<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14D-1
(Amendment No. 2)
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
VARLEN CORPORATION
(Name of Subject Company)
AMSTED INDUSTRIES INCORPORATED
TRACK ACQUISITION INCORPORATED
(Bidders)
COMMON STOCK, PAR VALUE $.10 PER SHARE
(AND ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
92224810
(CUSIP Number of Class of Securities)
Thomas C. Berg, Esq.
Track Acquisition Incorporated
c/o Amsted Industries Incorporated
44th Floor--Boulevard Towers South
205 North Michigan Avenue
Chicago, Illinois 60601
(312) 819-8470
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Bidder)
----------------
Copies to:
Gary A. Goodman, Esq. Robert J. Minkus, Esq.
Terrence R. Brady, Esq. Schiff Hardin & Waite
Winston & Strawn 6600 Sears Tower
35 West Wacker Drive Chicago, Illinois 60606
Chicago, Illinois 60601 Telephone: (312) 258-5500
Telephone: (312) 558-5600
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<PAGE>
This Amendment No. 2 (this "Amendment") amends and supplements the Tender
Offer Statement on Schedule 14D-1, as amended, originally filed with the
Securities and Exchange Commission on May 24, 1999 (the "Schedule 14D-1") by
Amsted Industries Incorporated, a Delaware corporation ("Parent"), and Track
Acquisition Incorporated, a Delaware corporation and a wholly owned subsidiary
of Parent (the "Purchaser"). The Schedule 14D-1 and this Amendment relate to a
tender offer by the Purchaser to purchase all outstanding shares of common
stock, par value $.10 per share (the "Common Stock"), of Varlen Corporation, a
Delaware corporation (the "Company"), including the associated preferred share
purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated
as of June 17, 1996, as amended, between the Company and Harris Trust and
Savings Bank, as Rights Agent (the Common Stock and the Rights together are
referred to herein as the "Shares"), at $35.00 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated May 24, 1999 and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute
the "Offer"), copies of which are filed with the Schedule 14D-1 as Exhibits
(a)(1) and (a)(2), respectively.
2
<PAGE>
Item 10. Additional Information.
Item 10 is hereby amended as follows:
1. Section 2. Acceptance for Payment and Payment for Shares. The first
paragraph of Section 2 is amended and restated as follows:
Upon the terms and subject to the conditions of the Offer (including the
Offer Conditions and, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Purchaser will accept
for payment, and will pay for, Shares validly tendered and not withdrawn as
promptly as practicable after the later of (i) the satisfaction of the
Antitrust Condition and the date all required filings or consents,
registrations, approvals, permits or authorizations of any governmental
entity shall have been obtained on terms satisfactory to Purchaser in its
sole discretion and (ii) the Expiration Date.
2. All references in the Offer to the sole discretion or sole judgment (or
similar phrases) of Parent or the Purchaser shall be deemed to mean and refer
to the reasonable discretion of Parent or the Purchaser, as the case may be.
3. On June 8, 1999, the waiting period under the HSR Act expired with
respect to the acquisition of Shares pursuant to the Offer.
4. On June 11, 1999, Morgan Stanley & Co. Incorporated, the Company's
financial advisor, sent a letter to Parent in the form filed as Exhibit
(a)(11) to this Schedule 14D-1, which is incorporated by reference herein.
5. On June 17, 1999, Arthur W. Goetschel, Chairman, President and Chief
Executive Officer of Parent, sent a letter to Raymond A. Jean, President and
Chief Executive Officer of the Company, in the form filed as Exhibit (a)(12)
to this Schedule 14D-1, which is incorporated by reference herein.
Item 11. Material to be Filed as Exhibits.
<TABLE>
<C> <S>
(a)(1) Offer to Purchase, dated May 24, 1999.*
(a)(2) Form of Letter of Transmittal.*
(a)(3) Form of letter, dated May 24, 1999, to brokers, dealers,
commercial banks, trust companies and other nominees.*
(a)(4) Form of letter to clients to be used by brokers, dealers,
commercial banks, trust companies and other nominees.*
(a)(5) Press Release, dated May 18, 1999.*
(a)(6) Press Release, dated May 24, 1999.*
(a)(7) Form of summary advertisement, dated May 24, 1999.*
(a)(8) Notice of Guaranteed Delivery.*
(a)(9) IRS Guidelines to Substitute Form W-9.*
(a)(10) Press Release, dated June 7, 1999.*
(a)(11) Form of letter dated June 11, 1999 from Morgan Stanley & Co.
Incorporated to Parent.
(a)(12) Form of letter dated June 17, 1999 from Arthur W. Goetschel,
Chairman, President and Chief Executive Officer of Parent,
to Raymond A. Jean, President and Chief Executive Officer of
the Company.
(b) Commitment Letter, dated April 29, 1999.*
(c) None.
(d) None.
(e) Not Applicable.
(f) None.
</TABLE>
- --------
*Previously filed.
3
<PAGE>
SIGNATURE
After due 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 17, 1999
Amsted Industries Incorporated
/s/ Thomas C. Berg
By: _________________________________
Name: Thomas C. Berg
Title: Vice President, General
Counseland Secretary
Track Acquisition Incorporated
/s/ Thomas C. Berg
By: _________________________________
Name: Thomas C. Berg
Title: Vice President and
Secretary
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(a)(1) Offer to Purchase, dated May 24, 1999.*
(a)(2) Form of Letter of Transmittal.*
(a)(3) Form of letter, dated May 24, 1999, to brokers, dealers, commercial
banks, trust companies and other nominees.*
(a)(4) Form of letter to clients to be used by brokers, dealers, commercial
banks, trust companies and other nominees.*
(a)(5) Press Release, dated May 18, 1999.*
(a)(6) Press Release, dated May 24, 1999.*
(a)(7) Form of summary advertisement, dated May 24, 1999.*
(a)(8) Notice of Guaranteed Delivery.*
(a)(9) IRS Guidelines to Substitute Form W-9.*
(a)(10) Press Release, dated June 7, 1999.*
(a)(11) Form of letter dated June 11, 1999 from Morgan Stanley & Co.
Incorporated to Parent
(a)(12) Form of letter dated June 17, 1999 from Arthur W. Goetschel,
Chairman, President and Chief Executive Officer of Parent, to
Raymond A. Jean, President and Chief Executive Officer of the
Company
(b) Commitment Letter, dated April 29, 1999.*
(c) None.
(d) None.
(e) Not Applicable.
(f) None.
</TABLE>
- --------
*Previously filed.
5
<PAGE>
EXHIBIT (a)(11)
MORGAN STANLEY DEAN WITTER
ONE FINANCIAL PLACE
440 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60605
(312) 706-4000
June 11, 1999
Amsted Industries Incorporated
44th Floor -- Boulevard Towers South
205 North Michigan Avenue
Chicago, IL 60601
Gentlemen:
Morgan Stanley & Co. Incorporated ("Morgan Stanley") recently contacted you
on behalf of Varlen Corporation ("Varlen" or the "Company") about the
possibility of furnishing you with certain confidential, non-public information
regarding the Company (the "Evaluation Material") in connection with your
consideration of a possible negotiated transaction involving the Company. In
that regard, Morgan Stanley has furnished or is herewith furnishing to you,
along with other interested parties, a form of confidentiality/standstill
agreement acceptable to Varlen (the "Confidentiality Agreement").
Varlen's attorneys prepared the initial draft of the Confidentiality
Agreement from a neutral perspective and attempted to balance the interests of
Varlen and potentially interested parties. Varlen has been seeking to avoid
complications and delays which would result from negotiating a different
Confidentiality Agreement with each of the parties seeking access to the
Evaluation Material. The straightforward nature of the initial draft of the
Confidentiality Agreement was confirmed by the willingness of several parties to
sign the agreement without any material modification. Nevertheless, some of the
initial recipients of the initial version of the Confidentiality Agreement have
proposed changes to certain provisions of the agreement.
The Company has determined that it is not practicable or in the best
interests of the Company and its stockholders to negotiate differing,
individualized Confidentiality Agreements with each of the many potential
interested parties. The Company and its counsel have reviewed the comments and
suggestions of several interested parties and their legal counsel and
incorporated certain of those changes into a uniform Confidentiality Agreement.
A clean version of the revised and final form of the Confidentiality Agreement
is enclosed.
<PAGE>
MORGAN STANLEY DEAN WITTER
All parties who wish to continue the process and review the Evaluation
Material will be required to sign the Confidentiality Agreement in the form
enclosed. The Company is not prepared to negotiate an individual agreement with
each of the parties seeking access to the Evaluation Material. Varlen and its
counsel believe the enclosed agreement should be acceptable to all of the
interested parties. If you have any questions regarding the enclosed
Confidentiality Agreement, you may contact Kevin G. Abrams, Esq. of Richards,
Layton & Finger at (302) 651-7720.
Please execute the enclosed Confidentiality Agreement and return it to
Morgan Stanley. Upon receipt of the confidentiality Agreement, we will send you
immediately the initial set of Evaluation Materials and call you to schedule
your initial due diligence meeting.
We look forward to working with you and your representatives.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Francis J. Oelerich III
---------------------------------
Francis J. Oelerich III
Managing Director
<PAGE>
Varlen Corporation
55 Shuman Boulevard
P.O. Box 3089
Naperville, IL 60566-7089
June 11, 1999
Amsted Industries Incorporated
44th Floor - Boulevard Towers South
205 North Michigan Avenue
Chicago, IL 60601
Gentleman:
1. You have requested information from Varlen Corporation (the "Company"),
in connection with your consideration of a possible transaction between the
Company or its stockholders and you. As a condition to your being furnished such
information, you agree to treat any information (whether prepared by the
Company, its advisors or otherwise, and whether oral or written) that is
furnished to you or your representatives (which term shall include your
directors, officers, partners, employees, agents, advisors and potential
financing sources) by or on behalf of the Company (herein collectively referred
to as the "Evaluation Material") in accordance with the provisions of this
letter and to take or abstain from taking certain other actions herein set
forth. The term "Evaluation Material" also shall include all notes, analyses,
compilations, studies, interpretations or other documents (including electronic,
magnetic or other forms of information storage), which contain, reflect or are
based on, in whole or in part, the information furnished pursuant to this
agreement. The term "Evaluation Material" does not include information that (i)
is already in your possession, provided that such information is not known by
you to be subject to another confidentiality agreement with or other obligation
of secrecy to the Company or another party or (ii) becomes generally available
to the public other than as a result of a disclosure by you or your
representatives or (iii) becomes available to you on a non-confidential basis
from a source other than the Company or its advisors, provided that such source
is not known by you to be bound by a confidentiality agreement with or other
obligation of secrecy to the Company or another party.
2. You hereby agree that the Evaluation Material will be used solely for
the purpose of evaluating a possible transaction between the Company or its
stockholders and you, will not be used
<PAGE>
Amsted Industries Incorporated
June 11, 1999
Page 2
in any way detrimental to the Company, and will be kept confidential by you and
your representatives; provided, however, that any of such information may only
be disclosed to your representatives who need to know such information for the
purpose of evaluating any such possible transaction between the Company or its
stockholders and you and who agree with the Company in writing (such writing to
be delivered to the Company prior to any disclosure) to keep such information
confidential and to be bound by this agreement to the same extent as if they
were parties hereto.
3. You hereby acknowledge that you are aware, and that you will advise
your representatives who are informed as to the matters which are subject of
this letter agreement, that the United States securities laws prohibit any
person who has received from an issuer material, non-public information
concerning the matters which are the subject of this letter from purchasing or
selling securities of such issuer or from communicating such information to any
other person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell such securities.
4. In the event that you or your representatives receive a request to
disclose all or any part of the information contained in the Evaluation Material
under the terms of a valid and effective subpoena or order issued by a court of
competent jurisdiction or by a governmental or regulatory body, you agree to (i)
immediately notify the Company of the existence, terms and circumstances
surrounding such a request, so that it may seek an appropriate protective order
and/or waive your compliance with the provisions of this agreement (and, if the
Company seeks such an order, to provide such cooperation as the Company shall
reasonably request). If failing the entry of a protective order or the receipt
of a waiver hereunder, you or your representative are, in the opinion of your
counsel or representative's counsel ("Counsel"), as the case may be, compelled
to disclose Evaluation Material under pain of liability for contempt or other
censure or penalty, you or such representative as applicable may disclose only
that portion of such information as is legally required without liability
hereunder; provided, that you or such representative, as applicable, agree to
exercise reasonable efforts to obtain assurance that confidential treatment will
be accorded such information.
5. In addition, without the prior written consent of the Company, you
will not, and will cause your representatives not to, disclose to any person
(other than your representatives who have entered into a confidentiality
agreement with the Company regarding the Evaluation Material) either (i) the
fact that Evaluation Material has been provided to you, (ii) the fact of any
discussions or negotiations that take place concerning a possible transaction
between the Company or its stockholders and you, or (iii) any of the terms,
conditions or other facts with respect to any such possible transaction,
including the status thereof, except that disclosure of such information may be
made in a filing required by the Securities Exchange Act of 1934, as amended
(the "Exchange Act") filed with the Securities and Exchange Commission if and to
the extent, in the opinion of your Counsel, you are required to make such
disclosure pursuant to the Exchange Act and the rules and regulations
promulgated thereunder; provided that prior to any such disclosure, you shall
first give the Company a reasonable opportunity to review the proposed
disclosure and to comment thereon.
<PAGE>
Amsted Industries Incorporated
June 11, 1999
Page 3
6. Without your prior written consent, the Company will not, and will
cause its representatives and advisors not to, disclose to any person either (i)
the fact that Evaluation Material has been provided to you, (ii) the fact of any
discussions or negotiations that take place concerning a possible transaction
between the Company or its stockholders and you, or (iii) any of the terms,
conditions or other facts with respect to any such possible transaction,
including the status thereof, except that disclosure of such information may be
made in a filing required by the Exchange Act filed with the Securities and
Exchange Commission if and to the extent, in the opinion of the Company's legal
counsel, the Company is required to make such disclosure pursuant to the
Exchange Act and the rules and regulations promulgated thereunder; provided that
prior to any such disclosure, the Company shall first give you a reasonable
opportunity to review the proposed disclosure and to comment thereon.
7. You hereby acknowledge that the Evaluation Material is being furnished
to you in consideration of your agreement that for a period of ninety (90) days
from the date hereof you and your affiliates (as defined in Rule 12b-2 under the
Exchange Act) will not (and you and they will not assist, provide or arrange
financing to or for others or encourage others to), directly or indirectly,
acting alone or in concert with others, unless specifically requested in writing
in advance by the Board of Directors of the Company:
(1) accept for payment or pay for any shares of the Company pursuant
to the tender offer for all the outstanding shares of the Company commenced
by you on May 24, 1999 (the "Offer"),
(2) apart from the Offer, which shall be governed by the preceding
subparagraph, acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not limited to,
beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of
any of the assets or businesses of the Company or any securities issued by
the Company, or any rights or options to acquire such ownership (including
from a third party), or make any public announcement (or request permission
to make any such announcement) with respect to any of the foregoing,
(3) seek or propose to convene a special meeting of the stockholders
of the Company, or to influence or control the management or the policies
of the Company, or to obtain representation on the Company's Board of
Directors, or to solicit or participate in the solicitation of, any proxies
or consents with respect to any securities of the Company, or make any
public announcement with respect to any of the foregoing or request
permission to do any of the foregoing,
(4) take any action which might require the Company to make a public
announcement regarding the types of matters set forth in subparagraphs (i),
(ii) and (iii) above,
<PAGE>
Amsted Industries Incorporated
June 11, 1999
Page 4
(5) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing,
or
(6) seek to have the Company amend or waive any provision of this
paragraph (the "Standstill Paragraph").
8. You hereby acknowledge that the Evaluation Material is being furnished
to you also in consideration for your agreement that, for the period beginning
on the date of this letter agreement and ending one (1) year from the date of
this agreement that neither you nor any of your affiliates (as such term is
defined in Rule 12b-2 under the Exchange Act) will solicit to employ any of the
officers or key employees of the Company, without obtaining prior written
consent of the Company (it being understood that any newspaper or other public
solicitation not directed specifically to such person shall not be deemed to be
a solicitation for purposes of this provision), provided that this paragraph
shall not prohibit you or your affiliates from discussing employment
opportunities with, or hiring, any officer or key employee of the Company who
initiates such discussions with you or your affiliate.
9. The Company agrees that it will not enter into a confidentiality
agreement with another party which contains standstill provisions materially
more favorable to such third party than those set forth in the Standstill
Paragraph unless the Company also offers you substantially similar provisions.
10. If at any time during such period you are approached by any third party
concerning your or their participation in a transaction involving the assets or
businesses of the Company or securities issued by the Company, you will promptly
inform the Company of the nature of such contact and the parties thereto.
11. Although the Company has endeavored to include in the Evaluation
Material information which it believes to be relevant for the purpose of your
investigation, you understand that neither the Company nor any of its
representatives or advisors have made or make any representation or warranty as
to the accuracy or completeness of the Evaluation Material. You agree that
neither the Company nor its representatives or advisors shall have any liability
to you or any of your representatives resulting from the use or contents of the
Evaluation Material or from any action taken or any inaction occurring in
reliance on the Evaluation Material.
12. At the request of the Company or in the event that you do not proceed
with a transaction which is the subject of this letter, you and your
representatives shall destroy or redeliver to the Company all Evaluation
Material and any other material (whether written or stored electronically,
magnetically or by any other means of information storage) containing or
reflecting any information in the Evaluation Material (whether prepared by the
Company, its advisors, agents or otherwise) and will not retain any copies,
extracts or other reproductions in whole or in part of such material. Such
destruction or redelivery to the Company of all Evaluation Material pursuant to
the preceding sentence shall be certified in writing to the Company an
authorized officer with
<PAGE>
Amsted Industries Incorporated
June 11, 1999
Page 5
knowledge of such action. All material prepared by you or your representatives
based on information in the Evaluation Material shall be destroyed, and such
destruction shall be certified in writing to the Company by an authorized
officer supervising such destruction.
13. It is further understood and agreed that no failure or delay by the
Company in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any right, power or
privilege hereunder. The agreements set forth in this letter may be modified or
waived only by a separate writing by the Company and you expressly so modifying
or waiving such agreements.
14. You agree that unless and until a definitive agreement between the
Company and you with respect to any transaction referred to in the first
paragraph of this letter has been executed and delivered, neither the Company
nor you will be under any legal obligation of any kind whatsoever with respect
to such a transaction by virtue of this or any written or oral expression with
respect to such a transaction by any of its directors, officers, employees,
agents or any other representatives or its advisors except for the matters
specifically agreed to in this letter. You further agree (i) that the Company
shall have no obligation to authorize or pursue with you or any other party any
transaction referred to in the first paragraph of this letter and you understand
that the Company has not, as of the date hereof, authorized any such transaction
and (ii) that the Company and its representatives shall be free to conduct any
process for any transaction involving the Company if and as they in their sole
discretion shall determine (including, without limitation, negotiating with any
other interested parties and entering into a definitive agreement without prior
notice to you or any other person) and that any procedures relating to such
process or transaction may be changed at any time without notice to you or any
other person.
15. The parties hereto acknowledge that money damages are an inadequate
remedy for breach of this letter agreement because of the difficulty of
ascertaining the amount of damage that will be suffered by the Company in the
event that this agreement is breached. Therefore, you agree that the Company
may obtain specific performance of this agreement and injunctive relief against
any breach hereof. In the event of litigation relating to this letter
agreement, if a court of competent jurisdiction determines that you or any of
your representatives has breached this letter agreement, then you shall be
liable to the Company for the reasonable legal fees and costs incurred by the
Company in connection with such litigation, including any appeal therefrom.
16. If any term, provision, covenant, or restriction of this letter
agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
17. Except as specified elsewhere herein, the terms of this letter
agreement will remain in force until the date that is two years form the date
hereof.
<PAGE>
Amsted Industries Incorporated
June 11, 1999
Page 6
18. This letter agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute the same agreement and shall become a binding agreement when one or
more counterparts have been signed by each party and delivered to the other
party, thereby constituting the entire agreement among the parties pertaining to
the subject matter hereof. This letter agreement supercedes all prior and
contemporaneous agreements, understandings and representations, whether oral or
written, of the parties in connection herewith. No covenant or condition or
representation not expressed in this letter agreement shall affect or otherwise
be effective to interpret, change or restrict this letter agreement. No prior
drafts of this letter agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action, suit or other proceeding
involving this letter agreement. This letter agreement shall be deemed to have
been mutually prepared by the parties and shall not be construed against any of
them by reason of authorship. This letter agreement may not be changed or
terminated orally, nor shall any change, termination or attempted waiver of any
of the provisions of this letter agreement be binding on any party unless in
writing signed by the parties hereto. No modification, waiver, termination,
rescission, discharge or cancellation of this letter agreement and no waiver of
any provision of or default under this letter agreement shall affect the right
of any party thereafter to enforce any other provision or to exercise any right
or remedy in the event of any other default whether or not similar.
19. This letter shall be governed by, and construed in accordance with,
the laws of the State of Delaware. All disputes related to this agreement shall
be heard exclusively in the courts of the State of Delaware and the parties
agree to submit to the jurisdiction of the courts of the State of Delaware for
purposes of resolving any such disputes.
Very truly yours,
VARLEN CORPORATION
(by Morgan Stanley & Co. Incorporated)
By:/s/ Francis J. Oelerich III
------------------------------
Francis J. Oelerich III
Managing Director
Confirmed and Agreed to:
AMSTED INDUSTRIES INCORPORATED
By:
--------------------------
Title:
<PAGE>
EXHIBIT (a)(12)
Amsted Industries
Incorporated
205 North Michigan Avenue - 44th Floor
Chicago, IL 60601
June 17, 1999
Mr. Raymond A. Jean
President and CEO
Varlen Corporation
55 Shuman Boulevard
Naperville, IL 60566-7089
Dear Mr. Jean:
Amsted's goal has been and continues to be to negotiate a transaction to
acquire Varlen Corporation. We are willing to sign a customary confidentiality
agreement and commence negotiations promptly. However, your advisors have
refused to provide us access to due diligence information unless we execute an
agreement containing a 90-day "stand-still" provision that Morgan Stanley has
advised us is not negotiable. Such a provision would unduly inhibit our ability
to consummate a transaction with the company for the next 90 days, which is
contrary to the best interest of your shareholders.
Amsted believes that our cash tender offer at $35 per share is fully priced
based on the factors set forth below. However, if Varlen has information which
would justify a higher price, we are eager to review it. We urge you to
reconsider your decision to exclude Amsted from your exploration of strategic
alternatives.
Our offer was formulated after extensive consultations with our financial
advisor, Salomon Smith Barney. The price was based on the following factors:
1. Our offer of $35 per share represents a 35% premium over Varlen's closing
price on the day prior to our public announcement and a 50% premium over the
60-day per share average prior to the announcement and a 55% premium over the
2 year share average.
2. Given Varlen's leading positions in its primary product niches, we believe
that Varlen's future performance will be closely tied to key drivers in its
major markets such as new freight car builds and new heavy duty truck
production. Varlen has benefited in recent years from the strength of these
markets. However, as demonstrated by the information in Exhibit A, each of
these industries is near its cyclical peak.
3. We have not been permitted to conduct a due diligence review, and therefore,
we have been unable to address our concerns about various matters. For
example, Varlen's public filings disclose a lawsuit claiming that
environmental contamination by Varlen has led to deaths and physical
injuries.
<PAGE>
4. Comparable companies in the public markets trade at lower multiples of
earnings and cash flow than our offer price, as demonstrated in Exhibit B.
Further, the most comparable recent sale, Johnstown America's freight car
operations which was announced in May 1999 and closed earlier this month,
traded for an estimated 3.0x to 3.5x EBITDA. In comparison, our offer equates
to 6.3x Varlen's trailing twelve month EBITDA.
Since we made our initial contact with you on May 4, 1999, Varlen and its
advisors have had nearly 45 days to explore strategic alternatives and "shop"
the company. Based on your continued exploration of alternatives and
proposed timetables, we can only assume that no superior alternatives have been
forthcoming. We do not expect that shareholders will find it attractive to wait
another 90 days.
We believe that the combination of Varlen and Amsted is a compelling
strategic fit, with significant benefits to both of our shareholders, employees
and customers. Furthermore, due to Varlen's unique composition, no other
potential partner has a strong fit with its diverse businesses. Amsted is fully
financed with a $900 million credit commitment. The credit facility is adequate
to finance the acquisition, including transaction costs and assumption of debt,
as well as our new $150 million wheel plant under construction near Tulsa,
Oklahoma.
We have a strong and sincere interest in consummating this transaction.
Upon your agreement to initiate discussions with us, we are prepared to move
expeditiously.
We look forward to hearing from you.
Very truly yours,
/s/ Arthur W. Goetschel
Arthur W. Goetschel
<PAGE>
Exhibit A
HEAVY DUTY (GVW8) SUMMARY
(000 Units)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Projected
1997 1998 1999 2000 2001 2002 2003 2004
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Can / Am Factory Sales 217.7 255.3 280.9 230.5 223.0 238.1 254.2 269.4
Source: AAMA, ANPACT, WEFA
</TABLE>
FREIGHT CAR DELIVERIES
(000 Units)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Projected
1997 1998 1999 2000 2001 2002 2003 2004
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Freight Car Deliveries 50.4 75.7 75.6 56.7 51.8 54.2 57.4 59.4
Source: ARCI, WEFA
</TABLE>
<PAGE>
Exhibit B
<TABLE>
<CAPTION>
Price (a)/ Firm Value (c)/LTM
----------------------------- --------------------------
(Dollars in Millions, Except Stock Price) 1999 EPS (b) 2000 EPS (b) Revenues EBITDA EBIT
================================================================================================================
<S> <C> <C> <C> <C> <C>
Rail Equipment
Trinity Industries, Inc. (TRN) 7.8x 7.2x 0.6x 5.1x 6.4x
The Greenbrier Companies, Inc. (GBX) 7.1 6.8 0.6 4.4 5.4
ABC-NACO Inc. (ABCR) 13.9 9.6 0.7 8.2 13.5
Railworks Corporation (RWKS) 8.0 6.8 0.6 5.9 8.0
"On Highway" Supply
Navistar International Corp. (NAV)(d)(e) 9.9x 10.2x 0.5x 5.9x 7.3x
Cummins Engine Company (CUM) 12.2 11.2 0.5 6.3 10.7
Meritor Automotive (MRA) 9.0 8.2 0.6 5.4 7.2
Detroit Diesel Corporation (DDC) 12.2 11.9 0.3 5.4 8.7
Transportation Technologies Industries (TTII)(f) 4.6 8.2 0.4 3.1 3.9
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Average 9.4x 8.9x 0.5x 5.5x 7.9x
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Varlen Corporation (VRLN) @ $35 12.1x 11.9x 1.0x 6.3x 8.2x
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</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
LTM: Latest Twelve Months.
NM: Not Meaningful.
(a) Stock price as of June 15, 1999.
(b) First Call estimates as of June 15, 1999.
(c) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money convertibles, less
investments in unconsolidated affiliates and cash.
(d) Financial services subsidiary treated on an equity basis.
(e) Firm value includes $449 MM of unfunded pension liabilities.
(f) Company recently changed its name from Johnstown America Industries Inc.
* Motive-Power, Westinghouse Air Brake and Harmon Industries were excluded
since their primary products are more technologically oriented and related
to rail outsourcing. As such, these companies have greater margin
stability, experience less cyclicality and are expected to generate
stronger earnings growth.
