<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
VARITY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VARITY CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
Not Applicable
(2) Form, schedule or registration statement no.:
Not Applicable
(3) Filing party:
Not Applicable
(4) Date filed:
Not Applicable
<PAGE> 2
VARITY CORPORATION
672 Delaware Avenue
Buffalo, New York 14209-2202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Meeting") of
Stockholders of Varity Corporation (the "Company") will be held at the
Albright-Knox Art Gallery, 1285 Elmwood Avenue, Buffalo, New York on Thursday,
the 2nd day of June, 1994 at 9:00 a.m. for the following purposes:
(1) to elect eleven (11) directors;
(2) to ratify the appointment of independent auditors; and
(3) to transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The close of business on April 12, 1994 has been fixed as the record date
for the determination of stockholders who will be entitled to receive notice of
and to vote at the Meeting.
By Order of the Board of Directors
KENNETH L. WALKER
Secretary
Buffalo, New York
May 2, 1994
STOCKHOLDERS MAY EXERCISE THEIR RIGHTS BY ATTENDING THE MEETING OR BY
COMPLETING A FORM OF PROXY. SHOULD YOU BE UNABLE TO ATTEND THE MEETING IN
PERSON, KINDLY DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE
ENVELOPE PROVIDED AT YOUR EARLIEST CONVENIENCE. IF YOU ATTEND THE MEETING, YOU
MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY SIGNED AND
RETURNED YOUR PROXY. IF YOU DO NOT VOTE YOUR SHARES IN PERSON, YOUR SHARES WILL
BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS AS INDICATED ON YOUR PROXY. IN THE
ABSENCE OF INSTRUCTIONS, YOUR SHARES WILL BE VOTED FOR THE PERSONS NOMINATED AS
DIRECTORS IN ITEM 1 AND FOR ITEM 2 AS LISTED ON THE FORM OF PROXY AND AT THE
PROXYHOLDER'S DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
<PAGE> 3
VARITY CORPORATION
672 Delaware Avenue
Buffalo, New York 14209-2202
PROXY STATEMENT
This statement is being furnished in connection with the solicitation by
the Board of Directors and management of Varity Corporation ("Varity" or the
"Company") of proxies for use at the Annual Meeting of Stockholders (the
"Meeting") of the Company, to be held on June 2, 1994 for the purposes set forth
in the foregoing Notice of Meeting, and any adjournment thereof.
The holders of shares representing not less than one-third of the total
voting power of the shares entitled to be voted at the Meeting, present in
person or by proxy, shall constitute a quorum. The Company had 43,966,662 shares
of Common Stock and 2,001,000 shares of Class II Preferred Stock outstanding on
April 12, 1994. Each share of Common Stock has one vote on each matter in
question. Each share of Preferred Stock has approximately 1.25 votes on each
matter in question. Shareholders of record at the close of business on April 12,
1994 are entitled to vote. The first date on which this proxy statement and
accompanying proxy card are being mailed to stockholders is on or about May 2,
1994. Abstentions and broker non-votes shall not be counted as either for or
against a matter or nominee, but the shares represented by such abstention or
broker non-vote shall be considered present at the Meeting for quorum purposes.
1. ELECTION OF DIRECTORS
The Board of Directors is elected annually and may consist of such number
between 6 and 24 members as the directors may from time to time determine. The
directors have determined that the number of directors following the Meeting
shall be 11. Directors are elected by a plurality of the votes cast by the
holders of voting securities at the Meeting. UNLESS AUTHORITY TO VOTE IS
WITHHELD, SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES IN FAVOR OF THE
PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY WILL BE VOTED FOR THE ELECTION
OF THE NOMINEES NAMED BELOW. The term of office for each director will be from
the date of the Meeting at which he is elected until the 1995 Annual Meeting of
Stockholders of Varity or until his successor is elected or appointed. In the
event of any vacancy on the Board of Directors prior to the Meeting, a majority
of the directors then in office may fill such vacancy until a successor shall be
elected and qualified.
Information regarding the nominees is set forth below:
WILLIAM A. CORBETT, age 62, is a Partner and Honorary Chairman of the law
firm of Fraser & Beatty in Toronto. He served as Chairman of Lloyds Bank Canada
from 1988 until 1990. Mr. Corbett was first elected a director of the Company in
1984. He is also Chairman of The New Providence Development Company Limited and
a director of Polysar Rubber Corporation, Miles (Canada) Inc., Canadian
Reinsurance Company, Canadian Reassurance Company, The Lyford Cay Company
Limited, and Windfields Farm Limited.
THOMAS N. DAVIDSON, age 54, serves as Chairman of Cardinal Crest Partners,
Nu-Tech Precision Metal Inc. and General Trust Corporation. He served as the
Chairman of Reeftor Industries Limited until 1991 and as the Chairman of PCL
Industries Limited until 1990. Mr. Davidson was first elected a director of the
Company in 1987. He is also a director of Canada Publishing Corporation, Buffalo
Brass Company, Consolidated Brinco Limited, Derlan Industries, MDC Corporation
and Silcorp Limited.
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ROBERT M. GATES, age 50, is the former Director of the United States
Central Intelligence Agency. Prior to serving as Director, Mr. Gates served as
Deputy National Security Adviser and Assistant to the President of the United
States. Mr. Gates was first elected a director of the Company in 1993. He is
also a director of NACCO Industries and Science Applications International
Corporation.
LUIZ F. KAHL, age 57, is the President of The Carborundum Company and the
Chief Executive of BP Advanced Materials. Mr. Kahl was first elected a director
of the Company in 1993. He is also a director of National Fuel Gas Company.
VINCENT D. LAURENZO, age 54, has been Vice Chairman of the Board of
Directors of the Company since 1988. He has served as President of the Company
since 1981. Mr. Laurenzo was first elected a director of the Company in 1982. He
is also a director of Hayes Wheels International, Inc.
W. DARCY MCKEOUGH, age 61, serves as Chairman of McKeough Investments Ltd.
He served as Chairman of Canada Development Investment Corporation from 1987
until 1990; and as the Chairman (1989-1990), President and Chief Executive
Officer (1988-1989) of Redpath Industries Limited. Mr. McKeough was first
elected a director of the Company in 1986. He also serves as a director of
Canada Development Investment Corporation, Canadian Imperial Bank of Commerce,
Canada General Tower Limited, Intertan Inc., Noranda Inc., Numac Energy, and St.
Mary's Cement Corporation.
SIR BRYAN NICHOLSON, age 61, was named Chairman of Varity Holdings Limited
(a subsidiary of the Company) in January, 1993. He is currently Chairman of
British United Provident Association and is the former Chairman and Chief
Executive Officer of the British Post Office. Sir Bryan Nicholson was first
elected a director of the Company in 1993. He is also a director of British
United Provident Association and GKN, PLC., both in the UK.
VICTOR A. RICE, age 53, has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since 1980. He was first elected a
director of the Company in 1978. Mr. Rice also serves as a Director of American
Precision Industries, Comptek Research Inc. and Louisiana Land and Exploration
Company.
WARREN S. RUSTAND, age 51, is the Principal in The Cambridge Company Ltd.
and Managing Director of Soda Creek Industries. Mr. Rustand was first elected a
director of the Company in 1989. He also serves as a director of Rural Metro and
Ventana Group Systems.
WILLIAM R. TESCHKE, age 64, served as a consultant to the Bank of Nova
Scotia from 1985 until 1992 and previously served as Deputy Minister of the
Canadian Department of Industry, Trade and Commerce and Regional Industrial
Expansion. He was first elected a director of the Company in 1985. Mr. Teschke
also serves as a director of Canada Development Investment Corporation,
Westinghouse Canada Inc., Pratt and Whitney Canada, Theratronics International
Ltd. and The Gore Mutual Insurance Company.
THE HONORABLE ROBIN H. WARRENDER, age 66, served from 1986 until February
1993 as Chairman and Chief Executive of London Wall Holdings PLC, (the holding
company of a group of Lloyds of London underwriting agencies) which was placed
into receivership in February 1994. Mr. Warrender was first elected a director
in 1982.
DIRECTORS' COMMITTEES AND MEETINGS
The Board of Directors met seven times during the fiscal year ended January
31, 1994. During the fiscal year, each director of the Company attended more
than 75% of the total number of Board Meetings and more than 75% of the total
number of committee meetings for each committee on which he served.
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The Company's Audit Committee during the fiscal year ended January 31, 1994
consisted of Directors Rustand, Corbett, McKeough, and Teschke. On June 2, 1993
Mr. Gates was added to the Committee. The Audit Committee reviews the financial
statements of the Company, the scope and results of the internal and external
audits of the Company, the internal financial controls of the Company,
significant or unusual transactions between the Company and its associates and
procedures that are being followed to ensure compliance with the Company Policy
on Standards of Business Conduct. The Audit Committee met three times during the
fiscal year ended January 31, 1994.
The Company's Human Resources Committee during the fiscal year ended
January 31, 1994 consisted of Directors Davidson, Rice and Warrender prior to
March 31, 1993, at which time Directors Kahl and Nicholson were added to the
Committee. The Human Resources Committee reviews the status of human resources
and succession planning throughout the Company. The Human Resources Committee
met two times during the fiscal year ended January 31, 1994, once prior to and
once after March 31, 1993. Prior to March 31, 1993, Messrs. Davidson and
Warrender comprised a Subcommittee of the Human Resources Committee which dealt
with human resource and compensation matters that affect Messrs. Laurenzo and
Rice (other than stock options). The Subcommittee of the Human Resources
Committee met once during the fiscal year ended January 31, 1994.
On March 31, 1993 the Stock Option Committee was renamed the Compensation
Committee and its role was expanded to include the functions previously handled
by the Human Resources Subcommittee. The Compensation Committee during the
fiscal year ended January 31, 1994 consisted of Directors Davidson and
Warrender. The Compensation Committee has sole authority for the administration
of salaries, pensions, and other compensation, as well as terms and conditions
of employment, of senior executives. The Compensation Committee also has sole
authority to administer any equity based compensation plan. The Compensation
Committee met seven times during the fiscal year ended January 31, 1994.
DIRECTORS' FEES AND COMPENSATION
Directors receive an annual retainer of $25,000 plus $1,000 for each Board
meeting attended. The chairman of a committee receives $2,500 for each committee
meeting attended and other committee members receive $2,000 for each committee
meeting attended. Only one attendance fee, however, is paid for multiple Board
and Committee meetings on the same day. Directors who are Company employees do
not receive Board attendance or committee attendance fees. Directors who are not
employees of the Company, upon retirement from the Board of Directors, are
entitled to a payment which equals $10,000 times the number of years that the
retiring Director has served as a Director of the Company. The manner in which a
Director's retirement compensation may be paid is determined by the Compensation
Committee.
Under the Shareholder Value Incentive Plan approved by the shareholders,
each non-employee Director in office immediately following each annual
shareholder meeting will receive a grant of premium options to purchase 3,000
shares with an exercise price set at a premium, as determined by a formula,
above the average closing price of the shares on the New York Stock Exchange for
the final 20 trading days in the preceding January. The first automatic grant of
3,000 premium options was made to each Director elected on June 2, 1993 and the
premium was 35%.
DIRECTORS' AND OFFICERS' SHARE OWNERSHIP
The table below sets forth, as of April 12, 1994, the beneficial ownership
(as defined by the Securities and Exchange Commission, the "SEC") of the
Company's equity securities by the directors and executive officers
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of the Company. As of April 12, 1994, Mr. Rice beneficially owns (including
shares issuable upon exercise of options exercisable within 60 days of April 12,
1994) approximately 1.2% of the Company's outstanding Common Stock. As of April
12, 1994, no other director and executive officer of the Company individually
beneficially owned more than 1% of the Company's outstanding Common Stock. As of
April 12, 1994, all directors and executive officers as a group beneficially
owned approximately 3.1% of the Company's Common Stock. As of April 12, 1994, no
director or executive officer owned any Class II Preferred Stock.
<TABLE>
<CAPTION>
COMMON
SHARES(1)
---------
<S> <C>
W. A. Corbett (2).......................... 4,100
T. N. Davidson............................. 11,507
R. M. Gates................................ 3,000
L. F. Kahl................................. 4,000
V. D. Laurenzo............................. 400,790
W. D. McKeough (3)......................... 6,000
B. Nicholson............................... 3,704
V. A. Rice................................. 526,957
W. S. Rustand.............................. 3,100
W. R. Teschke (3).......................... 5,500
R. H. Warrender............................ 3,100
N. D. Arnold............................... 117,887
J. A. Gilroy............................... 74,723
J. Utley................................... 53,853
All Directors and Executive Officers as a
Group (24 Persons)....................... 1,377,038
</TABLE>
- - ---------------
Notes:
(1) Also includes the following shares of the Company's Common Stock issuable
upon the exercise of options which are exercisable within 60 days of April
12, 1994: for Mr. Laurenzo 321,590 shares, Mr. Rice 437,887 shares, all
other Directors 3,000 shares each, Mr. Arnold 100,167 shares, Mr. Gilroy
68,113 shares, Mr. Utley 52,483 shares and all directors and executive
officers as a group (24 persons) 1,146,695 shares.
(2) Mr. Corbett is a partner of Fraser & Beatty, who have provided and continue
to provide legal advice to the Company.
(3) Mr. McKeough and Mr. Teschke are Directors of Canada Development Investment
Corporation ("CDIC"). CDIC participated in the Company's past financial
restructurings and, in connection with such participation, CDIC received a
significant number of the Company's securities. CDIC is the owner of
1,250,000 Class II Preferred Shares. See "Other Stockholder Ownership".
Sir Bryan Nicholson, a director of the Company, and Anthony Williams, an
executive officer of the Company, each filed late with the SEC one required
report each relating to one transaction involving Common Stock of the Company.
In making this statement, the Company has relied on the written representation
of its incumbent directors and executive officers and copies of the reports that
they have filed with the SEC.
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2. RATIFICATION OF AUDITORS
UNLESS OTHERWISE SPECIFIED, SHARES REPRESENTED BY MANAGEMENT PROXIES WILL
BE VOTED FOR THE APPROVAL OF THE APPOINTMENT OF KPMG PEAT MARWICK, AS
INDEPENDENT AUDITORS OF THE COMPANY, TO HOLD OFFICE UNTIL THE NEXT ANNUAL
MEETING OF STOCKHOLDERS. KPMG Peat Marwick were initially appointed as auditors
of the Company at the 1990 Annual Meeting of stockholders.
To the knowledge of the Company, neither KPMG Peat Marwick nor any of its
partners has any direct or indirect financial interest in the Company or any of
the Company's subsidiaries.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE
FISCAL YEAR ENDING JANUARY 31, 1995.
3. EXECUTIVE COMPENSATION
REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEES ON EXECUTIVE
COMPENSATION
This report of the Human Resources and Compensation Committees of the Board
of Directors provides an overview of the Company's compensation philosophy and
executive compensation programs. It discusses compensation-related decisions in
general, and specifically those relating to the Company's Chief Executive
Officer, for the fiscal year ending January 31, 1994 ("Fiscal 1993").
THE ROLES OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEES
At the commencement of Fiscal 1993, the Human Resources Committee (in
conjunction with its subcommittee) was responsible for all matters relating to
the compensation of executive officers of the Company. It carried out this
responsibility by reviewing all executive compensation and benefit plans,
administering the Company's stock option and other long-term incentive plans and
overseeing succession planning.
Effective March 31, 1993, substantially all the functions (other than
succession planning) of the Human Resources Committee, which included one
employee director, were assumed by the Compensation Committee, which is composed
solely of non-employee directors. This change was made by the Board of Directors
in response to changes in SEC regulations and to more completely separate
members of management from involvement in compensation decisions. Accordingly,
this report constitutes the report of the Human Resources Committee insofar as
it relates to action taken prior to March 31, 1993 and the report of the
Compensation Committee insofar as it relates to action taken on or after that
date. All of the decisions of the Human Resources Committee described in this
report were taken unanimously or (insofar as they affected Messrs. Rice or
Laurenzo) unanimously by the Human Resources Subcommittee appointed by the Board
of Directors which was composed of the non-employee members of the Human
Resources Committee.
THE EXECUTIVE COMPENSATION PROGRAMS' OVERALL OBJECTIVES
The Company's executive compensation programs have been designed to support
the Company's goal of enhancing shareholder value by providing incentives that
will attract, reward and retain highly-qualified executives critical to the
long-term success of the Company. The Company's policy is to establish overall
compensation at median competitive levels. Median competitive levels are
determined by an independent consulting firm based on its proprietary data bank
of approximately 400 industrial companies in the United States ( the "Comparison
Group"). The Comparison Group includes three of the seven companies in the
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S & P 500 Machinery group (excluding Varity), and two of the five companies in
the S & P 500 Auto Parts group, which two groups are shown on the graph under
"Performance Graph". However, as a result of the relationship between executive
compensation and corporate performance, in any particular year the Company's
executives may be paid more or less than executives of companies included in the
Comparison Group depending on the Company's performance. The Company's
philosophy recognizes the key role played by executives and is based upon the
belief that providing variable incentives to meet and exceed corporate goals
will contribute to the goal of providing above-average shareholder returns.
Following research and assistance from independent consultants, the Human
Resources Committee revised the Company's short and long-term incentive
compensation plans, which were already based on the achievement of financial
goals, to place even more emphasis on the enhancement of shareholder value.
To implement this new approach in Fiscal 1993 and beyond, the Company
adopted a Shareholder Value Added Program which for compensation purposes is
comprised of an Annual Performance Plan (with earned short-term incentive awards
being paid in cash subject to maximum payouts annually) plus a stock-based long
term incentive compensation plan approved by shareholders on June 2, 1993, the
Varity Corporation Shareholder Value Incentive Plan (the "New Plan"). The New
Plan replaced the Company's previous stock option plan.
The Annual Performance Plan is entirely based on Economic Value Added
("EVA") targets. The Company's EVA target as determined by the Compensation
Committee is the improvement in operating profit or loss of the Company after a
charge for the capital (both debt and equity) invested in the Company. The EVA
targets for operating groups and business units are established on a similar
basis.
Under the New Plan, the Compensation Committee approved only premium stock
option grants for senior executives (which include all the named and certain
other executive officers) in Fiscal 1993 at an exercise price of 35% above the
average stock closing price for the last twenty trading days in January 1993.
This substantial premium for senior executives, when combined with the EVA
targets for the Company, is intended to further align management and shareholder
interests and lead to higher Company stock prices.
AN OVERVIEW OF EXECUTIVE COMPENSATION PLANS
The Company's executive compensation programs have three components: base
salary, annual incentive and long-term incentive. A discussion of the
Committee's decisions regarding executive compensation and an overview of the
various elements are presented below.
BASE SALARY PROGRAM
The Company's base salary program is intended to provide base salary ranges
that reflect median salary levels of the Comparison Group. Base salaries are
periodically adjusted to reflect each individual executive's performance and
contribution to the overall financial results of the Company, the length of time
in the position, and changes in salary levels of the Comparison Group. The
Compensation Committee, based upon research and advice provided by independent
consultants, annually reviews salary levels for similar positions of the
Comparison Group.
ANNUAL PERFORMANCE PLANS
The Fiscal 1993 Annual Performance Plan provided competitive annual
variable pay opportunities to senior executives and other management employees
based solely upon achievement of annual improvements in EVA. The amount of the
annual bonus for senior executives and other management employees for Fiscal
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1993 was based solely upon performance in relation to an annual EVA target
established in advance by the Human Resources Subcommittee for the Company's
most senior executives and by the Human Resources Committee for the Company's
other executive officers. This annual bonus for headquarters executives was
based solely on the Company's EVA performance. For executives of the Company's
business groups, their annual bonus was based, depending on level of
responsibility, either solely on their business group's EVA performance or on a
combination of the Company's and their business group's EVA performance. Those
targets were applied for all bonuses under the Annual Performance Plan and the
target bonus amount is established for each executive as a percentage of base
salary. The percentage of base salary which is used for the target bonus is
established by job grade groupings which in turn are based on levels of
responsibility for the Company's performance. The target bonus percentage is
higher as the job grade, and therefore the level of responsibility, increases.
If the EVA performance goal is met, 100% of the target bonus is paid. If
EVA performance improves but is less than the EVA goal, the bonus paid will be
proportionally less than the target bonus. If EVA performance exceeds the EVA
goal, the target bonus plus an additional bonus will be paid to the executive.
In the case of an additional bonus, half is paid to the executive at the time
that the target bonus is paid and the other portion of the additional bonus is
carried forward into the next year to be paid subject to future results. If
there is a decline in EVA performance, a negative bonus is carried over to
future years where it will reduce the bonus to be paid in future years. This
plan could result in higher than competitive compensation for superior EVA
performance or lower than competitive compensation for Company performance not
meeting EVA goals. For Fiscal 1993 the EVA financial targets were exceeded by
the Company and each business group of the Company.
LONG-TERM INCENTIVE PLANS
On March 31, 1993 the Compensation Committee approved the grant of stock
options to eligible management employees (excluding senior executives) under the
Company's 1983 Executive Stock Option Plan at an exercise price equal to the
fair market value at the grant date.
Consistent with the principles of uniformity and consistency established by
the Human Resources Committee on February 5, 1993, the Compensation Committee
determined to use the end of the fiscal year as the base measurement period for
determining the exercise prices of premium options granted under the New Plan in
Fiscal 1993. Accordingly, on March 31, 1993, the Compensation Committee granted
to senior executives 5-year term options with an exercise price set at 35% above
the average closing price for the Company's Common Stock on the New York Stock
Exchange for the last 20 trading days in January, 1993. The 35% premium equals
the percentage (rounded up to the next full five percent) resulting from five
compoundings of the five year United States government bond average annual
percentage yield during the last 20 trading days in January, 1993. The premium
options were granted, subject to shareholder approval, pursuant to the New Plan.
With approval by shareholders of the New Plan on June 2, 1993, this became the
effective date of the grants which are detailed in the table headed "Option
Grants in Last Fiscal Year" which follows. The 35% premium exercise price
combined with the 5-year term of the options ensures that shareholders will
realize a significant return on their investment in a relatively short period of
time before executives realize any financial gain from their premium options.
Also during Fiscal 1993, the Compensation Committee granted options at fair
market value to one employee who was subsequently elected by the Company's Board
of Directors to an executive officer position.
The number of options granted was determined by the Compensation Committee
based on the responsibility level and salary of each officer and option grants
to officers holding similar positions at
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approximately 250 other companies based on an independent consultant's survey of
long-term incentive compensation practices at such companies. Also considered in
setting the premium option award was the risk and reward potential in that no
benefit will be received from the premium option grants until the Company's
stock price appreciates more than the premium. The grant of options during
Fiscal 1993 was not affected by the size of previous option grants or
outstanding options.
SUPPLEMENTAL PENSION ARRANGEMENTS
The Human Resources Committee also reviewed retirement arrangements,
particularly for those Headquarters employees who had been transferred from
Canada as part of the Company's reincorporation in the United States. One of the
principal findings of this review was that those Headquarters transferees
participating in the Company's United States defined contribution plan who
retire prior to age 65 would receive significantly less retirement income
relative to their compensation as active employees than they would have received
if the Canadian defined benefit plan in which they had previously participated
had remained in effect and significantly less, on the same basis, than is
generally the case for employees of comparable companies. To address this
inequity, the Human Resources Committee and the Human Resources Subcommittee
approved the supplemental pension retirement benefits described below under
"Supplemental Pension Arrangements" for all of the Headquarters transferees who
were in the Canadian pension plan. The Compensation Committee approved certain
amendments to the supplemental pension arrangements for Messrs. Arnold, Laurenzo
and Rice which arrangements as so amended are described under "Supplemental
Pension Arrangements".
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, effective for years beginning
after 1993, generally limits the deductible amount of annual compensation paid
by a public company to a "covered employee" (the chief executive officer and
four other most highly compensated executive officers of the Company) to no more
than $1 million. Qualifying performance-based compensation and compensation that
meets other exceptions to the general rule will be excluded from the computation
and will not be subject to the deduction limit. As of the time of issuing this
report the Committee was continuing to evaluate the Company's compensation
policies with respect to qualifying compensation paid to its executive officers
for deductibility under Section 162(m) of the Internal Revenue Code. However,
the Committee believes that compensation to be paid in fiscal 1994 to each of
its "covered employees" will not exceed $1 million in nonexcluded compensation.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
A key factor noted by the Subcommittee of the Human Resources Committee in
reviewing the base salary of Mr. Rice was that fiscal 1992 was a year of
significant achievement for the Company with a reduction of more than $550
million in long-term debt and $800 million in total debt thereby improving the
balance sheet dramatically. The Subcommittee of the Human Resources Committee
therefore recognized this performance together with the Company's return to
profitability and approved an increase to Mr. Rice's base salary effective
February 1, 1993. The increase reflects the Committee's assessment of Mr. Rice's
contributions to the Company and median competitive practices among the
Comparison Group members.
As stated above, the Compensation Committee approved the introduction, in
Fiscal 1993, of EVA bonus targets for annual incentive plan purposes for senior
executives and management throughout the Company. Based on the Company's fiscal
1993 EVA performance versus target, Mr. Rice earned a bonus in excess of his
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target, part of which was payable in cash and part carried forward to the next
fiscal year. Payment of the amount carried forward is dependent on EVA
performance in the fiscal year ending January 31, 1995.
In addition, on March 31, 1993, the Compensation Committee granted Mr. Rice
options subject to shareholder approval of the New Plan. The number of options
granted to Mr. Rice was based on the same criteria used for other employees. The
grant became effective June 2, 1993, the date of shareholder approval of the New
Plan, and provided for options to purchase 189,600 shares of Common Stock with a
term of five years, exercisable on or after June 2, 1994, at an exercise price
representing a 35% premium over the average closing prices of the Company's
Common Stock on the New York Stock Exchange for the last 20 trading days of
January 1993.
The Human Resources and Compensation Committees approved supplemental
pension benefits for certain Headquarters transferees which are described below.
In the case of Mr. Rice, these supplemental benefits were part of an employment
contract, described under "Employment Agreements", which, among other things,
includes Mr. Rice's agreement to use his best efforts, in addition to his other
duties, to provide for an effective and orderly succession to the position he
now holds. The Human Resources and Compensation Committees believe that, in
addition to the factors taken into account with respect to all of the
Headquarters transferees, the supplemental pension benefits provided for Mr.
Rice appropriately recognize the value of his contributions to the Company and
of the obligations undertaken by him in his employment agreement.
THE HUMAN RESOURCES COMMITTEE
OF THE BOARD OF DIRECTORS
Thomas N. Davidson, Chairman
Victor A. Rice
The Honorable Robin H. Warrender
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Thomas N. Davidson, Chairman
The Honorable Robin H. Warrender
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the past fiscal year, Messrs. Davidson, Rice and Warrender were
members of the Human Resources Committee.
Mr. Rice, Chairman and Chief Executive Officer of the Company, served on
the Company's Human Resources Committee but did not participate in any decisions
regarding his own compensation as an executive officer. Those matters were
handled by the Subcommittee of the Human Resources Committee. In addition,
during Fiscal 1993, Mr. Rice had outstanding interest-free loans from the
Company in the amount of $2,145,550. These loans were repaid in full by Mr. Rice
on December 14, 1993. Additional information regarding these loans is set forth
under "Loans to Officers".
9
<PAGE> 12
PERFORMANCE GRAPH
The following graphs set forth, on a quarterly basis, the cumulative total
shareholder return for the five year and one year periods ending January 31,
1994, for Varity, the S & P 500, the S & P Machinery group and the S & P Auto
Parts group. The Company has chosen to show the S & P Machinery group since
Varity is part of the S & P Machinery group. At the same time, the S & P Auto
Parts group is shown since approximately 42% of Varity's sales last year were of
automotive parts, even though that group is more automotive aftermarket related
than Varity's automotive parts business.
<TABLE>
CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning January 31, 1989
<CAPTION>
S&P register mark Machinery S&P register mark Auto
Varity Corp. S&P 500 register mark (Diversified) Index Parts Index
<S> <C> <C> <C> <C>
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
</TABLE>
10
<PAGE> 13
<TABLE>
CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning January 31, 1989
<CAPTION>
S&P register mark Machinery S&P register mark Auto
Varity Corp. S&P 500 register mark (Diversified) Index Parts Index
<S> <C> <C> <C> <C>
Jan-93
Apr-93
Jul-93
Oct-93
Jan-94
</TABLE>
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information concerning
the compensation of the Company's Chief Executive Officer and each of the other
four most highly compensated executive officers of the Company at the fiscal
year end, January 31, 1993.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS(2)
-------------------------------------- ------------- PAYOUTS
OTHER SECURITIES --------
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(3) ($) ($)(4)(5)
- - ------------------------- ----- -------- -------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. A. RICE 1993 700,000 630,104 52,595 189,600 0 1,226,860
Chairman & Chief 1992 643,500 903,000 125,745 263,287 0 81,050
Executive Officer 1991 567,500 0 39,580 0
V. D. LAURENZO 1993 600,000 565,920 44,243 134,250 0 968,989
Vice Chairman 1992 543,500 654,000 118,607 187,340 0 71,550
& President 1991 477,500 0 26,670 0
N. D. ARNOLD 1993 285,000 164,930 45,492 46,950 0 284,889
Senior Vice President, 1992 270,000 216,000 33,520 53,217 0 22,305
Chief Financial Officer 1991 240,000 0 10,000 0
J. A. GILROY 1993 315,000 223,986 0 51,900 243,083 90,340
Group Chief Executive 1992 260,000 207,350 0 16,213 0 0
Perkins 1991 260,000 0 0 0
J. UTLEY 1993 315,000 184,414 0 51,900 166,737 3,824
Group Chief Executive 1992 240,000 167,602 0 0 0 133,459
Kelsey-Hayes 1991 225,000 0 0 0
</TABLE>
- - ---------------
(1) Represents amount for tax gross-ups for (a) moving expenses, (b) interest
free stock purchase loan (described below under "Loans to Officers"), (c)
tax return preparation fees and (d) club membership fees.
(2) As of January 31, 1994 there were no shares of restricted stock outstanding.
(3) The options listed in the table for 1991 are initial options. Each 1991
initial option included a reload option covering the same number of shares
as the initial option grant. Those reload options would have been
exercisable on and after the exercise of the initial option. All the options
listed on the table which were granted in 1991, as well as the related
reload options, were canceled in 1992.
(4) The amounts for 1993 are those amounts contributed by the Company: (a) under
the Company's savings plans ($9,015, $8,955, $4,354, and $3,824 respectively
for Messrs. Rice, Laurenzo, Arnold and Utley) (b) with respect to the basic
retirement component of the Company's Retirement Equity and Deferred
Compensation Plan (the "Deferral Plan") ($126,505, $98,584, and $38,345
respectively for Messrs. Rice, Laurenzo, and Arnold), and (c) as additional
pension contributions under the Deferral Plan ($1,066,340, $836,450, and
$242,190 respectively for Messrs. Rice, Laurenzo, and Arnold) and under the
UK executive pension plan ($90,340 for Mr. Gilroy). These additional pension
contributions were in recognition of the premature cancellation of the stock
loan program (described below under "Loans to Officers") which required all
outstanding loans to be repaid on or before December 14, 1993. The amounts
for 1993 also include directors fees of $25,000 each for Messrs. Rice and
Laurenzo.
(5) All amounts deferred from a participant's salary or bonus under the Deferral
Plan are included in the salary or bonus columns of the table for the year
earned. Any profits and/or losses on these deferred amounts are not
reflected in the above table since the return on these funds is based upon
an assumed investment in one or more funds selected by the participant from
those designated by the Company.
12
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------------------------
% OF
TOTAL
OPTIONS
GRANTED POTENTIAL REALIZABLE VALUE
NUMBER OF TO EXERCISE AT ASSUMED ANNUAL RATES OF
SECURITIES EMPLOYEES OR STOCK PRICE APPRECIATION FOR
UNDERLYING IN BASE OPTION TERM
OPTIONS FISCAL PRICE MARKET EXPIRATION ------------------------------
NAME GRANTED(1) YEAR ($/SH) PRICE DATE 5%($) 10%($)
- - ------------------------- ---------- --------- -------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. A. Rice 189,600 19.16 37.61 33.875 6/2/98 1,066,318 3,212,967
V. D. Laurenzo 134,250 13.56 37.61 33.875 6/2/98 755,027 2,275,004
N. D. Arnold 46,950 4.74 37.61 33.875 6/2/98 264,049 795,616
J. A. Gilroy 51,900 5.24 37.61 33.875 6/2/98 291,888 879,499
J. Utley 51,900 5.24 37.61 33.875 6/2/98 291,888 879,499
All Named Executive 474,600 47.94 37.61 33.875 6/2/98 2,669,170 8,042,585
Officers
All Shareholders(2) 620,894,405 1,173,435,478
Named Exec. Off. Gain as .43% .69%
a Percentage of All
Stockholders' Gain
</TABLE>
- - ---------------
(1) All options were approved by the Compensation Committee on March 31, 1993
with an exercise price set at 35% above the average closing price ($27.86)
of the Company's common stock on the New York Stock Exchange for the last 20
trading days in January, 1993. The option grant date was June 2, 1993, when
the shareholders approved the new Varity Corporation Shareholder Value
Incentive Plan. All options will be fully vested one year from the grant
date and have a five year term.
(2) As of January 31, 1994, there were 43,957,126 shares of Common Stock
outstanding. The calculations shown for the 5% and 10% assumed annual rates
of stock price appreciation would result from share prices of $48.00 and
$60.57 respectively. The potential realizable value assumes the shares are
held until June 6, 1998. Actual gains will be dependent on future stock
market conditions and there can be no assurance that these amounts will be
achieved.
13
<PAGE> 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FY-END(#) OPTIONS AT
SHARES -------------- FY-END($)
ACQUIRED ON VALUE -----------------
EXERCISE REALIZED EXERCISABLE EXERCISABLE
NAME (#) ($) /UNEXERCISABLE /UNEXERCISABLE
- - ---------------- ----------- -------- -------------- -----------------
<S> <C> <C> <C> <C>
V. A. Rice 15,000 481,025 248,287 8,295,269
/189,600 /1,401,144
V. D. Laurenzo 0 0 187,340 6,259,029
/134,250 /992,108
N. D. Arnold 0 0 53,217 1,777,980
/46,950 /346,961
J. A. Gilroy 0 0 16,213 541,676
/51,900 /383,541
J. Utley 0 0 0 0
/51,900 /383,541
</TABLE>
UNITED KINGDOM PENSION PLAN
Executive officers of the Company located in the United Kingdom are
eligible to participate in a Varity Group Executive Pension Scheme (the "U. K.
Pension Plan") for senior U.K. management, which includes a defined benefit
plan. Pension income in the defined benefit plan at normal retirement is based
on the employee's years of service and his average base salary (excluding
performance-related bonuses) received during his last three years of employment
and is not subject to offset by the amount of U.K. social security benefits.
In addition to United Kingdom social security benefits to which such a
person may be entitled, the following table illustrates the amount of annual
pension benefits (in U.K. pounds) payable from the defined benefit plan on a
straight life annuity basis to an individual with the indicated earnings and
years-of-service at the individual's normal retirement date.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------
REMUNERATION 10 15 20
- - ------------ ---------- ---------- ----------
<S> <C> <C> <C>
10L0,000... L 25,208 L 37,812 L 50,871
150,000... 38,541 57,812 77,538
200,000... 51,875 77,812 104,205
250,000... 65,208 97,812 130,872
300,000... 78,541 117,812 157,538
</TABLE>
14
<PAGE> 17
Mr. Gilroy is a member of the defined benefit plan. Mr. Gilroy, age 57, had
remuneration (salary as set forth in the Summary Compensation Table) of U.S.
$315,000 (approximately L212,000) for Fiscal 1993 and 5 years of credited
service.
KELSEY-HAYES PENSION PLAN
The Company's Kelsey-Hayes subsidiary maintains a pension plan covering
substantially all of its salaried employees. Pension income at normal retirement
is calculated by averaging the participant's highest consecutive 60 months of
compensation out of the final 120 consecutive months compensation (but not in
excess of the statutory limit, which for 1993 was US$235,840), and providing 1%
of the first US$ 7,800 thereof and 1 1/3% of the remainder for each of the first
30 years of service, and 1/2% and 2/3% respectively for each of the next 10
years of service. Amounts paid under the pension plan are not subject to offset
by social security benefits.
Mr. Utley is a member of the Kelsey-Hayes pension plan and for Fiscal 1993
had covered compensation of US$ 235,840 (the statutory limit) and 11 years and 9
months of service.
The following table illustrates the annual pension benefits payable from
the Kelsey-Hayes pension plan to a person in the specified earnings and years of
service classifications at normal retirement date.
<TABLE>
<CAPTION>
5-YEAR
AVERAGE
ANNUAL 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
EARNINGS SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
- - -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 6,407 $ 9,610 $12,813 $16,017 $19,220 $20,822
$100,000 $13,073 $19,610 $26,147 $32,683 $39,220 $42,488
$150,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
$200,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
$250,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
$300,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
$350,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
$400,000 $19,740 $29,610 $39,480 $49,350 $39,220 $64,155
</TABLE>
SUPPLEMENTAL PENSION ARRANGEMENTS
In conjunction with the reincorporation of the Company in the United States
in 1991, the Canadian defined benefit plan in which the Company's headquarters
employees who relocated from Canada to the United States (the "Headquarters
Transferees") had participated was replaced by the Deferral Plan, a defined
contribution plan in which they now participate. The retirement income they will
receive under the Deferral Plan, particularly if they retire early, would be
significantly less relative to their compensation as active employees than it
would have been under the Canadian defined benefit plan and significantly less,
on the same basis, than is generally the case for employees of comparable
companies.
To address this inequity, the Human Resources Committee and the Human
Resources Subcommittee approved the supplemental retirement benefits described
below for the seven Headquarters Transferees, including Messrs. Arnold, Laurenzo
and Rice. In the case of Messrs. Laurenzo and Rice, these supplemental
retirement benefits were also granted in consideration of the obligations
undertaken by them in the employment contracts ("Employment Agreements")
described below under "Employment Agreements", including their obligations to
use their best efforts to plan and provide for an effective and orderly
succession to the positions they now hold.
15
<PAGE> 18
Each of the Headquarters Transferees will receive annual supplemental
pension benefits which, together with amounts payable under the basic retirement
element of the Deferral Plan, the commuted value of benefits accrued under, or
paid in lieu of, one portion of the Company's former Canadian defined benefit
plan and in the case of Headquarters Transferees other than Messrs. Laurenzo and
Rice the commuted value of benefits under another portion of the Company's
former Canadian defined benefit plan (each as adjusted to reflect earnings or
losses periodically deemed to have accrued and expressed as a life annuity),
will equal 45% of final average cash compensation (with a surviving spouse
benefit equal to 60% of the basic benefit) if the Headquarters Transferee
retires at age 55, increased or decreased (other than in the case of Mr. Rice)
by 0.125 percentage points for each month by which retirement is deferred or
accelerated from age 55. Final average cash compensation is the average of the
highest three years' compensation, consisting of base salary and bonus, for the
10 fiscal years prior to retirement or, in the case of Messrs. Laurenzo and
Rice, the average of the highest three years' base salary plus the average of
the highest three years' bonus for the six 12-month periods ending with the date
of retirement. For this purpose, base salary will be not less than $545,846 in
the case of Mr. Laurenzo and not less than $732,028 in the case of Mr. Rice and
bonus will be not less than 60% and not more than 90% of base salary in the case
of Mr. Laurenzo and not less than 70% and not more than 100% of base salary in
the case of Mr. Rice. In addition, cash lump sum supplemental pension benefits
of $1,250,000 and $1,500,000 will be paid to Mr. Laurenzo and Mr. Rice,
respectively, upon retirement. The Employment Agreement with Mr. Rice also
provides that his retirement date may be extended one year at the option of the
Company on six months' notice to Mr. Rice and from year to year thereafter by
mutual agreement and that, in the case of any such deferral, the minimum final
average base salary specified above ($732,028) will be increased by 5%, and the
percentage of final average cash compensation specified above (45%) will be
increased by 1.5 percentage points, for each year of deferral.
These supplemental pension benefits will be paid in cash following
termination in the form and at the times available under any of the payment
options provided for in the Deferral Plan, including as an annuity (except for
the cash lump sum payments to Messrs. Laurenzo and Rice), in a cash lump sum at
the time of termination or in the following year, or in annual installments, as
elected by the participant in accordance with the terms of the Deferral Plan, or
upon a change in control of the Company. In the event of death, disability or
(subject to a Headquarters Transferee having a combined total of 65 years of age
and service) involuntary dismissal, all supplemental pension benefits will
remain payable as if employment had continued until age 55 (or, in the case of
Messrs. Laurenzo and Rice, the expected or deferred date of retirement), except
that the time of payment will reflect the actual date of termination. The
Company is required to fund the supplemental pension benefits through a trust
which has been established for the payment of benefits under the Deferral Plan.
Amounts deposited in the trust will be subject to claims of general creditors of
the Company.
Supplemental pension benefits will not be paid if payments become due after
termination of employment under the employment termination agreements described
below under "Termination Arrangements."
EMPLOYMENT AGREEMENTS
The Company, on September 23, 1992, entered into Employment Agreements with
Messrs. Laurenzo and Rice which set out the terms and conditions of their
employment, specify compensation arrangements and provide for the payment of
supplemental pension benefits. Among other things, the Employment Agreements
specify minimum annual base salaries of $545,000 and $645,000 for Messrs.
Laurenzo and Rice, respectively, during their respective employment periods,
which were to expire on June 1, 1994 in the case of Mr. Laurenzo and September
1, 1996 in the case of Mr. Rice, subject, in the case of Mr. Rice, to extension
as described under "Supplemental Pension Arrangements." Each of the Employment
Agreements also provides for the
16
<PAGE> 19
continued participation by Messrs. Laurenzo and Rice in all incentive and other
employee benefit programs and for the payment of supplemental pension benefits
following retirement as more fully described under "Supplemental Pension
Arrangements." On December 20, 1993 Mr. Laurenzo's Employment Agreement was
amended to extend his employment period to November 1, 1994 (on which date he
will retire) and to provide that Mr. Laurenzo will be entitled to the
supplemental pension benefits upon any termination of his employment.
Mr. Utley had an employment agreement ("Prior Agreement") with Kelsey-Hayes
at the time that it was acquired by the Company in 1989. In 1992, the Company
and Mr. Utley replaced the Prior Agreement with a new employment agreement
extending until December 31, 1994. Under the new employment agreement, the
Company is obligated to pay Mr. Utley, subject to his continued employment,
$547,721 on December 31, 1994.
TERMINATION ARRANGEMENTS
The Company has entered into agreements with the executive officers named
in the Summary Compensation Table and certain other key executive officers which
provide that, upon one of the events described below, all stock options held by
such persons would immediately vest and become exercisable and such persons
would be entitled to the immediate payment of deferred and contingent
compensation.
In addition, if their employment terminates prior to the end of the second
full calendar year following one of such events, they would be entitled to
certain termination benefits. These termination benefits would include lump sum
payments equal to a multiple of the total annual cash compensation (other than
bonuses) of such persons at the time of termination or the occurrence of such
event, whichever is greater, and the highest incentive bonus earned during any
of the previous three fiscal years. This multiple would be 4.4 in the case of
Messrs. Laurenzo and Rice and 3.35 in the case of the other key executives,
reflecting in each case, the imputed value of foregone employee benefits. In
addition, such persons could require the Company to purchase all stock options
outstanding at the time of termination at a price for each option equal to the
difference between the exercise price and the higher of the market value of the
Common Stock at the time of termination or the highest price per share paid by a
person or group who has acquired or has the right to acquire 25% or more of the
outstanding Common Stock. In the alternative, such persons could exercise such
options and would be entitled to five-year interest-free loans from the Company
to finance such exercise.
Messrs. Laurenzo and Rice would be entitled to these benefits in the event
that (i) any person or group should acquire or have the right to acquire 25% or
more of the outstanding Common Stock; (ii) any director were elected to the
Board of Directors without the approval of a majority of the directors (the
"Prior Board") then in office who were either directors at the date of the
agreement or whose election was previously so approved; (iii) any director were
elected to the Board of Directors without the approval of such executive and the
employment of such executive is terminated; or (iv) the Board of Directors shall
have adopted a resolution to the effect that, for purposes of the agreement, a
change in control of the Company has occurred. Other key executives would be
entitled to these benefits in the event that (i) any person or group should
acquire or have the right to acquire 25% or more of the outstanding Common Stock
and a majority of the Prior Board shall have determined that such benefits
should be paid; (ii) any director were elected to the Board of Directors without
the approval of a majority of the Prior Board; or (iii) the Board of Directors
shall have adopted a resolution to the effect that, for purposes of the
agreement, a change in control of the Company has occurred. Each key executive
would also be entitled to an additional amount as reimbursement for any tax
payable because (i) the benefits received have been treated as other than
reasonable compensation for personal services actually rendered and (ii) the
Company provided an interest free loan in connection with the exercise
17
<PAGE> 20
of stock options. Additionally, each key executive would be entitled to
reimbursement of any legal expenses incurred to enforce the executive's rights
to these termination benefits.
LOANS TO OFFICERS
On May 9, 1990 and March 21, 1991, the Company's Canadian predecessor ("Old
Varity") made interest-free loans to executive officers to facilitate the
purchase of Common Shares of Old Varity pursuant to the exercise of certain
options granted to such executive officers on May 4, 1990 and February 27, 1991
under the Old Varity option plan. Each loan was originally secured by the Old
Varity Common Shares so purchased and was secured by the shares of Common Stock
of the Company issued in respect of Common Shares of Old Varity in connection
with the reincorporation in the United States. Each loan was repayable upon
demand. If no demand was made, such loans were repayable in five equal annual
installments commencing May 9, 1996 and March 21, 1997 for the loans made on May
9, 1990 and March 21, 1991, respectively, except that (even without a demand)
earlier repayment could have been required following the death, permanent
disability or other termination of employment of the officer to whom such loan
was made.
Effective December 14, 1993, pursuant to premature demand by the Company,
each of the loans was repaid in full. Concurrent therewith, the Compensation
Committee introduced a mandatory stock ownership policy for senior executives
(including all the named and certain other executive officers) and made
discretionary contributions to the Deferral Plan or the U. K. Pension Plan on
behalf of executive officers whose loans were repaid. The amounts of such
discretionary contributions are included in the "All Other Compensation" column
in the Summary Compensation Table.
The following executive officers had loan balances outstanding in the
amounts set forth opposite their respective names during the period and as of
the date identified:
<TABLE>
<CAPTION>
LARGEST
AGGREGATE
AMOUNT AGGREGATE
OUTSTANDING AMOUNT
THE PERIOD OUTSTANDING
FEB. 1/93 AS OF
TO JAN. 31/94 APRIL 12/94
------------- ------------
<S> <C> <C>
N.D. Arnold, Senior Vice President, Chief Financial Officer....... $ 487,300.00 -0-
P.N. Barton, Vice President, Strategic Planning and Development... 177,237.50 -0-
F.J. Chapman, Vice President and Treasurer........................ 93,500.00 -0-
J.A. Gilroy, Group Chief Executive, Perkins Group................. 181,775.00 -0-
D.W. Gutow, Vice President, Tax Planning.......................... 63,920.00 -0-
B.E. Harvey, Vice President, Executive Planning................... 145,062.50 -0-
V.D. Laurenzo, Vice Chairman of the Board of Directors and
President....................................................... 1,683,000.00 -0-
V.A. Rice, Chairman of the Board of Directors and Chief Executive
Officer......................................................... 2,145,550.00 -0-
A.T. Williams, Vice President, Business Performance............... 61,875.00 -0-
</TABLE>
4. OTHER STOCKHOLDER OWNERSHIP
The ownership position of stockholders who, to the knowledge of the Company
(based on filings with the SEC, except for the holdings of Canada Development
Investment Corporation) are the beneficial owners of
18
<PAGE> 21
more than 5% of the outstanding Common Stock or Class II Preferred Stock of the
Company and certain other information are set forth in the following table:
VARITY STOCK BENEFICIALLY OWNED OR OVER WHICH CONTROL OR DIRECTION EXERCISED
<TABLE>
<CAPTION>
SHARES PERCENT OF CLASS(1)
OWNERSHIP OF DEEMED TO BE ----------------------
TITLE OF OUTSTANDING BENEFICIALLY CURRENT BENEFICIAL
NAME OF BENEFICIAL OWNER CLASS SHARES OWNED OWNERSHIP OWNERSHIP
- - ---------------------------------- ---------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Mario J. Gabelli, GAMCO, and
Gabelli Funds Inc.
One Corporate Center
Rye, New York................... Common 2,528,250(2) 2,528,250 5.8 5.8
FMR Corp. and Fidelity Magellan
Fund & Research Corporation
111 Devonshire Street
Boston, Massachusetts........... Common 2,571,906(3) 2,571,906 5.8 5.8
Canada Development Investment
Corp.
Scotia Plaza
Suite 2703 Class II 1,250,000 1,250,000(4) 62.5 62.5
Toronto, Ontario................ Common -- 416,662 -- .9
Stark Investments(5)
2 Rocky Point Road Class II 337,000 600,000(6) 16.8 30.0
Old Greenwich, Connecticut...... Common -- 200,000(7) -- .5
Aurora L. P.(5)
2 N. LaSalle
Suite 500 Class II 175,800 175,800 8.8 8.8
Chicago, Illinois............... Common -- 58,600(8) -- .1
</TABLE>
- - ---------------
Notes:
(1) Percentages are calculated on the basis of the number of outstanding shares
as of the record date, excluding securities held by or for the account of
the Company or its subsidiaries, plus Common Stock deemed outstanding under
the rules of the SEC (shares which will be outstanding if a shareholder
exercises his particular conversion or option rights which are exercisable
within 60 days). The shares of Class II Preferred Stock are convertible at
any time at a conversion price of Cdn. $75.00 (U.S. $61.50) per share of
Common Stock.
(2) As reported in, and based solely upon a Schedule 13D dated January 6, 1994
filed with the Securities and Exchange Commission by Mario J. Gabelli,
GAMCO, and Gabelli Funds Inc. According to that report GAMCO beneficially
owns 1,797,050 Common Shares, Gabelli Funds, Inc. beneficially owns 731,200
Common Shares, and Mr. Gabelli is deemed to have beneficial ownership of the
total 2,528,250 Common Shares owned by the two foregoing entities.
(3) As reported in, and based solely upon a Schedule 13G dated February 11, 1994
filed with the Securities and Exchange Commission by FMR Corp. According to
that report FMR Corp. beneficially owns 2,571,906 Common Shares and Fidelity
Magellan Fund owns 2,542,100 of those Common Shares beneficially owned by
FMR Corp.
19
<PAGE> 22
(4) Represents 416,662 shares of Common Stock issuable upon the conversion of
1,250,000 shares of Class II Preferred Stock.
(5) Stark Investments has trading discretion over the securities of the Company
held in accounts managed by Stark Investments including the 175,800 shares
of Class II Preferred Stock owned by Aurora L. P.
(6) Includes 175,800 shares of Class II Preferred Stock owned by Aurora L.P.
(7) Represents 200,000 shares of Common Stock issuable upon conversion of
600,000 shares of Class II Preferred Stock.
(8) Represents 58,660 shares of Common Stock issuable upon conversion of 175,800
shares of Class II Preferred Stock.
7. STOCKHOLDER PROPOSALS FOR THE 1994 ANNUAL MEETING
Business to be raised by a stockholder will not be considered at the Annual
Meeting to be held in 1995 unless a notice complying with the Company's
Certificate of Incorporation is received at the principal executive office of
Varity at least fifty (50) days prior to that meeting. Stockholders wishing to
invoke the provisions of the rules of the SEC regarding the inclusion of a
proposal in Varity's proxy material for its Annual Meeting of Stockholders to be
held in 1995 must submit such proposals to Varity, in accordance with these
rules, for receipt not later than January 4, 1995.
8. OTHER MATTERS
As of this date, the Board of Directors does not know of any business to be
brought before the meeting other than as specified above. However, if any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their judgment
on such matters.
9. SOLICITATION OF PROXIES
A proxy may be revoked by notice in writing to the Secretary at any time
prior to the exercise thereof.
The Company intends to request banks and brokers who hold shares in their
names or custody, or in the name of nominees for others, to forward copies of
the proxy material to those persons for whom they hold such shares and to
request authority for the execution of proxies. The Company has also retained
the firm of Georgeson & Company to assist in the solicitation of proxies. The
fee of such firm, estimated to be approximately $7,500 plus expenses, as well as
other costs of soliciting proxies, will be borne by the Company.
Kenneth L. Walker
Secretary
May 2, 1994
20
<PAGE> 23
VARITY CORPORATION
WORLD HEADQUARTERS
672 DELAWARE AVENUE
BUFFALO, NEW YORK 14209
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Neil D. Arnold, Frederick J. Chapman or
Kenneth L. Walker, proxies of the undersigned with power of substitution to
vote all shares of stock of the undersigned in Varity, a Delaware corporation,
with like effect as if the undersigned were personally present and voting at
the annual meeting of shareholders of Varity to be held on June 2, 1994 and at
any adjournment or adjournments thereof, on the following matters and, at their
discretion, upon any other business which may properly come before the meeting.
Anyone giving a proxy may revoke it at any time prior to the voting
thereof by signing, dating and delivering a subsequent proxy or written notice
to the Corporate Secretary of Varity or by attending the meeting and notifying
the Corporate Secretary of his or her intention to vote in person.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
<PAGE> 24
The shares represented by this proxy will be voted as directed by the
shareholder. If no direction is given when the duly executed proxy is returned,
such shares will be voted "FOR all nominees" in item 1 and "FOR" Item 2.
The Board of Directors Recommends a vote "FOR
all nominees" in item 1 and "FOR" Item 2.
Item 1- Election of the W.A. Corbett, T.N. Davidson, R.M. Gates,
following nominees L.F. Kahl, V.D. Laurenzo, W.D. McKeough,
as Directors: B.H. Nicholson, V.A. Rice, W.S. Rustand,
W.R. Teschke and R.H. Warrender
FOR all nominees WITHELD
(except as marked for all Enter the name(s) of any nominee(s) for whom
to the contrary Nominees you wish to withhold authority to vote:
to the right)
/ / / / ----------------------------------------
Item 2- Approve the Appointment
of KPMG Peat Marwick as
independent auditors.
FOR AGAINST ABSTAIN
/ / / / / /
The undersigned hereby acknowledges
receipt of the Notice of the Annual
Meeting of Shareholders and a Proxy
Statement for the Annual Meeting.
DATED: ______________________, 1994
___________________________________
___________________________________
PLEASE MARK INSIDE BLUE BOXES (Signature if held jointly)
SO THAT DATA PROCESSING EQUIPMENT
WILL RECORD YOUR VOTES.
Please mark, date and sign as your name appears on this proxy and return
in the enclosed envelope. If acting as executor, administrator, trustee,
guardian, etc., you should so indicate when signing. If the signer is a
corporation, please sign the full corporate name, by duly authorized
officer. If shares are held jointly, each shareholder named should sign.
