<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 Hyatt
Regency Buffalo, Two Fountain Plaza, Buffalo, New York on Thursday, the 25th day
of May, 1995 at 10:30 a.m. for the following purposes:
(1) to elect twelve (12) 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 6, 1995 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
April 21, 1995
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 May 25, 1995 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 40,791,580 shares
of Common Stock and 2,001,000 shares of Class II Preferred Stock outstanding on
April 6, 1995. Each share of Common Stock has one vote on each matter in
question. Each share of Preferred Stock has approximately 1.02 votes on each
matter in question. Shareholders of record at the close of business on April 6,
1995 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 April
21, 1995. 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 12. 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 1996 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:
PAUL M. F. CHENG, age 58, is a director of Inchcape, plc. and Chairman of
Inchcape Pacific Limited, a regional subsidiary of Inchcape, plc. Mr. Cheng was
elected a director of the company in January, 1995. He is also the Chairman of
N. M. Rothschild and Sons (Hong Kong) Limited and a director of The Union
Insurance Society of Canton Limited.
WILLIAM A. CORBETT, age 63, 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, Bayer Inc., Canadian Reinsurance
Company, Canadian Reassurance Company, Cara Operations Limited, CFM
International Inc., The Lyford Cay Company Limited, and Windfields Farm Limited.
1
<PAGE> 4
THOMAS N. DAVIDSON, age 55, serves as Chairman of Nu-Tech Precision Metal
Inc. He served as the Chairman of General Trust Corporation until 1993, Cardinal
Crest Partners until 1993, Reeftor Industries Ltd. until 1991 and as the
Chairman of PCL Industries Ltd. 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, Derlan Industries and MDC Corporation.
ROBERT M. GATES, age 51, 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 TRW, Inc. and NACCO Industries.
LUIZ F. KAHL, age 58, 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 55, is retired. He has been Vice Chairman of the
Board of Directors of the Company since 1988. Mr. Laurenzo served as President
of Varity Corporation from 1981 until his retirement on November 1, 1994. He was
first elected a director of the Company in 1982.
W. DARCY MCKEOUGH, age 62, serves as Chairman of McKeough Investments Ltd.
He served as Chairman of Canada Development Investment Corporation from 1987
until 1990; and as the Chairman of Redpath Industries Limited from 1989 until
1990. Mr. McKeough was first elected a director of the Company in 1986. He also
serves as a director of Canada General Tower Limited, Intertan Inc., McKeough
Sons Co. Ltd., Mediacom Inc., Noranda Inc., Numac Energy, Ranger Forest Products
Inc., and St. Mary's Cement Corporation.
SIR BRYAN NICHOLSON, age 62, was named non-executive Chairman of Varity
Europe Limited (a subsidiary of the Company) in January, 1993. He is currently
President of the Confederation of British Industry, 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 54, 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., International Murex Technologies
Corporation and Louisiana Land and Exploration Company.
WARREN S. RUSTAND, age 52, is the Chairman and CEO of the Cambridge Company
Ltd., Chairman of Rural Metro Corporation, and Chairman of Health Partners. He
also serves as a Director of Soda Creek Industries and Ventana Group Systems.
Mr. Rustand has been a director since 1989.
WILLIAM R. TESCHKE, age 65, 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 Westinghouse Canada Inc., Pratt and Whitney Canada,
and The Gore Mutual Insurance Company.
THE HONORABLE ROBIN H. WARRENDER, age 67, 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
2
<PAGE> 5
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 six times during the fiscal year ended January
31, 1995. During the fiscal year, each director of the Company attended 75% or
more of the total number of Board Meetings and 75% or more of the total number
of committee meetings for each committee on which he served.
The Company's Audit Committee during the fiscal year ended January 31, 1995
consisted of Directors Rustand, Corbett, Gates, McKeough, and Teschke. 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 four times during the fiscal year ended January 31, 1995.
The Company's Human Resources Committee during the fiscal year ended
January 31, 1995 consisted of Directors Davidson, Kahl, Nicholson, Rice and
Warrender. 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, 1995.
The Compensation Committee during the fiscal year ended January 31, 1995
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 four times during
the fiscal year ended January 31, 1995.
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 non-employee Director of the Company. The
manner in which a Director's retirement compensation may be paid is determined
by the Compensation Committee. Sir Bryan Nicholson is compensated (pound) 80,000
annually as the non-executive Chairman of Varity Europe Limited. In addition he
is eligible to receive a short term incentive award based on the performance of
the Company. For fiscal 1994 he received an award of (pound) 47,352.
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. On June 2, 1994 each
non-employee Director was granted 3,000 options at a 29% premium.
3
<PAGE> 6
DIRECTORS' AND OFFICERS' SHARE OWNERSHIP
The table below sets forth, as of April 6, 1995, 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 of the
Company. As of April 6, 1995, Mr. Laurenzo and Mr. Rice beneficially owned
respectively (including shares issuable upon exercise of options exercisable
within 60 days of April 6, 1995) approximately 1.2% and 1.7% of the Company's
outstanding Common Stock. As of April 6, 1995, no other director or executive
officer of the Company individually beneficially owned more than 1% of the
Company's outstanding Common Stock. As of April 6, 1995, all directors and
executive officers as a group beneficially owned approximately 4.4% of the
Company's Common Stock. As of April 6, 1995 no director or executive officer
owned any Class II Preferred Stock.
<TABLE>
<CAPTION>
COMMON
SHARES(1)
---------
<S> <C>
P. M. F. Cheng............................... 0
W. A. Corbett (2)............................ 7,100
T. N. Davidson............................... 14,480
R. M. Gates.................................. 6,000
L. F. Kahl................................... 7,500
V. D. Laurenzo............................... 515,090
W. D. McKeough (3)........................... 9,000
B. Nicholson................................. 6,704
V. A. Rice................................... 689,907
W. S. Rustand................................ 6,100
W. R. Teschke (3)............................ 8,500
R. H. Warrender.............................. 6,100
N. D. Arnold................................. 154,687
J. A. Gilroy................................. 117,673
E. J. Gulda.................................. 57,932
J. E. Utley.................................. 94,353
All Directors and Executive Officers as a
Group (27 Persons)......................... 1,882,728
- ---------------
<FN>
Notes:
(1) Includes the following shares of the Company's Common Stock issuable upon
the exercise of options which are exercisable within 60 days of April 6,
1995: for Mr. Laurenzo 435,890 shares, Mr. Rice 601,087 shares, all other
Directors 6,000 shares each (except Mr. Cheng), Mr. Arnold 136,967 shares,
Mr. Gilroy 111,063 shares, Mr. Gulda 56,750 shares, Mr. Utley 92,983 shares
and all directors and executive officers as a group (24 persons) 1,663,367
shares.
(2) Mr. Corbett is a partner of Fraser & Beatty, who have provided and continue
to provide legal advice to the Company.
4
<PAGE> 7
(3) Mr. McKeough and Mr. Teschke were each Directors of Canada Development
Investment Corporation ("CDIC") for part of the fiscal year ended January
31, 1995. 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".
</TABLE>
Luiz F. Kahl, a director of the Company, and Edward J. Gulda, an executive
officer of the Company, each filed late with the SEC one required report
relating to one transaction involving Common Stock of the Company. In making
this statement, the Company has relied on the written representations of its
incumbent directors and executive officers and copies of the reports that they
have filed with the SEC.
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 LLP, AS
INDEPENDENT AUDITORS OF THE COMPANY, TO HOLD OFFICE UNTIL THE NEXT ANNUAL
MEETING OF STOCKHOLDERS. KPMG Peat Marwick LLP 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 LLP 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 LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR
THE FISCAL YEAR ENDING JANUARY 31, 1996.
3. EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report of the Compensation Committee 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, 1995 ("Fiscal 1994").
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
base salary and target bonus at approximately 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 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". The Company's objective is to pay
salaries that range from 80% of the median competitive level to 120% of the
competitive level. The Chief Executive Officer and his direct reports in fiscal
1994 were paid salaries on
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<PAGE> 8
average of 102% of median. 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.
The Annual Performance Plan remains 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.
The Compensation Committee approved only premium stock option grants for
senior executives (which include all the named and certain other executive
officers) in Fiscal 1994 at an exercise price of 29% above the average stock
closing price for the last twenty trading days in January 1994. This 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. No specific weights are attributed to these various factors
when determining base salaries.
Pursuant to employment agreements described below under "Employment
Agreements", Messrs. Laurenzo and Rice were guaranteed minimum annual base
salaries of $545,000 and $645,000, respectively. These guaranteed minimums were
below the actual paid and were not a factor in determining appropriate salaries.
ANNUAL PERFORMANCE PLANS
The Fiscal 1994 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
1994 was based solely upon performance in relation to an annual EVA target
previously established. 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
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<PAGE> 9
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, all or a portion of any bonus carried
forward could be forfeited and could result in a negative bonus which would be
carried forward to future years where it would 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 1994 the EVA financial targets
were exceeded by the Company.
LONG-TERM INCENTIVE PLANS
On February 4, 1994, the Compensation Committee granted to senior
executives 5-year term options with an exercise price set at 29% 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, 1994. The 29% premium equals
the percentage resulting from five compoundings of the five year United States
government bond average annual percentage yield during the last 20 trading days
in January, 1994.
The number of options granted was determined by the Compensation Committee
based on an independent consultant's analysis of award grants necessary to
provide median long term awards for similarly situated executives at
approximately 250 other companies. Within the data base of these 250 companies
are two of the nine companies in the S & P 500 Machinery group (excluding
Varity), and three of the five companies in the S & P 500 Auto Parts group,
which two groups are shown on the graph under "Performance Graph". Grants made
were determined to be at approximately the median value of awards made by these
companies.
Executive officers of one of the Company's subsidiaries received payouts of
awards made in 1990 and 1992 under the 1990 and 1992 Group Long Term Incentive
Plans, respectively. The payouts pursuant to each of the Plans were determined
by formulas set at the time of the respective awards, which formulas were based
on financial criteria covering the performance period of three fiscal years
under the 1990 Plan and the increase in the Company's share price over a
thirteen month period under the 1992 Plan. The payouts under each Plan were made
over a two-year period, with the final payments made in 1994.
SUPPLEMENTAL PENSION ARRANGEMENTS
In March 1994, the Compensation Committee reviewed the vesting provisions
of the supplemental pension retirement benefits described below under
"Supplemental Pension Arrangements" and noted that they failed to offer basic
vesting protection for the longer service executives below age 55. The Committee
approved certain amendments to the vesting provisions of the supplemental
pension arrangements for participants who were below age 55 (including Messrs.
Arnold and Rice) which arrangements as so amended are described under
"Supplemental Pension Arrangements".
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<PAGE> 10
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The Company's executive compensation programs are designed to provide
awards based on individual, operating group, and overall Company performance
measures. It is the policy of the Company to minimize executive compensation
that is non-deductible for tax purposes to the extent that there is no adverse
effect on this performance related approach or the Company's ability to provide
competitive compensation.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee annually reviews Mr. Rice's base salary. A
salary range for the CEO based on the Comparison Group data is established with
the assistance of an independent compensation consultant. In determining salary
adjustments within the set salary range, various factors are taken into account,
none of which have specific weights attributed to them. These factors include
individual performance, responsibility, time in position, current salary, and
Company performance.
In Fiscal 1993, EVA bonus targets for annual incentive plan purposes were
introduced for senior executives and management throughout the Company. Based on
the Company's fiscal 1994 EVA performance versus target, all employees at
Varity's headquarters, including Mr. Rice, earned a bonus in excess of their
target bonus. As with all senior executives of the Company, part of Mr. Rice's
Fiscal 1994 bonus 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, 1996.
In addition, on February 4, 1994, the Compensation Committee granted Mr.
Rice options based on the same criteria used for other employees of the Company.
The grant provided for options to purchase 163,200 shares of Common Stock with a
term of five years, exercisable on or after February 4, 1995, at an exercise
price representing a 29% 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 1994.
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Thomas N. Davidson, Chairman
The Honorable Robin H. Warrender
8
<PAGE> 11
PERFORMANCE GRAPH
The following chart and graph sets forth the cumulative total shareholder
return for the five year period ending January 31, 1995, 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 60% of Varity's sales last year were of automotive parts, even
though that group is significantly more automotive aftermarket related than
Varity's automotive parts business.
<TABLE>
<CAPTION>
MEASUREMENT AT S&P
FISCAL YEAR ENDED MACHINERY S&P AUTO
JANUARY 31 VARITY S&P 500 (DIVERSIFIED) PARTS
- ----------------- ------ ------- ------------- --------
<S> <C> <C> <C> <C>
1990 100 100 100 100
1991 74 108 96 87
1992 53 133 105 157
1993 102 147 113 198
1994 157 166 162 236
1995 118 167 155 210
</TABLE>
9
<PAGE> 12
<TABLE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information concerning
the compensation of the Company's Chief Executive Officer, each of the other
four most highly compensated executive officers of the Company at the fiscal
year end January 31, 1995, and Mr. Laurenzo, a highly compensated executive who
retired during the year.
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION
------------------------------------ AWARDS(2) PAYOUTS
OTHER ------------- --------
ANNUAL SECURITIES LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS (#) ($) ($)(3)(4)
- ------------------------- ----- ------- ------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. A. RICE 1994 780,000 881,699 79,881 163,200 0 114,946
Chairman & Chief 1993 700,000 630,104 163,131 189,600 0 1,201,860
Executive Officer 1992 643,500 903,000 125,745 263,287 0 81,050
V. D. LAURENZO (5) 1994 495,000 586,729 37,100 114,300 0 85,804
Vice Chairman 1993 600,000 565,920 136,339 134,250 0 943,989
1992 543,500 654,000 118,607 187,340 0 71,550
N. D. ARNOLD 1994 300,000 219,017 7,207 36,800 0 41,754
Senior Vice President, 1993 285,000 164,930 64,919 46,950 0 284,889
Chief Financial Officer 1992 270,000 216,000 33,520 53,217 0 22,305
J. A. GILROY 1994 378,750 345,166 0 42,950 0 0
Senior Vice President, 1993 315,000 223,986 7,271 51,900 243,083 90,340
Chief Operating Officer 1992 260,000 207,350 9,088 16,213 0 0
E. J. GULDA 1994 300,000 232,377 0 36,800 179,236 41,829
Group Chief Executive 1993 260,000 274,220 0 26,600 166,737 0
Kelsey-Hayes 1992 240,000 146,400 0 3,000 0 0
J. E. UTLEY 1994 330,000 258,729 0 40,500 179,236 588,150
Senior Vice President, 1993 315,000 184,414 0 51,900 166,737 3,824
Strategic Marketing 1992 240,000 167,602 0 583 0 133,459
- ---------------
<FN>
(1) Represents amount for tax gross-ups for (a) moving expenses, (b) interest
free stock purchase loan (for 1992 and 1993), (c) tax return preparation
fees and (d) club membership fees. The amounts also include annual
director's fees of $25,000 each for Messrs. Rice and Laurenzo. The amounts
for 1992 and 1993 also include the implied value of interest free stock
purchase loans.
(2) As of January 31, 1995 there were no shares of restricted stock outstanding.
(3) The amounts for 1994 are those amounts contributed by the Company: (a) under
the Company's savings plans ($666, $452, $1,493, $2,100 and $3,500,
respectively, for Messrs. Rice, Laurenzo, Arnold, Utley and Gulda) (b) with
respect to the basic retirement component of the Company's Retirement Equity
and Deferred Compensation Plan (the "Deferral Plan") ($114,280, $85,352,
$40,261, $38,329 and $38,329, respectively, for Messrs. Rice, Laurenzo,
Arnold, Utley, Gulda), and (c) as additional pension contribution under the
Deferral Plan of $547,721 for Mr. Utley. This additional pension
contribution was in recognition of the payment due as described below under
"Employment Agreements".
(4) All amounts deferred from a participant's salary or bonus under the Deferral
Plan are included in the salary or bonus columns of the table for the year
earned. Any profits and/or losses on these deferred amounts are not
reflected in the above table since the return on these funds is based upon
an assumed investment in one or more funds selected by the participant from
those designated by the Company.
(5) Mr. Laurenzo retired as President of the Company on November 1, 1994. He
continues to serve as a Director and non-executive Vice Chairman.
</TABLE>
10
<PAGE> 13
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------------------------
% OF
TOTAL
OPTIONS
GRANTED POTENTIAL REALIZABLE VALUE
NUMBER OF TO EXERCISE AT ASSUMED ANNUAL RATES OF
SECURITIES EMPLOYEES OR STOCK PRICE APPRECIATION FOR
UNDERLYING IN BASE OPTION TERM
OPTIONS FISCAL PRICE MARKET EXPIRATION ------------------------------
NAME GRANTED(1) YEAR ($/SH) PRICE DATE 5%($) 10%($)
- ------------------------- ---------- --------- -------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. A. Rice 163,200 20.86 58.75 44.375 2/3/99 0 2,075,094
V. D. Laurenzo 114,300 14.61 58.75 44.375 2/3/99 0 1,453,896
N. D. Arnold 36,800 4.70 58.75 44.75 3/28/99 0 490,176
J. A. Gilroy 42,950 5.49 58.75 44.375 2/3/99 0 546,324
E. J. Gulda 36,800 4.70 58.75 44.75 3/28/99 0 490,176
J. Utley 40,500 5.18 58.75 44.75 3/28/99 0 539,460
All Named Executive 434,550 55.54 58.75 (1 ) (1) 0 5,595,126
Officers
All Shareholders(2) 510,543,300 1,128,795,383
Named Exec. Off. Gain as 0%. .5%
a Percentage of All
Stockholders' Gain
- ---------------
<FN>
(1) Messrs Rice, Laurenzo, Gilroy were granted options by the Compensation
Committee on February 4, 1994 at which time the Company's common stock's
price was $44.375. Messrs Arnold, Gulda, and Utley were granted options by
the Compensation Committee on March 29, 1994 at which time the Company's
common stock's market price was $44.75. All such options were granted with
an exercise price of $58.75, which was set at 29% above the average closing
price of the Company's common stock on the New York Stock Exchange for the
last 20 trading days in January, 1994. All options fully vested one year
from their grant date and have a five year term.
(2) As of January 31, 1995, there were 41,660,653 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 $56.63 and
$71.47, respectively. The potential realizable value assumes the shares are
held for five years. Actual gains will be dependent on future stock market
conditions and there can be no assurance that these amounts will be
achieved.
</TABLE>
11
<PAGE> 14
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FY-END(#) OPTIONS AT
-------------- FY-END($)
SHARES VALUE -----------------
ACQUIRED ON REALIZED EXERCISABLE EXERCISABLE
NAME EXERCISE(#) ($) /UNEXERCISABLE /UNEXERCISABLE
- ---------------- ------------ --------- -------------- -----------------
<S> <C> <C> <C> <C>
V. A. Rice 0 0 437,887 5,564,111
/163,200 /0
V. D. Laurenzo 0 0 321,590 4,198,289
/114,300 /0
N. D. Arnold 0 0 100,167 1,192,593
/36,800 /0
J. A. Gilroy 0 0 68,113 363,333
/42,950 /0
E. J. Gulda 0 0 19,950 0
/43,450 /12,469
J. E. Utley 0 0 52,483 13,065
/40,500 /0
</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 25 30 35
------------ -------------- -------------- --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(pound) 100,000 (pound) 25,169 (pound) 37,754 (pound) 50,339 (pound) 63,484 (pound) 63,297 (pound) 63,109
150,000 38,503 57,754 77,005 96,817 96,630 96,443
200,000 51,836 77,754 103,672 130,150 129,963 129,776
250,000 65,169 97,754 130,339 163,484 163,297 163,109
300,000 78,503 117,754 157,005 196,817 196,630 196,443
</TABLE>
12
<PAGE> 15
Mr. Gilroy is a member of the defined benefit plan. Mr. Gilroy had
remuneration (salary as set forth in the Summary Compensation Table) of U.S.
$378,750 (approximately (pound) 246,000) for Fiscal 1994 and 6 years of credited
service.
KELSEY-HAYES PENSION PLAN
The Company's Kelsey-Hayes subsidiary sponsors a defined benefit retirement
income plan. These plans cover substantially all salaried employees.
Pension benefits from the defined benefit retirement plan are calculated by
averaging the participant's highest consecutive 60 months of compensation of the
final 120 consecutive months compensation (but not in excess of the statutory
limit, which for 1994 was US$ 150,000), 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 and 1/2% and 2/3%, respectively, for each of the next 10 years of service.
Benefits paid under this plan are not subject to offset for social security
benefits.
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 $20,922
$100,000 $13,073 $19,610 $26,147 $32,683 $39,220 $42,498
$150,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
$200,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
$250,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
$300,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
$350,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
$400,000 $19,740 $29,610 $39,480 $49,350 $59,220 $64,155
</TABLE>
Mr. Utley and Mr. Gulda are members of the Kelsey-Hayes retirement income
plan and for fiscal 1994 had total compensation of US$ 588,729 and US$ 532,377,
respectively (salary and bonus as set forth in the Summary Compensation Table)
which is in excess of US$ 150,000 (the statutory limit). My Utley and Mr. Gulda
have 12 years and 9 months of service and 5 years and 1 month of service,
respectively.
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, during 1992 and 1993 the Compensation Committee's
predecessor committee approved the supplemental retirement benefits described
below for the seven Headquarters Transferees,
13
<PAGE> 16
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 their positions.
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 (other than in the case of Mr. Rice) by 0.125
percentage points for each month by which retirement is deferred from age 55. In
March 1994, the benefits were amended to provide immediate vesting for those
executives below age 55, including Messrs. Arnold and Rice, and the percentage
of final average cash compensation to be paid under the plan (including the
amounts payable under other plans as described above) shall grow ratably to 45%
at 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 Mr. Laurenzo and Mr. Rice are entitled upon
retirement to a cash lump sum supplemental pension benefits of $1,250,000 and
$1,500,000, respectively. Mr. Laurenzo upon retirement received the $1,250,000
supplemental pension benefit. 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
Mr. 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."
14
<PAGE> 17
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 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. Mr. Laurenzo retired on November 1, 1994 and is entitled to receive the
supplemental pension benefits.
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 was obligated to pay Mr. Utley, subject to his continued employment,
$547,721 on December 31, 1994. Mr. Utley who continues to be employed by the
Company was paid $547,721 in January 1995.
TERMINATION ARRANGEMENTS
The Company has entered into agreements with the executive officers named
in the Summary Compensation Table and certain other key executive officers (Mr.
Laurenzo's termination agreement ended upon his retirement) 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
Mr. 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.
Mr. 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
15
<PAGE> 18
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 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.
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 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>
FMR Corp. and Fidelity
Magellan Fund &
Research Corporation
111 Devonshire Street
Boston, Massachusetts Common 4,326,606(2) 4,326,606 10.6 10.6
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania Common 3,727,000(3) 3,727,000 9.1 9.1
Canada Development
Investment Corp.
Scotia Plaza
Suite 2703 Class II 1,250,000 1,250,000 62.5 62.5
Toronto, Ontario Common -- 416,662(4) -- 1.0
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>
16
<PAGE> 19
- ---------------
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 13G dated February 14, 1995
filed with the Securities and Exchange Commission by FMR Corp. According to
that report FMR Corp. beneficially owns 4,326,606 Common Shares and Fidelity
Magellan Fund owns 4,288,100 of those Common Shares beneficially owned by
FMR Corp.
(3) As reported in, and based solely upon a Schedule 13G dated February 2, 1995
filed with the Securities and Exchange Commission by Mellon Bank
Corporation. According to that report Mellon Bank Corporation beneficially
owns 3,727,000 Common Shares. The shares listed on said 13G are beneficially
owned by the following subsidiaries of Mellon Bank Corporation: Boston Safe
Deposit and Trust Company; Mellon Bank, N.A.; Franklin Portfolio Associates
Trust; The Boston Company Advisors, Inc.; The Boston Company Asset
Management, Inc.; and The Dreyfus Corporation.
(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.
5. STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Business to be raised by a stockholder will not be considered at the Annual
Meeting to be held in 1996 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 1996 must submit such proposals to Varity, in accordance with these
rules, for receipt not later than December 21, 1995.
6. 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.
17
<PAGE> 20
7. 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
April 21, 1995
18
<PAGE> 21
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 May 25, 1995 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> 22
The Board of Directors Recommends a vote "FOR
all nominees" in item 1 and "FOR" Item 2.
Item 1- Election of the P.M.F. Cheng, W.A. Corbett, T.N. Davidson,
following nominees R.M. Gates, L.F. Kahl, V.D. Laurenzo,
as Directors: W.D. McKeough, 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 L.L.P.
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: ______________________, 1995
___________________________________
___________________________________
PLEASE MARK INSIDE BLUE BOXES (Signature if held jointly)
SO THAT DATA PROCESSING EQUIPMENT
WILL RECORD YOUR VOTES.
