agreement shall state whether the Option granted is an Incentive
Stock Option or Nonqualified Stock Option and shall state the number of shares
as to which the Option or SAR pertains.
(b) The Option exercise price shall in no case be less than 100% of the
Fair Market Value of Common Stock on the Grant Date; provided, however, that in
the case of an Incentive Stock Option granted to an individual who owns more
than 10% of the combined voting power of all classes of stock of Brenco or its
Subsidiaries within the meaning of Section 422A(b) (6) of the Code and the rules
and regulations thereunder, the Option exercise price shall be at least 110% of
the Fair Market Value on the Grant Date.
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(c) Unless otherwise provided by the Committee, the term of each Option
shall be five (5) years from the Grant Date.
(d) No Option shall be exercisable in whole or in part prior to one (1)
year from the Grant Date. Subject to the provisions of this Paragraph 6(d)
Options may be exercised as to all or, from time to time, as to any part of the
total number of shares as to which the right to purchase has accrued, provided,
however, that no Option may be exercised at any one time as to less than 25
shares of Common Stock unless any smaller number of shares represents the
balance then currently exercisable in which case such balance may be exercised
without regard to any minimum share limitation.
(e) No Option may be granted more than 10 years from the effective date of
the Plan.
(f) Each Option shall provide that it is not transferable by the
Participant otherwise than by will or the law of descent and distribution, and
shall be exercisable, during the Participant's lifetime, only by the
Participant.
(g) During the lifetime of a Participant hereunder, the Option may be
exercised only by him (or his guardian or other representative) and then only if
(i) on the exercise date, he has been in the employ of the Brenco or one or more
of its Subsidiaries, or a combination thereof, continuously since the first date
of his employment by Brenco or one of its Subsidiaries or (ii) he has terminated
his employment and such termination was because of a permanent disability or
retirement under a retirement benefit plan of Brenco or of one of its
Subsidiaries; provided, however, that in the case of such total and permanent
disability or retirement under a retirement benefit plan of Brenco or one of its
Subsidiaries, the Participant shall only be entitled to exercise the Option to
the extent exercisable by the Participant at the date of termination of
employment because of such permanent disability or retirement.
If the employment of a Participant terminates by death while in the employ
of Brenco or a Subsidiary, or if the employment of a Participant terminates
because of permanent disability or retirement under a retirement benefit plan of
Brenco or a Subsidiary and the Participant dies thereafter, then within one (1)
year after his death his Option may be exercised to the extent that he was
entitled to exercise it on the date of his termination from employment by reason
of death, permanent disability or retirement, by the person or persons to whom
the Participant's rights under his Option shall pass by will or by applicable
law, of if no other person has such right, then by his legal representative,
subject, however, to the condition that no Option shall be exercisable after the
expiration of five (5) years from the Grant Date. Except as provided in this
subparagraph 6(g) above, no Option may be exercised after termination of
employment.
(h) Notwithstanding Section 6(d) hereof, in the event a Change in Control
occurs, any Option which has been held at least 6 months from its Grant Date
shall become immediately exercisable in whole or in part.
7. LIMITATIONS ON INCENTIVE STOCK OPTIONS. Notwithstanding the
provisions of Paragraph 6, the aggregate Fair Market Value (determined at the
time the Incentive Stock
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Options are granted) of the Common Stock with respect to which Incentive Stock
Options granted under the Plan are exercisable for the first time by the
Participant during any calendar year may not exceed $100,000 or such lesser or
greater amount as shall be specified in Section 422A of the Code and the rules
and regulations thereunder. Incentive Stock Options granted after December 31,
1987 under this Plan and under all plans of Brenco and any of its Subsidiaries
shall be aggregated for purposes of this limitation.
8. EXERCISE OF OPTIONS. An Option may be exercised in whole or in part
by delivery to Brenco, at the office of its Secretary at Petersburg, Virginia,
of written notice of the exercise identifying the Option and stating the number
of shares with respect to which it is being exercised, in such form as the
Committee may prescribe, accompanied by payment for the Common Stock with
respect to which the Option is exercised. Payment of the purchase price may be
made in cash or, with the consent of the Committee, by delivery of shares of
Common Stock owned by Participant valued at Fair Market Value on the date of
exercise of the Option, or, with the consent of the Committee, a combination
thereof.
9. STOCK APPRECIATION RIGHTS. The Committee may grant SARs in connection
with any Option (whether granted before or concurrently with the SAR) with
respect to the number of shares subject to the Option or any lesser number of
shares. The Committee shall determine from among those eligible, the persons to
whom, and the time or times at which, SARs should be granted and the number of
shares which should be subject to SARs.
Each SAR granted under the Plan shall be evidenced by an Agreement
specifying the number of shares subject thereto and such terms and conditions
consistent with the Plan as the Committee shall determine.
SARs shall expire no later than the expiration of the related Option; shall
be transferable only when and under the same conditions as the related Option is
transferable; shall be exercisable only when the related Option is eligible to
be exercised; and may not be exercised unless the Fair Market Value of the
Common Stock subject to the related Option exceeds the exercise price of the
Option. In no event shall any SAR be exercisable for cash.
A SAR may be exercised in whole or in part upon the delivery to Brenco of
written notice of the exercise in such form as the Committee may prescribe.
Upon the exercise of a SAR, the holder shall be entitled to the amount by
which the date of exercise Fair Market Value of the number of shares of Common
Stock as to which the SAR was exercised exceeds the exercise price of the
related Option for that number of shares.
Payment to the holder shall be made in whole shares of Common Stock, valued
at Fair Market Value on the date of exercise, provided that no fractional shares
or cash in lieu of any such fractional share shall be paid. The Committee shall
not consent to any election for settlement of SARs in cash in the case of any
Participant.
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Upon the exercise of a SAR, the number of shares of Common Stock subject to
the related Option shall be reduced by the number of shares with respect to
which the SAR was exercised.
Upon the exercise of an Option, the number of shares of Common Stock
subject to the related SAR shall be reduced by the number by which the number of
shares with respect to which the Option was exercised exceeds any difference
between the number of shares subject to the Option immediately before the
exercise and the number of shares with respect to which the SAR was exercisable
immediately before the exercise.
10. ADJUSTMENT UPON CHANGE IN COMMON STOCK. If Brenco effects one or more
stock dividends, stock splits, subdivisions or consolidations of shares, or
other similar changes in capitalization, the maximum number of shares as to
which Options and SARs may be granted under the Plan shall be proportionately
adjusted, and the Committee shall make equitable adjustments in the number and
option price of the shares which are or may become the subject to Options then
outstanding or thereafter granted.
Neither Options nor SARs shall be affected or caused to be adjusted by the
issuance by Brenco of shares of stock of any class, or securities convertible
into shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of Brenco
convertible into such shares or other securities.
11. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY AUTHORITIES. No Option
or SAR shall be exercisable, no Common Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all applicable federal
and state laws and regulations, including, without limitation, securities laws,
and withholding tax requirements. Brenco shall have the right to rely on the
advice of counsel as to such compliance. Any certificates issued to evidence
Common Stock for which an Option or SAR is exercised may bear such legends and
statements as the Committee may deem advisable to assure compliance with Federal
and state laws and regulations. No Option or SAR shall be exercisable, no
Common Stock shall be issued, no certificate for shares shall be delivered, and
no payment shall be made under this Plan until Brenco has obtained such consent
or approval as the Committee may deem advisable from regulatory bodies having
jurisdiction over such matters.
12. GENERAL PROVISIONS. Neither the adoption of this Plan, nor any
documents describing or referring to this Plan (or any part thereof) shall
confer upon any employee any right to continue in the employ of Brenco or a
Subsidiary, or in any way affect any right and power of Brenco or a Subsidiary
to terminate the employment of any employee at any time with or without cause.
The establishment of the Plan does not confer upon any employee any legal or
equitable right against Brenco, any Subsidiary, or the Committee, except as
expressly provided in the Plan.
Neither absence on leave, if approved by Brenco, nor any transfer between
the service of Brenco and that of a Subsidiary, or between Subsidiaries, shall
be considered a termination of employment.
6
<PAGE>
An Optionee shall have no rights as a record shareholder with respect to
any shares covered by the Option until the date of the issuance of a stock
certificate for such shares.
This Plan shall be unfunded, and Brenco shall not be required to segregate
any assets that may at any time represent grants under the Plan. No obligation
of Brenco to any person with respect to any grant under this Plan shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
Brenco.
The interests of any Participant under the Plan are not subject to the
claims of creditors and may not, in any way, be assigned, alienated or
encumbered. No Option or SAR, nor any rights and privileges pertaining thereto,
shall be transferred, assigned, pledged, or hypothecated, by operation of law or
otherwise, except as otherwise provided herein, nor shall such Option or SAR be
subject to execution, attachment or similar process.
All money received by Brenco in payment upon the exercise of an Option
shall constitute part of its general funds, available for any corporate purpose.
The provisions of the Plan are intended to comply with the provisions of
Rule 16b-3 under the Securities Exchange Act of 1934.
13. AMENDMENT. The Board may amend or terminate this Plan from time to
time; provided, however, that no amendment may become effective until
shareholder approval is obtained if (i) except as provided in Paragraph 10, the
amendment increases the aggregate number of shares that may be issued pursuant
to the exercise of Options or SARs, (ii) the amendment materially modifies the
requirements as to the eligibility for participation in the Plan; or (iii)
materially increases the benefits accruing to Participants.
Brenco, may, without approval of shareholders of the Corporation, accept
the surrender of, and cancel outstanding Options (to the extent not therefore
exercised) and, subject to the terms and conditions of the Plan, grant new
Options in substitution therefor at an Option exercise price in conformity with
the requirements of Paragraph 6(b), but which is lower than provided for in the
Options surrendered.
14. EFFECTIVE DATE AND DURATION OF PLAN. The effective date of this Plan
shall be April 21, 1988, but only if it is approved by the affirmative vote of a
majority of shares of Common Stock entitled to vote, present or represented by
proxy at the 1988 Annual Meeting of shareholders. Unless sooner terminated by
the Board, this Plan will terminate on April 20, 1988, except that Options and
SARs granted prior to that date shall remain valid in accordance with their
terms.
7
<PAGE>
EXHIBIT J
The Board of Directors
June 17, 1996
CONFIDENTIAL
Brenco, Incorporated
One Park West Circle
Midlothian, VA 23113
Members of the Board:
You have requested our opinion as to the fairness, from a finan-cial 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 Companys 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;
(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;
<PAGE>
(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 solely
for the use of the Company's Board of Directors in evaluating the transaction
contemplated by the Agreement and are not on behalf of, and are not intended to
confer rights or remedies upon the Acquiror, any stockholder of the Acquiror or
the Company, or any person other than the Company's Board of Directors. This
opinion may not be summarized, excerpted from or otherwise publicly referred to
without our prior written consent.
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>
EXHIBIT K
Varlen Corporation, 55 Shuman Blvd., P.O. Box 3089, Naperville, Illinois
60566-7089
(708)420-0400 FAX (708)420-7123
CONTACT:
Richard L. Wellek, President & CEO or
Richard A. Nunemaker, Vice President & CFO
Varlen Corporation (708) 420-4000
Jacob M. Feichtner, Executive Vice President
& CFO
(804) 378-2902
Needham B. Whitfield, Chairman & CEO
Brenco, Incorporated (804) 378-2900
VARLEN ENTERS INTO DEFINITIVE AGREEMENT TO BUY
BRENCO THROUGH $165 MILLION CASH TENDER OFFER
MERGER WOULD CREATE PREEMINENT RAILROAD EQUIPMENT MANUFACTURER WITHIN VARLEN
NAPERVILLE, Ill., June 17, 1996 -- Varlen Corporation (NASDAQ:VRLN) and
Brenco, Incorporated (NASDAQ:BREN) of the Richmond, Va. area, today announced a
definitive agreement for Varlen to buy Brenco in a $165 million cash tender
offer, creating within Varlen a preeminent global manufacturer of precision
engineered railroad products that is well-positioned to capitalize on growing
international interest in American freight railroad technologies.
The merger would transform Varlen into a company with approximately $500
million in 1997 annual sales and 3,200 employees with manufacturing facilities
in 13 states, as well as Germany and France, and would substantially increase
railroad products revenue. The acquisition is anticipated to add up to 7 cents
per share to fiscal 1996 earnings based on a late July closing.
"Varlen and Brenco are a great strategic fit," said Richard L. Wellek,
Varlen's president and chief executive officer. "Varlen has enjoyed excellent
long-term growth on the strength of our current businesses. This combination
will help us grow faster in our railroad and automotive markets. This continues
our corporate focus on manufacturing highly-engineered transportation products
and analytical instruments, maintaining niche market leadership, and expanding
our international presence."
Terms of the agreement approved by both boards of directors include prompt
commencement, through a wholly-owned Varlen subsidiary, of a tender offer at a
price of $16 1/8 for each outstanding share of Brenco common stock. The tender
offer requires that Varlen will be able to obtain at least two-thirds of the
shares at the expiration of the offer, which is scheduled to remain open for 20
business days. An offer to purchase containing all of the terms and conditions
will be mailed to Brenco shareholders in the next few days. The agreement
contemplates that shares not tendered would be acquired at the same price
through a merger. Brenco has approximately 10.2 million shares outstanding.
Persons related to Brenco's founding family -- including Needham B. Whitfield,
Brenco's chairman, and his sister Anne Whitfield Kenny -- control approximately
20 percent of the stock and have signed a separate shareholder tender agreement
with Varlen.
"At a premium of 32% over the closing price for Brenco shares Friday, I
believe Varlen's offer will be well received by Brenco shareholders," said
Brenco's chairman and chief executive officer, Needham B. Whitfield. "We feel
very comfortable entrusting Brenco's dedicated employees and position of
leadership in the railroad bearing market to a company of Varlen's caliber and
reputation. The cultures of the two companies are extremely compatible. Varlen
understands our markets -- both in the automotive and in the railroad industries
- -- and supports our market strategies of continual product innovation and
outstanding customer service. Most important for our future, Varlen is prepared
to invest in our plans for growth."
After the merger, Brenco would continue to be based in the Richmond area and
would become a wholly-owned subsidiary of Varlen. J. Craig Rice would remain as
Brenco president.
<PAGE>
Varlen has been a manufacturer of railroad products since its founding.
Wellek said potential synergies between the two companies should create future
growth opportunities in railroad equipment. "We will have a stronger and more
diverse family of products for the railroad industry, as well as the ability to
leverage greater sales overseas," he said.
Brenco is a leading manufacturer and re-conditioner of tapered roller
bearings for freight cars, for both the domestic and overseas markets. Other
Varlen subsidiaries make railcar shock control devices, outlet gates, locomotive
products and track fastening devices.
Varlen, headquartered in Naperville, Illinois, is a leading manufacturer of
precision engineered transportation products and analytical instruments for the
railroad, heavy-duty truck and trailer, automotive and petroleum industries.
Varlen's customers include Freightliner, PACCAR, General Motors, Chrysler and
TTX. The company had 1995 annual sales of $387 million.
###
MORE INFORMATION ON VARLEN AND BRENCO CAN BE FOUND ON THE CHLOPAK, LEONARD,
SCHECHTER SITE ON THE WORLD WIDE WEB AT HTTP://CLSDC.COM/NEWS/VARLEN.
<PAGE>
Contact:
Richard L. Wellek, President & CEO, or
Richard A. Nunemaker, Vice President & CFO,
Varlen Corporation (708) 420-0400
Jacob M. Feichtner, Executive Vice President & CFO,
(804) 378-2902
Needham B. Whitfield, Chairman & CEO,
Brenco, Incorporated (804) 378-2900
VARLEN COMMENCES $165 MILLION CASH TENDER OFFER
FOR BRENCO SHARES
MERGER WOULD CREATE PREEMINENT RAILROAD EQUIPMENT MANUFACTURER WITHIN VARLEN
NAPERVILLE, ILL., June 20, 1996 -- Varlen Corporation (NASDAQ:VRLN) and
Brenco, Incorporated (NASDAQ:BREN) of the Richmond, Va. area today announced
that a wholly owned Varlen subsidiary has formally commenced a tender offer
for any and all outstanding shares of Brenco common stock at a price of
$16-1/8 per share, net to the seller in cash. The offer, which is scheduled to
expire on July 18, 1996, is being made pursuant to an agreement with Brenco
announced earlier this week. The offer is to be followed by a merger that will
result in Brenco becoming a wholly owned subsidiary of Varlen.
The board of directors of Brenco has unanimously approved the offer and the
merger, has determined that the terms of the offer and merger are fair to and
in the best interests of the shareholders of Brenco and recommends that
shareholders accept the offer and tender
(More)
<PAGE>
their shares pursuant thereto. The tender offer requires that Varlen will be
able to obtain at least two-thirds of the shares at the expiration of the
offer. An offer to purchase containing all of the terms and conditions of the
offer is being distributed to Brenco's shareholders. The agreement
contemplates that shares not tendered would be acquired at the same $16.125
price through the merger. Brenco has approximately 10.2 million shares
outstanding. Persons related to Brenco's founding family -- including Needham
B. Whitfield, Brenco's chairman and chief executive officer, and his sister
Anne Whitfield Kenny -- control approximately 20 percent of the stock and have
signed a separate shareholder tender agreement with Varlen.
"We are delighted to be taking this important step to make Brenco an
integral member of our Varlen family of companies," commented Richard L.
Wellek, Varlen's president and chief executive officer. Wellek said potential
synergies between the two companies should create future growth opportunities
in railroad equipment.
Lehman Brothers, Inc. is acting as financial advisor to Varlen in
connection with the transactions and as dealer manager for the tender offer.
The information agent is D.F. King & Co., Inc.
Brenco, headquartered in the Richmond, Va. area, is a leading manufacturer
and reconditioner of tapered roller bearings for freight cars, for both the
domestic and overseas markets. Other Varlen subsidiaries make railcar shock
control devices, outlet gates, locomotive products and track fastening
devices.
Varlen, headquartered in Naperville, Illinois, is a leading manufacturer of
precision engineered transportation products and analytical instruments for
the railroad, heavy-duty truck
(More)
<PAGE>
and trailer, automotive and petroleum industries. Varlen's customers include
Freightliner, PACCAR, General Motors, Chrysler and TIX. The company had 1995
annual sales of $387 million.
###
MORE INFORMATION ON VARLEN AND BRENCO CAN BE FOUND ON THE CHLOPAK, LEONARD,
SCHECHTER SITE ON THE WORLD WIDE WED AT HTTP://CLSDC.COM/NEWS/VARLEN.
<PAGE>
[BRENCO, INCORPORATED LETTERHEAD]
June 20, 1996
Dear Shareholder:
On behalf of the Board of Directors of Brenco, Incorporated, I am pleased to
inform you that on June 15, 1996, Brenco entered into an Acquisition Agreement
with Varlen Corporation and BAS, Inc., a wholly-owned subsidiary of Varlen,
pursuant to which BAS, Inc. has commenced today a tender offer to purchase all
of the outstanding shares of Brenco's common stock at $16.125 per share, net to
the seller in cash, without any interest (the "Offer"). The tender offer is
currently scheduled to expire at 12:00 midnight, New York City time, on July 18,
1996, unless extended.
Following the successful completion of the Offer, upon approval by
shareholder vote, if required, BAS, Inc. will be merged with and into Brenco.
All Brenco shares not purchased pursuant to the Offer (other than shares of
Brenco held by Varlen and BAS, Inc. and shares with respect to which dissenter's
rights under the Virginia Stock Corporation Act are properly exercised) will be
converted into the right to receive in cash $16.125 per share, without any
interest.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF BRENCO SHAREHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT BRENCO
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES OF BRENCO COMMON STOCK
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the enclosed Solicitation/
Recommendation Statement on Schedule 14D-9 which is being filed with the
Securities and Exchange Commission. Among other things, the Board considered the
opinion of its financial advisor, Wheat, First Securities, Inc., that the
consideration to be received by the holders of Brenco's shares pursuant to the
Offer and the Merger is fair, from a financial report of view, to such holders.
The enclosed Schedule 14D-9 describes the Board's decision and contains other
important information relating to that decision. I urge you to read it
carefully.
Accompanying this letter, in addition to the Schedule 14D-9 and Wheat's
fairness opinion, is the Offer to Purchase, together with related materials
including a Letter of Transmittal for use in tendering your shares. These
documents set forth the terms and conditions of the Offer and provide
instructions as to how to tender your shares. I urge you to read the enclosed
materials carefully and consider all factors set forth therein before making
your decision with respect to the Offer.
I, personally, along with the entire Board of Directors, management and
employees of Brenco, thank you for the support you have given Brenco over the
years.
Sincerely,
Needham B. Whitfield
Chairman of the Board
and Chief Executive Officer
NBW/lma
Enclosure
