<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES
EXCHANGE ACT OF 1934
------------------------------
VARITRONIC SYSTEMS, INC.
(Name of Subject Company)
VARITRONIC SYSTEMS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
922247-10-1
(CUSIP Number of Class of Securities)
Mr. Scott F. Drill, President
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, Minnesota 55426
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
------------------------------
WITH A COPY TO:
James C. Diracles
Best & Flanagan Professional Limited Liability Partnership
4000 First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4331
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The title of the class of equity securities to which this Statement relates
is Common Stock, $.01 par value ("Shares"), of Varitronic Systems, Inc., a
Minnesota corporation (the "Company"). The address of the principal executive
offices of the Company is 300 Interchange North, 300 Highway 169 South,
Minneapolis, Minnesota 55426.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Brady Offer") of VSI
Acquisition, Inc., a Minnesota corporation (the "Offeror"), and a wholly-owned
subsidiary of Brady USA, Inc., a Wisconsin corporation ("BUSA"), which is a
wholly owned subsidiary of W. H. Brady Co., a Wisconsin corporation ("Brady"),
disclosed in a Tender Offer Statement on Schedule 14D-1 and filed with the
Securities and Exchange Commission (the "Commission") on February 29, 1996 (the
"Schedule 14D-1"), to purchase Shares for cash at $17.50 net per share (the
"Offer Price"). The Schedule 14D-1 states that the principal executive offices
of the Offeror are located at 6555 West Good Hope Road, Milwaukee, WI 53223.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
Purpose of the Brady Offer and the Merger.
(b) Pursuant to the Brady Offer, the Offeror, BUSA, Brady and the Company
entered into a Plan of Agreement of Merger (the "Merger Agreement") providing
for the Brady Offer followed by a Merger between the Company and Offeror (the
"Merger"). The purpose of the Offer, the Merger, and the Merger Agreement is to
enable Brady to acquire control of, and the entire equity interest in, the
Company. Upon consummation of the Merger, the Company will become an indirect
wholly-owned subsidiary of Brady. The Brady Offer is being made pursuant to the
Merger Agreement.
Under the Company's Articles of Incorporation, the approval of the Board of
Directors of the Company and the affirmative vote of the holders of two-thirds
of the outstanding Shares are required to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. The Company's
Articles of Incorporation and the Merger Agreement require the affirmative vote
of the holders of two-thirds of the outstanding Shares to approve the Merger and
the Merger Agreement. The Board of Directors of the Company, including a special
committee of disinterested directors, has approved the Brady Offer, the Merger
and the Merger Agreement, and, unless the Merger is consummated pursuant to the
short form merger provisions under the Minnesota Corporations Act ("MCA")
described below, the only remaining required corporate action of the Company is
the approval and adoption of the Merger Agreement by the affirmative vote of the
holders of at least two-thirds of the Shares. If the Minimum Condition (as
defined in Brady's Offer to Purchase) is satisfied, including as a result of the
exercise of the stock option held by Brady for up to 19.9% of the Company's
outstanding common stock, as described below, the Offeror will have sufficient
voting power to cause the approval and adoption of the Merger Agreement and the
transactions contemplated thereby without the affirmative vote of any other
shareholder.
In the Merger Agreement, the Company has agreed to take all action
necessary to convene a meeting of its shareholders as promptly as practicable
after the consummation of the Brady Offer for the purpose of considering and
taking action on the Merger Agreement and the transactions contemplated thereby,
if such action is required by the MCA. Brady has agreed that all Shares owned by
Brady or the Offeror will be voted in favor of the Merger Agreement.
The Merger Agreement.
The following summary of certain provisions of the Merger Agreement, a copy
of which is attached as Exhibit (c)1 to this Schedule 14D-9, is qualified in its
entirety by reference to the text of the Merger Agreement.
<PAGE> 3
The Brady Offer. The Offeror commenced the Brady Offer in accordance with
the terms of the Merger Agreement. Pursuant to the terms and conditions of the
Merger Agreement, Brady, BUSA, the Offeror and the Company are required to use
all reasonable efforts to take all action as may be necessary or appropriate in
order to effectuate the offer and the Merger as promptly as possible and to
carry out the transactions provided for or contemplated by the Merger Agreement.
Company Actions. Pursuant to the Merger Agreement, the Company has agreed
that, subject to the fiduciary duties of the Board of Directors of the Company
under applicable law as determined by the Board of Directors of the Company in
good faith after consultation with the Company's outside counsel, it will file
with the Commission and mail to its shareholders this
Solicitation/Recommendation Statement on Schedule 14D-9 containing the
recommendations of the Board of Directors that the Company's shareholders accept
the Brady Offer and approve the Merger and Merger Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the MCA, the
Offeror shall be merged with and into the Company at the Effective Time, as
defined in the Merger Agreement. Following the Merger, the separate corporate
existence of the Offeror shall cease and the Company shall continue as the
Surviving Corporation and shall succeed to and assume all the rights and
obligations of the Offeror in accordance with the MCA and the Merger Agreement.
The Articles of Incorporation of the Company shall become the Articles of
Incorporation of the Surviving Corporation and at least a majority of the
directors of the Surviving Corporation shall be nominees of Brady, and the
officers of the Company shall be the officers of the Surviving Corporation, in
each case, until their successors are chosen.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior thereto shall be canceled and extinguished and
each Share (other than Shares owned by the Company, Brady, or any subsidiary of
either, including the Offeror, and any Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the Offeror, the Company or the
holders of the Shares, be converted into and represent the right to receive an
amount equal to the Offer Price. Each share of common stock of the Offeror
issued and outstanding immediately prior to the Effective Time shall, at the
Effective Time, by virtue of the Merger and without any action on the part of
the Offeror, the Company or the holders of Shares, be converted into and shall
thereafter evidence one validly issued and outstanding share of common stock of
the Surviving Corporation.
Dissenting Shares. Shares which are held by holders who have properly
exercised appraisal rights with respect thereto in accordance with Sections
302A.471 and 302A.473 of the MCA will not be exchangeable for the right to
receive an amount equal to the Offer Price in cash, and instead holders of such
Shares will be entitled to receive payment of the appraised value of such stock,
unless such holders fail to perfect or withdraw or lose their right to appraisal
and payment under the MCA.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Offeror, including, but not
limited to, representations and warranties relating to: the Company's
organization, qualification and capitalization; its authority to enter into the
Merger Agreement and carry out related transactions; filings made by the Company
with the Commission under the Securities Act of 1933, as amended or the Exchange
Act (including financial statements included in the documents filed by the
Company under these Acts); required consents and approvals; compliance with
applicable laws; the Company's intellectual property; and the absence of certain
changes or events.
The Offeror, BUSA and Brady have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating the Offeror's, BUSA'S, and Brady's organization and
qualification, authority to enter into the Merger Agreement, required consents
and approvals, and the availability of sufficient funds to consummate the Brady
Offer and the Merger.
Covenants Relating to the Conduct of Business. The Company has agreed that
it will, and will cause its subsidiaries to, carry on their respective
businesses in, and not enter into any material transaction other than in
accordance with, the usual and ordinary course of business. The Company has
agreed that, except as contemplated by the Merger Agreement or as disclosed by
the Company to Brady prior to the execution of the
2
<PAGE> 4
Merger Agreement, it shall not, and shall not permit any of its subsidiaries to,
without the prior consent of Brady:
(a) issue, sell, pledge or encumber, or authorize or propose the
issuance, sale, pledge or encumbrance of (i) any shares of capital stock of
any class (including the shares of Common Stock), or securities convertible
into any such shares, or any rights, warrants or options to acquire any
such shares or other convertible securities, or grant or accelerate any
right to convert or exchange any securities of the Company or any of its
subsidiaries for such shares, other than shares of Common Stock issuable,
upon exercise or currently outstanding options, or (ii) any other
securities in respect of, in lieu of or in substitution for shares of
Common Stock outstanding on the date of the Merger Agreement;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including
the shares of Common Stock);
(c) split, combine or reclassify any shares of its capital stock or
declare or pay any dividend or distribution on any shares of capital stock
of the Company;
(d) except pursuant to agreements or arrangements in effect on the
date of the Merger Agreement which have been disclosed to the Offeror,
authorize capital expenditures in excess of $500,000 in the aggregate, make
any acquisition or disposition of a material amount of assets (other than
inventory) or securities, enter into or amend or terminate any contract,
material to the business of the Company and its subsidiaries taken as a
whole, or release or relinquish any contact rights or claims, material to
the business of the Company and its subsidiaries taken as a whole;
(e) pledge or encumber any material assets of the Company except in
the ordinary course of business;
(f) incur any long-term debt for borrowed money or short-term debt for
borrowed money in an aggregate amount in excess of $100,000 except for debt
incurred in the ordinary course of business (including, without limitation,
to fund working capital needs);
(g) propose or adopt any amendments to the Articles of Incorporation
or By-Laws of the Company;
(h) adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any of its subsidiaries;
(i) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except wholly owned subsidiaries of the
Company in the ordinary course of business and consistent with past
practice;
(j) make any loans, advances or capital contributions to, or
investments in, any other person (other than loans or advances to
subsidiaries and customer loans or advances to employees in accordance with
past practices);
(k) except as required by applicable laws, adopt or amend any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, severance, termination, employment or other employee benefit
plan, agreement, trust, fund, policy or other arrangement for the benefit
or welfare of any employee or director or former employee or director or,
except as required by applicable laws, increase the compensation or fringe
benefits of any employee or pay any employee or pay any benefit not
required by any existing plan, arrangement or agreement;
(l) make any tax election or settle or compromise any federal, state,
local or foreign income tax liability, except in the ordinary course of
business and consistent with past practice; or
(m) agree in writing or otherwise to take any of the foregoing
actions.
No Solicitation. The Merger Agreement provides that neither the Company nor
any of its subsidiaries, nor any of their respective directors, officers,
employees, representatives, agents or affiliates will, directly or indirectly,
encourage, solicit, initiate or, except as is required in the exercise of
fiduciary duties of the Company's directors and officers to its shareholders,
upon advice of counsel to the Company, participate in any discussions or
negotiations with, or knowingly provide any information to, any corporation,
partnership,
3
<PAGE> 5
person or other entity or group (other than Brady, BUSA, or the Offeror or any
affiliate or agents) concerning any merger, sale of substantial assets or shares
of capital stock or similar transactions involving the Company or any material
subsidiary or division of the Company, provided, however, that nothing contained
in the Merger Agreement will prohibit the Company or its Board of Directors from
(i) taking and disclosing to the Company's shareholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act, (ii) making such disclosure to the Company's
shareholders which, in the judgment of the Board of Directors with the advice of
counsel, may be required under applicable law or (iii) providing information to,
or participating in discussions or negotiations with, any party that the Board
of Directors believes in good faith would be capable of effecting an acquisition
of the Company on terms that are superior, from a financial point of view, to
the Brady Offer and the Merger. The Merger Agreement requires the Company
promptly to communicate to Offeror if it is furnishing information to or
engaging in negotiations with any third party with respect to the acquisition of
the Company or any of its assets or subsidiaries.
Options. Options to purchase Shares are outstanding under employee stock
option plans of the Company (the "Company Stock Option Plans") and pursuant to
the Merger Agreement, the Company has granted Brady the Option providing for the
purchase of a number of newly issued Shares equal to 19.9% of the outstanding
shares of the Company's common stock for $17.50 per share. (See below). As of
the date of the Merger Agreement, options for a total of 193,500 Shares were
outstanding under the Company's Stock Option Plans and pursuant to an agreement
with an officer (collectively, the "Company Stock Options"). The Merger
Agreement provides that at the Effective Time each outstanding Company Stock
option shall be canceled for a payment equal to the difference between the
exercise price of the option and $17.50 per Share.
Indemnification. From and after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company in each case to the
full extent permitted under the MCA.
Employee Benefits. Under the Merger Agreement, the Offeror agreed to honor
and to cause the Surviving Corporation to honor and perform its obligations
under certain benefit plans, programs, policies and agreements and certain
compensation agreements.
The Merger Agreement provides that if any salaried or non-union hourly
employee of the Company or any of its subsidiaries is or becomes a participant
in any written employee benefit plan or program of the Offeror or any member of
its controlled group within the meaning of the Section 414(b) or (c) of the
Code, such employee shall be credited under such plan or program with all
service prior to the Effective Time with the Company and its subsidiaries (and
any predecessor employer) to the extent credit was given by the Company and its
subsidiaries for purposes of eligibility and vesting under such plan or program.
Brady, BUSA and the Offeror have acknowledged in the Merger Agreement that
consummation of the Brady Offer will constitute a change of control of the
Company (to the extent such concept is relevant) for purposes of certain
employment, severance or benefit agreements and plans.
Brady, BUSA and the Offeror have agreed in the Merger Agreement to the
amendment of certain specified compensation and benefit plans and programs to
permit the acceleration of payment thereunder on or after the later of the date
of the acquisition of Shares pursuant to the Brady Offer or five business days
after the participant's termination of employment for any reason (other than his
or her retirement at or after age 65, death or disability); provided however,
that such termination occurs within two years after such acquisition of Shares
and that no payments shall be accelerated or made to the extent they could
constitute non-deductible excess parachute payments within the meaning of
Section 28OG(l) and (2)(A) of the Code.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan (the "Plan")
is a payroll deduction plan pursuant to which the deductions of all
participating employees are accumulated for twelve-month periods, at the end of
which the Company issues and sells Shares to the participants. The Company has
advised Brady that the current twelve-month period began on October 1, 1995. The
Merger Agreement provides that at the Effective Time the Plan will terminate and
that each participant will receive an amount equal to the sum of (a) the balance
of the participant's account under the Plan, plus (b)(i) the excess of
4
<PAGE> 6
$17.50 per Share over the purchase price per Share applicable to purchases under
the Plan, multiplied by (ii) the number of Shares that could have been purchased
from the balance of the participant's account under the Plan.
Board Representation. The Merger Agreement provides that promptly upon the
purchase of Shares pursuant to the Brady Offer, Brady shall be entitled to
designate such number of members of the Board of Directors of the Company,
rounded up to the next whole number, but in no event more than one less than the
total number of directors, as will give Brady, subject to compliance with the
provisions of Section 14(f) of the Exchange Act, representation on the Board of
Directors of the Company equal to the product of (i) the total number of
directors on such Board and (ii) the percentage that the aggregate number of
Shares owned by Brady bears to the total number of outstanding Shares. The
Company has agreed, upon the request of Brady and upon the purchase of Shares
pursuant to the Offer, to promptly increase the size of the Board of Directors
of the Company and/or use its reasonable best efforts to secure the resignations
of such number of directors as is necessary to enable Brady's designees to be
elected to the Board of Directors and shall cause Brady's designees to be so
elected. The Company has agreed to take, at its expense, all actions required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder to
effect any such election, including the mailing to its shareholders the
information required to be disclosed pursuant thereto. Brady will supply to the
Company in writing, and be solely responsible for, any information with respect
to itself and its nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-l.
Following the election of designees of Brady as described above and prior
to the Effective Time, any amendment to the Merger Agreement or the Articles of
Incorporation or Bylaws of the Company, any termination of the Merger Agreement,
or any action with respect to the various rights granted to the Company under
the Merger Agreement shall require the concurrence of a majority of the
Company's directors then in office who are not designees of Brady.
Conditions Precedent. The respective obligations of each party to effect
the Merger are subject to the fulfillment at or prior to the Effective Time of
the following conditions: (a) if required by applicable law, the Merger
Agreement shall have been approved by the requisite vote of the holders of
two-thirds of the outstanding Shares; (b) no governmental entity or United
States court shall have enacted, issued, promulgated, enforced or entered any
state, rule, regulation, executive order, decree or injunction which prohibits
or has the effect of prohibiting the consummation of the Merger; (c) any waiting
period applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have expired or been terminated; and
(d) the Offeror shall have accepted and paid for Shares tendered pursuant to the
Brady Offer, including satisfaction of the Minimum Condition.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time: (a)
by mutual written consent duly authorized by the Board of Directors of the
Company (excluding any representative of the Offeror or an affiliate of the
Offeror), the Offeror and Brady (b) by either the Offeror or the Company if the
Effective Time shall not have occurred on or before December 31, 1996; (c) by
either the Offeror or the Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling, or taken any other action restraining, enjoining, or
otherwise prohibiting the Merger and such order, decree, ruling or other action
has become final and non-appealable; (d) by the Offeror, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of the
conditions set forth in Section 15 of the Brady Offer to Purchase, the Offeror
shall have (A) failed to commence the Brady Offer within twenty days following
the date of the Merger Agreement, (B) terminated the Brady Offer or the Brady
Offer shall have expired without the purchase of shares thereunder at any time
after the latest date, if any, to which the Brady Offer shall have been extended
pursuant to the Merger Agreement or (C) failed to pay for Shares pursuant to the
Brady Offer by the fortieth business day following such commencement, unless
such failure to commence, terminate or failure to pay for Shares shall have been
caused by or resulted from the failure of the Offeror or an affiliate to perform
in any respect its covenants and agreements contained in the Merger Agreement;
or (ii) prior to the purchase of Shares pursuant to the Brady Offer, the Board
of Directors of the Company shall have withdrawn or modified in a manner adverse
to the Offeror its approval or recommendation of the Brady Offer, the Merger
5
<PAGE> 7
Agreement or the Merger, or shall have recommended another Offer, or shall have
resolved to do any of the foregoing; provided, however, that the Offeror shall
have no right to terminate the Merger Agreement and abandon the Merger if the
Company withdraws or modifies its recommendation of the Brady Offer, the Merger
Agreement, or the Merger, by reason of taking and disclosing to the Company's
shareholders a position contemplated by Rule 14e-2(a)(2) or (3) promulgated
under the Exchange Act with respect to another proposal, and if within ten days
of taking and disclosing to its shareholders the aforementioned position, the
Company publicly reconfirms its recommendation of the Brady Offer, the Merger
Agreement or the Merger and takes and discloses to the Company's shareholders a
recommendation to reject such other proposal as contemplated by Rule 14e-2(a)(1)
promulgated under the Exchange Act; or (e) by the Company, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of the
conditions set forth in Section 15 of the Brady Offer to Purchase or otherwise,
the Offeror shall have (A) failed to commence the Brady Offer as provided in the
Merger Agreement within twenty days following the date of the Merger Agreement,
(B) terminated the Brady Offer or the Brady Offer shall have expired without the
purchase of Shares thereunder at any time after the latest date, if any, to
which the Brady Offer shall have been extended in accordance with the terms of
the Merger Agreement or (C) failed to pay for Shares pursuant to the Brady Offer
by the fortieth business day following such announcement, unless such failure to
commence, terminate or failure to pay for Shares shall have been caused by or
resulted from the occurrence or existence of the condition described in
paragraph (d) of Section 15 of the Brady Offer to Purchase, or (ii) prior to the
purchase of Shares pursuant to the Brady Offer, (A) a corporation, partnership,
person or other entity or group shall have made a bona fide proposal that the
Board of Directors of the Company believes, in good faith, after consultation
with its legal and financial advisors, it is more favorable to the Company and
its shareholders than the Brady Offer and the Merger, (B) the Offeror does not
make, within ten days of the Offeror receiving notice of such third party
proposal containing all of the terms, provisions, and conditions thereof, an
offer which the Board of Directors believes, in good faith after consultation
with its legal and financial advisors, is at least as favorable to the Company's
shareholders as such third party proposal.
Fees and Expenses. The Company has agreed in the Merger Agreement to pay
the Offeror the sum of (x) $1 Million and (y) all actual, documented
out-of-pocket expenses relating to the Brady Offer and the Merger in an amount
not to exceed $750,000 if the Merger Agreement or the transactions contemplated
thereby are terminated or abandoned (unless at such time BUSA or the Offeror are
in breach in any material respect of any of its material obligations or material
representations and warranties thereunder) and prior to or contemporaneously
with such termination or abandonment, (1) any corporation, partnership, person,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Brady or any of its subsidiaries or affiliates (collectively, "Person"),
shall have acquired or beneficially owns (as defined in Rule 13d-3 promulgated
under the Exchange Act) and failed to tender in the Brady Offer at least 33.34%
of the then outstanding Shares.
Stock Option. The Company has granted Brady an option to purchase a number
of newly issued Shares equal to 19.9% of its outstanding shares of Common Stock
at a price of $17.50 per share. The Option is intended to increase the
likelihood that the Brady Offer and Merger will be consummated in accordance
with the terms of the Merger Agreement. Consequently, certain aspects of the
Option may have the effect of discouraging persons who might now, or prior to
the Effective Time may, be interested in acquiring all or a significant interest
in, or otherwise effecting a business combination with the Company or from
considering or proposing such a transaction, even if such persons were prepared
to offer to pay consideration which had a higher value than $17.50 per share.
The Option may be exercised, in whole or in part, at any time. The Option will
terminate upon the earlier of (i) the Effective Time or (ii) December 31, 1996.
The Company may exercise the Option in order to meet the Minimum Condition.
Notwithstanding the foregoing, the Option cannot be exercised if Brady is in
material breach of any of its material representations or warranties or in
material breach of its covenants or agreements pursuant to the Merger Agreement.
Except as provided in the preceding paragraphs, the Merger Agreement
provides that whether or not the Merger is consummated, each party thereto shall
pay its own expenses incident to preparing for, entering into and carrying out
the Merger Agreement and the consummation of the Brady Offer and the Merger.
6
<PAGE> 8
Dividends and Distributions.
The Merger Agreement provides that neither the Company nor any of its
subsidiaries will, among other things, prior to the Effective Time (i) declare
or pay any dividend (whether in cash, stock or property) or make any other
distribution with respect to any shares of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) repurchase or otherwise acquire any
shares of capital stock of the Company; or issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, any shares of its capital stock of
any class of securities convertible into, or subscriptions, rights, warrants or
options to acquire, or enter into other agreements or commitments of any
character obligating it to issue any such shares or other convertible securities
other than the issuance of Shares pursuant to the exercise of stock options
outstanding on the date of the Merger Agreement.
Certain Conditions to Offeror's Obligations.
Notwithstanding any other term of the Brady Offer or of the Merger
Agreement, the Offeror is not required to accept for payment or pay for, subject
to any applicable rules and regulations of the Commission, including Rule
14e-1(c) of the Exchange Act, any Shares not theretofore accepted for payment or
paid for and may terminate or amend the Brady Offer as to such Shares unless (i)
there shall have been validly tendered and not withdrawn prior to the expiration
of the Brady Offer a number of Shares which, when added to the Shares
beneficially owned by Brady and its affiliates, at least equal to the Minimum
Condition and (ii) any waiting period under the HSR Act applicable to the
purchase of the Shares pursuant to the Brady Offer has expired or been
terminated. Furthermore, notwithstanding any other term of the Brady Offer or
the Merger Agreement, the Offeror is not required to accept for payment or,
subject as aforesaid, to pay for any Shares not theretofore accepted for payment
or paid for, and may terminate or amend the Brady Offer if at any time on or
after the date of the Merger Agreement and before the acceptance of such Shares
for payment or the payment therefor, any of the following conditions exist or
shall occur and remain in effect:
(a) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) a commencement of a war, armed
hostilities or other national or international calamity directly or
indirectly involving the United States, (iv) any material limitation
(whether or not mandatory) by any governmental authority on, or any other
event which might materially and adversely affect the extension of credit
by lending institutions, or (v) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof; or
(b) there shall have been any statute, rule or regulation enacted,
promulgated, entered or enforced or deemed applicable, or any decree, order
or injunction entered or enforced by any government or governmental
authority in the United States or by any court in the United States that
(i) restrains or prohibits the making or consummation of the Brady Offer or
the consummation of the Merger, (ii) prohibits or restricts the ownership
or operation by the Offeror (or any of its affiliates or subsidiaries) of
any portion of its or the Company's business or assets which is material to
the business of all such entities taken as a whole or (iii) imposes
material limitations on the ability of the Offeror effectively to acquire
or to hold or to exercise full rights of ownership of the shares of Common
Stock, including, without limitation, the right to vote the shares of
Common Stock purchased by the Offeror on all matters properly presented to
the shareholders of the Company; provided, however, that the Offeror and
Brady shall have used their best efforts to have any such decree, order or
injunction vacated or reversed, including, without limitation, by
proffering their willingness to accept an order embodying any arrangement
required to be made by the Offeror, Brady or BUSA pursuant to the Merger
Agreement (and notwithstanding anything in this subsection (b) to the
contrary, no terms, conditions or provisions of an order embodying such an
arrangement shall constitute a basis for the Offeror asserting
nonfulfillment of the conditions contained in this subsection (b)); or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
7
<PAGE> 9
(d) the Company shall have breached or failed to perform any of its
covenants or agreements which breach or failure to perform is material to
the obligations of the Company under the Merger Agreement taken as a whole,
or any of the representations and warranties of the Company set forth in
the Merger Agreement shall not have been true in any respect which is
material to the Company and its subsidiaries taken as a whole, in each
case, when made, or a material adverse change has occurred in the financial
condition or results of operations of the Company and its subsidiaries
taken as a whole, provided that the aggregate effect under this condition
shall be in excess of $500,000; or
(e) the Board of Directors of the Company shall have publicly
withdrawn or modified in any material respect adverse to the Offeror its
recommendation of the Offer; provided, however, the Offeror shall have no
right to terminate the Brady Offer or not accept for payment or pay for any
Shares of Common Stock if the Company withdraws or modifies its
recommendation of the Brady Offer and the Merger, by reason of taking and
disclosing to the Company's shareholders a position contemplated by Rule
14e-2(a)(2) or (3) promulgated under the Exchange Act with respect to
another proposal, and if within ten days of taking and disclosing to its
shareholders the aforementioned position, the Company publicly reconfirms
its recommendation of the Brady Offer and Merger and takes and discloses to
the Company's shareholders a recommendation to reject such other proposal
as contemplated by Rule 14e-2(a)(1) promulgated under the Exchange Act; or
(f) the Offeror and the Company shall have agreed that the Offeror
shall terminate the Offer.
The foregoing conditions may be waived by Brady, in whole or in part, at
any time and from time to time, in the sole discretion of Brady. The failure by
Brady, BUSA, or the Offeror at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right, the waiver of such right with respect
to any particular facts or circumstances shall not be deemed a waiver with
respect to any other facts or circumstances, and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
Should the Brady Offer be terminated pursuant to the foregoing provisions,
all tendered Shares not theretofore accepted for payment shall forthwith be
returned by the Depositary to the tendering shareholders.
Other Agreements.
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers or
affiliates are described at pages 9 and 10 of the Company's Information
Statement Pursuant to Section 14(f) of the Securities and Exchange Act of 1934
and Rule 14f-1 thereunder dated February 28, 1996 (the "14f-1 Information
Statement"). The Company's Employee Stock Purchase Plan and 1994 Incentive Stock
Option Plan are also described on pages 5 and 6 of the 14f-1 Information
Statement. A copy of the 14f-1 Information Statement is attached hereto as
Exhibit (a)3, and is incorporated herein by reference.
In December, 1995, the Company entered into severance pay agreements with
17 of its executive officers and employees ("Severance Pay Agreements"). These
Severance Pay Agreements provide for certain benefits in the event of a Change
of Control (as hereinafter defined) of the Company. If, during the 24-month
period after a Change of Control, the employee's employment terminates under
certain conditions as specified in the Severance Pay Agreements, the employee
becomes entitled to certain lump-sum (or, at the employee's election, monthly)
payments. Such payments will be equal to 1.5 times (or, in the case of nine
employees, one times), the employee's Annual Base Salary, as defined in the
Agreement. If the employee's termination is voluntary and within 30 days after a
Change in Control occurring before June 30, 1996, then the employees otherwise
entitled to payments equal to 1.5 times Annual Base Salary will receive payments
equal to one times Annual Base Salary instead. Finally, employees otherwise
entitled to one times Annual Base Salary will receive .75 times Annual Base
Salary if their termination is "Constructive", as defined in the Severance Pay
Agreements. The Severance Pay Agreements contain a clause which provides that
the Company is not required to make any payments which constitute nondeductible
"excess parachute payments" as defined in the Internal Revenue Code.
8
<PAGE> 10
The Board of Directors has determined that consummation of the Brady Offer
will constitute a "Change of Control" for purposes of the Severance Pay
Agreements.
The Severance Pay Agreements provide that, in consideration for the
severance pay provided, the covered employee agrees, during the term of the
Agreement and for a period thereafter equal to the period for which the employee
receives severance pay pursuant to the Severance Pay Agreement, the employee
will not compete with the Company or the surviving or acquiring corporation
after a Change of Control, or solicit the Company's or the surviving or
acquiring corporation's employees for employment.
Except as set forth above, to the best knowledge of the Company, there are
no contracts, agreements, arrangements or understandings or any actual or
potential conflicts of interest between the Company or its affiliates, and (i)
the Company, its executive officers, directors or affiliates or (ii) the
Offeror, BUSA or Brady or their respective executive officers, directors or
affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Background of the Offer.
On July 6, 1995, in the course of a meeting between Scott F. Drill, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Katherine M. Hudson, Brady's President and Chief Executive Officer, the two
discussed potential synergies that would result from Brady and the Company
combining their operations. Brady is the largest customer of the Company. On
December 11, 1995, Katherine M. Hudson and Brady's Vice President Donald P.
DeLuca met with Scott F. Drill and the Company's Vice President of Finance
Norbert F. Nicpon and the Company's Vice President of Corporate Development,
Deborah L. Moore and discussed synergies from a combination of the respective
companies. No understandings or agreements were reached during these
discussions.
On December 22, 1995, Ms. Hudson wrote to Mr. Drill requesting the
opportunity to meet with the Company's Board of Directors during the first week
of January 1996 to discuss a potential business combination of Brady and the
Company. Although this letter did not extend an offer to the Company, it
expressed the opinion that a price of $13.50 per Company share would be fair to
the Company's shareholders. By letter of December 27, 1995, Mr. Drill advised
Ms. Hudson that her letter would be brought to the attention of Company's board
of directors after January 3, 1996 and that a response would be forthcoming
during the week of January 8, 1996.
On January 5, 1996, BUSA commenced an arbitration action against the
Company challenging the Company's November 1995 notice of termination of the
Company's distributor agreement with BUSA. BUSA sought both equitable and
monetary relief. BUSA also requested interim injunctive relief in federal court.
On January 30, 1996, the Company commenced separate litigation against Brady in
federal court alleging, among other things, violations of federal anti-trust
law, tortious interference, deceptive trade practices, and business defamation.
On January 12, 1996, the Company informed Brady that it had retained the
investment banking firm of Brown, Gibbons, Lang & Company, L.P. ("Brown,
Gibbons") to explore methods of maximizing the Company's long and short term
value. Discussions occurred between representatives of the Company and Brady
during January 1996. On January 29, 1996, Brady addressed a letter to the
Company's Board of Directors again requesting an opportunity to discuss a
potential business combination at an increased price of $14.00 per share. Brady
also issued a January 29, 1996 press release announcing its request for an
opportunity to discuss potential business combination with the Company. Pursuant
to a January 30, 1996 letter from the Company, representatives of the Company
and Brady met on February 7, 1996, and discussed potential advantages of a
business combination.
On February 9, 1996, Brady delivered a letter to the Company's Board of
Directors by which it offered to purchase the Company for $16.00 per share,
subject to certain conditions.
On February 12, 1996, the Company's Board of Directors met to consider
Brady's proposal to acquire all of the Company's outstanding common shares for a
price of $16.00. For the reasons discussed below, the
9
<PAGE> 11
Board of Directors determined the $16.00 price to be fair, and responded to
Brady on February 13, 1995, by letter from Mr. Drill to Ms. Hudson, that Brady
should make a definitive proposal for the Board of Directors to consider. The
Board also appointed a special committee of all of the outside directors to
review the Brady Offer (the "Special Committee"). On February 26, 1996 the
Special Committee reviewed the Merger Agreement and drafts of the proposed
tender offer documents presented by Brady in response to Mr. Drill's February
13th letter, and approved the Offer, and the Merger Agreement subject to
successful completion of the Offer.
At both the February 12th and February 26th meetings, the Special Committee
received presentations from the Company's management and its legal and financial
advisors concerning the legal and financial terms of the Offer, including the
conditions thereof, and the Board's fiduciary obligations to the Company's
shareholders. At the February 12th meeting the Board of Directors received an
oral opinion from Brown, Gibbons that the $16.00 per share net cash price for
all of the Corporation's outstanding common stock was fair, from a financial
point of view, to the shareholders of the Company.
At its meeting on February 26, 1996, the Special Committee of the Board of
Directors received an offer from a group led by Mr. Scott F. Drill, the
Company's President and Chief Executive Officer, which included all of the other
executive officers of the Company, to make an all cash tender offer for all of
the Company's outstanding common stock at a net cash price to shareholders of
$17.50 per share (the "Management Group Offer"). The Management Group Offer was
open for acceptance by the Company until 5:00 o'clock on the following day,
February 27, 1996, at which time the Company was required to reject the offer or
accept it and sign a proposed Letter of Intent. The Letter of Intent provided,
among other things:
1. The Company would not negotiate with, participate in any
discussions with, furnish any information to, or otherwise cooperate in any
way with any other person or entity seeking to acquire the Company or enter
into any transaction;
2. The Company and the Management Group would work toward completion
of a definitive merger agreement by March 10, 1996. If such an agreement
was not entered into by that date, the Letter of Intent, and the Management
Group Offer, would terminate. Further, if an offer at a price in excess of
$17.50 per share were received during that time, and the merger agreement
was not entered into by that date, the Company would become liable to pay
to the Management Group $1,500,000 on March 11, 1996. Finally, it was
proposed that the definitive merger agreement would contain a provision
allowing the Company to terminate it upon receipt of a bona fide offer from
any third party to enter into a transaction, upon the payment of a
$1,500,000 termination fee plus reimbursement of the Management Group's
out-of-pocket expenses, without limit.
3. The offer, and consummation of any definitive merger agreement, was
subject to, and conditioned upon, receipt of financing by the Management
Group. It was represented that approximately $18,000,000 of the necessary
financing would be in the form of equity investment, $15,000,000 in the
form of senior debt financing, and $9,000,000 in the form of subordinated
debt financing, resulting in the estimated $42,000,000 necessary to
purchase all of the Company's outstanding common stock, retire all options
and pay expenses.
The Board met with Mr. Drill and the Management Group's legal and financial
advisors, and held extensive discussions regarding the proposed structure, and
the status and prospects of obtaining the necessary financing.
Following the Management Group's presentation of its offer, Ms. Hudson, Mr.
Gary Nie, a director of Brady, and Brady's legal counsel met with the Special
Committee to reiterate its continued interest in acquiring the Company pursuant
to its existing proposal for $16.00 per share. After reviewing the two
proposals, representatives of the Special Committee met again later that day
with Ms. Hudson, Mr. Nie, and their legal and financial advisors, and conducted
further negotiations regarding Brady's Offer in light of the Management Group's
Offer. As a result of these discussions, Brady raised its offering price to
$17.50, and agreed to other changes in Brady's proposed Merger Agreement,
subject to certain conditions and subject to approval by its board of directors.
Based upon its review of these changes, as compared to the Management
10
<PAGE> 12
Group's Offer, the Special Committee later that day met and determined that the
Brady Offer was in the best interest of shareholders and should be accepted
(subject to completion of satisfactory documentation), and that the Management
Group's Offer should be rejected.
At the February 26th meeting, representatives of Brown, Gibbons expressed
the view that the $17.50 price offered was fair, from a financial point of view,
to the shareholders of the Company, and this opinion was confirmed in writing by
letter dated February 27th. At the February 26th meeting, the Special Committee
also considered several other factors as favoring the Brady Offer over the
Management Group Offer including, but not limited to, the following:
1. The fact that the Brady Offer was an all cash tender offer, not
subject to a financing contingency, which could be consummated relatively
quickly, where as the Management Group Offer contained a financing
contingency and could not be begun until at least March 11, 1996;
2. The Special Committee's view that the Management Group was in the
early stages of financing negotiations, and that the risk of
nonconsummation due to failure of the Management Group to obtain sufficient
financing in a timely fashion was high;
3. The fact that the Management Group Offer contained a "break-up fee"
which the Company would be obligated to pay if : (a) it did not reach a
definitive agreement with the Management Group and it had received (but not
necessarily accepted) another offer for at least $17.50 per share; or (b)
it terminated the agreement with the Management Group at any time after it
was executed, regardless of whether or not an acquisition or other
transaction was entered into with a third party, whereas the "topping fee"
provided for in the Merger Agreement with Brady became payable only if a
significant percentage of the shares of the Company were acquired by a
third party;
4. The fact that the Management Group Offer would prevent the Company
from carrying on any further discussions with Brady, or any third party,
until March 10, 1996, and the Special Committee's concern that this could
prevent the Board from maximizing shareholder value, and that the necessary
delay could result in Brady's withdrawal of its Offer;
5. The opinion of Brown, Gibbons that the consideration to be received
pursuant to the Brady Offer was fair, from a financial point of view, to
the shareholders of the Company, and that the Brady Offer was superior to
the Management Group Offer due to, among other things, timing and the lack
of any financing contingency.
Based upon these presentations and factors, and upon its review of the
terms of the Brady Offer and of the Company's financial position and business,
the Board of Directors determined that approval of the Brady Offer was in the
best interests of the Company and its shareholders. The Board therefore approved
the Brady Offer and the Merger Agreement. The Special Committee of the
disinterested directors of the Board also approved the acquisition of Shares
pursuant to the Brady Offer under MCA Section 302A.671, with the effect that no
special meeting of the shareholders of the Company will be required under that
section to approve the acquisition of Shares pursuant to the Offer. On February
27, 1996, Brady and the Company jointly announced, among other things, that they
had entered into the Merger Agreement and that the Offer would commence within
three business days.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY ACCEPT THE BRADY OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
At the February 26th meeting, and in accordance with the terms of the
Merger Agreement, the Board also adopted resolutions (i) terminating the
Company's Restated Incentive Stock Option Plan, the 1994 Incentive Stock Option
Plan, the Employee Stock Purchase Plan and the Nonqualified Stock Option Plan,
and a Nonqualified Stock Option Plan and Agreement between the Company and
Timothy P. Fitzgerald, Vice President of Operations, effective upon consummation
of the Merger; (ii) providing that, on the date that Shares are purchased
pursuant to the Offer, all of the options outstanding under those plans and
agreements shall become 100% vested; and (iii) that the Company will pay to each
holder of an option, in cash and less applicable tax withholding, an amount
equal to the product of (a) the total number of shares subject to any
11
<PAGE> 13
option; and (b) the excess of the amount paid in the Brady Offer over the per
share exercise price of the option.
A copy of Brown, Gibbon's opinion is filed as Exhibit (a)2 hereto, and is
incorporated herein by reference. The opinion should be read in its entirety.
A copy of a joint press release of Brady and the Company relating thereto
is filed as Exhibit (a)4 hereto, and is incorporated herein by reference.
A copy of a letter communicating the recommendations of the Board of
Directors of the Company is attached to the front of this Statement, and is
incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Brown, Gibbons, Lang & Company, L.P. ("Brown,
Gibbons") to act as its financial advisors. The Company has paid a fee of
$50,000 to Brown, Gibbons for advice to the Company with respect to responding
to the Offer. The Company has also agreed to pay to Brown, Gibbons a
"Transaction Fee" equal to a percentage of the Transaction Value as follows:
5% of the first $1,000,000, plus
4% of the second $1,000,000, plus
3% of the third $1,000,000, plus
2% of the fourth $1,000,000, plus
1% of the amount in excess of $4,000,000 up to $40,000,000, plus
2.5% of the amount in excess of $40,000,000.
This amount is payable in cash promptly upon consummation of a Transaction, as
defined in the Agreement. Consummation of the Brady Offer and the Merger will
constitute a "Transaction". The "Transaction Value" is defined in the Agreement
to mean the total proceeds and other consideration paid or received in
connection with a Transaction. The Company has also agreed to reimburse Brown
Gibbons for its expenses (including fees and expenses of counsel) and to
indemnify it against certain liabilities, including liabilities and expenses
which may arise under the federal securities laws. A copy of the Engagement
Letter between the Company and Brown, Gibbons dated January 5, 1996 is attached
as Exhibit (c)3, and is incorporated herein by reference.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, none of its executive officers,
directors, affiliates or subsidiaries presently has determined whether to tender
into the Brady Offer any Shares which are held of record or beneficially owned
by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as indicated above in connection with the Brady Offer and the
Management Group Offer, no negotiation is under way or is being undertaken by
the Company in response to the Brady Offer which relates to or would result in
(1) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization or dividend policy of the
Company.
12
<PAGE> 14
(b) Except as otherwise set forth in response to Items 3 and 4 above, there
is no transaction, Board resolution, agreement in principle or signed contract
in response to the Offer.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The parties have agreed to a stay of the arbitration and litigation between
them described in Item 4 above until the Brady Offer and Merger has been
consummated or the Merger Agreement has terminated.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit (a)1 Letter to stockholders dated February 28, 1996.*
Exhibit (a)2 Written opinion of Brown, Gibbons dated February 27, 1996.*
Exhibit (a)3 Information Statement Pursuant to Section 14(f) of the Securities and Exchange
Act of 1934 dated February 28, 1996.*
Exhibit (a)4 Text of a joint press release dated February 27, 1996 issued by the Company
and Brady.
Exhibit (c)1 Plan and Agreement of Merger Among W.H. Brady Co., Brady USA, Inc., VSI
Acquisition Co. and Varitronic Systems, Inc. dated as of February 27, 1996.
Exhibit (c)2 Forms of Severance Pay Agreement.
Exhibit (c)3 Letter of Engagement between the Company and Brown, Gibbons dated January 5,
1996.
</TABLE>
- -------------------------
* Included with the Schedule 14D-9 sent to shareholders.
13
<PAGE> 15
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: February 29, 1996.
/s/ Reid V. MacDonald
--------------------------------------
(Signature)
Reid V. MacDonald, Director
--------------------------------------
(Name and Title)
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
- ------- --------
<C> <S> <C>
(a)1 Letter to stockholders dated February 28, 1996.*
(a)2 Written opinion of Brown, Gibbons dated February 27, 1996.*
(a)3 Information Statement Pursuant to Section 14(f) of the Securities and
Exchange Act of 1934 dated February 28, 1996.*
(a)4 Text of a joint press release dated February 27, 1996 issued by the Company
and Brady.
(c)1 Plan and Agreement of Merger Among W.H. Brady Co., Brady USA, Inc., VSI
Acquisition Co. and Varitronic Systems, Inc. dated as of February 27, 1996.
(c)2 Forms of Severance Pay Agreement.
(c)3 Letter of Engagement between the Company and Brown, Gibbons dated January
5, 1996.
</TABLE>
- -------------------------
* Included with the Schedule 14D-9 sent to shareholders.
<PAGE> 1
[VARITRONICS LETTERHEAD]
February 28, 1996
Dear Varitronic Systems, Inc. Shareholder:
I am pleased to inform you that Varitronics has entered into a Plan and
Agreement of Merger with W.H. Brady Company and two of its subsidiaries (the
"Merger Agreement") providing for the acquisition of all of the issued and
outstanding shares of Varitronics common stock at a net price of $17.50 per
share by a tender offer followed by a merger (the "Brady Offer").
The Brady Offer is conditioned upon, among other things, two-thirds of the
total number of shares of common stock outstanding (on a fully diluted basis)
being validly tendered and not withdrawn. The Merger Agreement provides that, as
promptly as practicable following the Brady Offer, all shares which are not
tendered through the Brady Offer will be acquired through a merger at the same
price per share as the Brady Offer (the "Merger").
Varitronic's Board of Directors has, in light of and subject to the terms
and conditions set forth in the Merger Agreement, determined that the Brady
Offer and the Merger are fair to, and in the best interests, of the shareholders
of Varitronics.
Your Board of Directors has approved the Brady Offer, and the Merger, and
recommends that shareholders ACCEPT the tender offer and tender their shares.
Attached is a copy of Varitronic's Schedule 14D-9 relating to the Brady
Offer, which is being filed today with the Securities and Exchange Commission.
This document should be read carefully. In particular, I call your attention to
Item 4, which describes both the reasons for the Board of Directors
recommendations and certain additional factors that shareholders may wish to
consider.
Sincerely,
[SIG]
Reid V. MacDonald
Director
<PAGE> 1
BROWN, GIBBONS, LANG & COMPANY, L.P.
INVESTMENT BANKERS
<TABLE>
<S> <C>
1111 SUPERIOR AVENUE, SUITE 900 225 WEST WASHINGTON STREET, 9TH FLOOR
CLEVELAND, OHIO 44114 CHICAGO, ILLINOIS 60606
(216) 241-2800 (312) 658-1600
TELECOPIER (216) 241-7417 TELECOPIER (312) 368-1988
</TABLE>
February 27, 1996
PERSONAL & CONFIDENTIAL
Board of Directors
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, MN 55426
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock ("Common
Stock") of Varitronic Systems, Inc. (the "Company") of the Consideration (as
defined below) to be received by such holders pursuant to the Agreement and Plan
of Merger dated as of February 27, 1996 among W.H. Brady Co., VSI Acquisition
Co. (together "Brady") and Varitronic Systems, Inc. (the "Agreement"). Pursuant
to the Agreement, Brady will commence a cash tender offer (the "Offer") to
provide for the purchase of all outstanding Common Stock for a cash price per
share of $17.50 (the "Consideration") and, following the Offer, complete a
merger in which Common Stock not purchased pursuant to the Offer will receive an
amount of cash per share equal to the price paid for such Common Stock in the
Offer.
You have also requested that we consider the offer presented by Mr. Scott
Drill to the Board of Directors of the Company on February 26, 1996 (the "Drill
Offer"). The Drill Offer proposed a tender offer for all outstanding common
stock of the Company at a price of $17.50 per share by a group which includes
executive officers of the Company and other equity investors. We have had the
opportunity to review the written proposal setting forth the Drill Offer and to
discuss it with Mr. Drill and his advisors. We have observed that the Drill
Offer: (i) is subject to receipt of financing; (ii) is apparently backed by
private investors whose commitment to the Drill Offer is difficult to assess;
(iii) does not identify senior and subordinated debt lenders willing to provide
financing to complete a transaction; (iv) contains terms which would prohibit
the Board of Directors from discussing a proposal relating to a sale of the
Company with any other party and; (v) is subject to the negotiation of a
mutually satisfactory merger agreement. After reviewing the terms and conditions
of the Drill Offer and considering the inability to assess the implications of
such terms and conditions, the imminent timing of the Offer with its absence of
any financing contingencies, and the equivalent amounts of both bids, we are of
the opinion that the Offer is superior to the Drill Offer.
In conducting our analysis and arriving at our opinion, we have reviewed
such materials and considered such financial and other factors as we deemed
appropriate under the circumstances, including among others: (i) the Offer; (ii)
the Agreement; (iii) the Drill Offer; (iv) the Company's historical financial
and other data and analysis that were publicly available or furnished to us
regarding the Company; (v) certain internal financial analyses and projections
prepared by the management of the Company; (vi) trading history of the Company's
common stock; (vii) publicly available financial, operating and stock market
data for the Company and for companies engaged in businesses that we deemed
comparable to the Company or otherwise relevant to our inquiry; (viii) the
financial terms of certain other recent transactions that we deemed relevant
and; (ix) such other factors as we deemed appropriate.
We have met with senior officers of management of the Company to discuss
its past and current business operations and financial condition, as well as its
estimates and judgment on future financial performance and
<PAGE> 2
such other matters as we believe relevant to our inquiry. Our opinion is based
on economic, financial and market conditions as they exist and can be evaluated
as of the date hereof.
In connection with our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly available and have
not attempted independently to verify any such information. We have neither made
nor obtained any independent appraisals of the properties or facilities of the
Company. With respect to estimates of future financial performance provided to
us by the Company, we have assumed that they represent the best currently
available estimates and judgment of management as to the future financial
performance of the Company.
Brown, Gibbons, Lang & Company, L.P. as part of its investment banking
business is engaged in the valuation of both publicly held and privately held
ongoing businesses and their securities for a variety of purposes, including
public stock offerings, mergers and acquisitions, private placements of debt and
securities and in the provision of financial advisory services. Brown, Gibbons,
Lang & Company, L.P. maintains an extensive research library with files and
reference materials on publicly held companies throughout the nation. In
addition, the firm has numerous data and information services to assist in
company and industry research.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
Our engagement and the opinions expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, Brady, the Company, any stockholders
of Brady or the Company or any other person other than the Company's Board of
Directors.
Based upon and subject to the foregoing and based upon such other matters
as we considered relevant, we are of the opinion that, as of the date hereof,
the Offer is superior to the Drill Offer and that the Offer is fair from a
financial point of view to the stockholders of the Company.
Very truly yours,
/s/ Brown, Gibbons, Lang & Company, L.P.
Brown, Gibbons, Lang & Company, L.P.
<PAGE> 1
VARITRONIC SYSTEMS, INC.
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This information is being furnished by Varitronic Systems, Inc., a
Minnesota corporation (the "Company") to its shareholders in connection with the
possible designation by W.H. Brady Company, a Wisconsin corporation ("Brady")
pursuant to the Agreement and Plan of Merger ("Merger Agreement") dated as of
February 27, 1996 among the Company, Brady, Brady USA, Inc., a Wisconsin
corporation ("BUSA") and a wholly-owned subsidiary of Brady and VSI Acquisition
Company, a Minnesota corporation (the "Offeror"), a wholly-owned subsidiary of
BUSA, of persons to be elected to the Board of Directors of the Company other
than at a meeting of the Company shareholders. The Purchaser commenced a tender
offer (the "Offer") disclosed in the Tender Offer Statement on Schedule 14D-1
dated February 28, 1996. The terms and conditions of the offer were set forth in
the Offer to Purchase dated February 28, 1996 (the "Offer to Purchase") and
related documents enclosed therewith (collectively, the "Offer Documents"). The
Merger Agreement provides, among other things, for the merger ("Merger") of the
Offeror into the Company, with the Company surviving as a wholly-owned
subsidiary of Brady through BUSA, as more fully described in the Offer Documents
and in the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") being mailed to the Company's shareholders concurrently
herewith. The Merger Agreement further provides that as of the Effective Time
(as defined in the Merger Agreement) each share of the Company's common stock
shall be converted into the right to receive $17.50 in cash.
The Company had 2,319,495 shares outstanding as of February 26, 1996.
THE BOARD OF DIRECTORS
GENERAL
Pursuant to the Restated Articles of Incorporation of the Company, the
Board of Directors has fixed the number of directors at six. However, the Board
has the power to increase this number in its discretion by resolution. The
directors are currently divided into three equal classes (1), (2) and (3) and
elected for staggered terms. They serve until the election and qualification of
their successors.
The Merger Agreement provides that, if requested by Brady, the Company
will, promptly following the purchase by Brady of at least two-thirds of the
outstanding Shares of the Company pursuant to the Offer, take all necessary
action to cause a number of persons designated by Brady ("Brady Designees"),
rounded up to the next whole number, to constitute a percentage of the members
of the Board of Directors equal to the percentage of shares of the Company's
outstanding common stock owned by Brady, including by accepting resignations of
those incumbent directors designated by the Company or by increasing the size of
the Board and causing the Brady Designees to be elected.
Brady has informed the Company that if Brady purchases two-thirds or more
of the outstanding shares pursuant to the Offer, Brady will request the Company
to take all necessary action to elect Katherine M. Hudson, Donald P. DeLuca,
David R. Hawke and Peter J. Lettenberger to the Board of Directors of the
Company. Information concerning the Brady Designees is set forth in Annex A
hereto. To the best knowledge of the Company, none of the Brady Designees
beneficially owns any equity securities of the Company.
<PAGE> 2
CURRENT DIRECTORS
The names, classes and ages of the current directors, their principal
occupations, and the year each first became a director, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AGE SINCE
- --------------------------------- --------------------------------------------- --- --------
<S> <C> <C> <C>
Raymond R Good (nominee)
-- Class 1 Director............ Independent Executive Consultant 67 1983
John B. Zaepfel (nominee)
-- Class 1 Director............ Investor and Consultant 59 1992
Anton J. Christianson
-- Class 2 Director............ Chairman of Cherry Tree Investments, Inc. 43 1984
Donald J. Kramer
-- Class 2 Director............ Private Consultant 63 1984
Scott R. Drill
-- Class 3 Director............ Chairman, President, Chief Executive Officer 42 1983
and Treasurer
Reid V. MacDonald
-- Class 3 Director............ President and Chief Executive Officer of 48 1993
Faribault Foods, Inc.
</TABLE>
Mr. Good has been an Independent Executive Consultant since February 1992.
From 1986 to 1992, Mr. Good was an Executive Vice President of Regis McKenna,
Inc., a technology marketing consulting firm. Mr. Good is also a director of
Astrocom Corporation.
Mr. Zaepfel has been an independent investment and business consultant
serving middle market companies since 1989. From 1985 to 1989, Mr. Zaepfel was
the Chief Executive Officer of CPG International, a manufacturer of graphic art,
engineering and media supplies.
Mr. Christianson is a co-founder of Cherry Tree Investments, Inc., a
venture capital firm based in Minneapolis. Mr. Christianson has been Chairman of
Cherry Tree Investments, Inc. and a Managing General Partner of four Cherry Tree
Ventures partnerships since 1981. Mr. Christianson is also a director of
Computer Petroleum Corporation, Fourth Shift Corporation, TRO Learning, Inc.,
and Transport Corporation of America.
Mr. Kramer has been a private consultant and a Principal of TA Associates,
a private equity capital firm in Boston, Massachusetts, since January 1990. For
the previous five years, Mr. Kramer was a partner of TA Associates. He is also a
director of Acuity Systems, Inc.
Mr. Drill is one of the founders of the Company and has been President,
Chief Executive Officer and Treasurer of the Company since 1983. In January
1990, Mr. Drill was elected Chairman of the Board.
Mr. MacDonald has been President and Chief Executive Officer of Faribault
Foods, Inc., a privately-held manufacturer and distributor of canned food
products, since 1980.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1995, the Company's Board of Directors met four times. Each
director attended at least 75% of the aggregate of all meetings of the Board of
Directors and committees of the Board on which he served. Standing committees of
the Board of Directors include the Audit Committee and the Compensation
Committee.
The Audit Committee recommends the selection of the Company's independent
accountants, approves the services performed by such accountants, and reviews
and evaluates the Company's financial and reporting systems and the adequacy of
internal controls for compliance with corporate guidelines. Members of the Audit
2
<PAGE> 3
Committee, which consists of three outside directors, are Donald J. Kramer,
Anton J. Christianson and John B. Zaepfel. The Audit Committee met twice in
fiscal 1995.
The Compensation Committee reviews and recommends to the Board compensation
arrangements for all executive officers of the Company. In addition, the
Compensation Committee is responsible for administration of the Company's 1994
Incentive Stock Option Plan, the Restated Cash Bonus Plan and the Employee Stock
Purchase Plan, and for recommending the Company's matching contribution to the
Incentive Plus Plan (401(k) plan). Members of the Compensation Committee, which
consists of three outside directors, are Anton J. Christianson, Donald J. Kramer
and Raymond E. Good. The Compensation Committee met twice in fiscal 1995.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
their services as directors. Out-of-town directors receive $1,500 and local
directors receive $1,250 for each board meeting, and are reimbursed by the
Company for out-of-pocket expenses incurred while attending meetings. In
addition, directors who serve on the Compensation or Audit Committee receive
$150 for each committee meeting.
3
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information about the ownership of Common
Stock of the Company by each shareholder known to the Company who beneficially
owns more than 5% of the outstanding shares of the Company's Common Stock, by
each director or director-nominee, by each executive officer named in the
Summary Compensation Table, and by all executive officers and directors as a
group, as of February 26, 1996:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND BUSINESS ADDRESS OF BENEFICIAL OWNER SHARES OWNED OF CLASS
- ----------------------------------------------------------------------- ------------ --------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS:
Heartland Advisors, Inc.............................................. 390,300 16.8%
790 North Milwaukee Street
Milwaukee, WI 53202
Scott E. Drill (Chief Executive Officer & Director).................. 292,254(1) 12.6%
300 Interchange North
300 Highway 169 South
Minneapolis, MN 55426
Fleet Investment Advisers............................................ 144,500 6.2%
777 Main Street
Hartford, CT 06115
Luis Hernandez....................................................... 131,300 5.7%
3069 Misty Harbour Drive
Las Vegas, NV 89117
DIRECTORS:
Anton J. Christianson................................................ 12,340 *
Raymond R. Good (nominee)............................................ 8,889 *
Donald J. Kramer..................................................... -- --
Reid V. MacDonald.................................................... 1,000 *
John B. Zaepfel (nominee)............................................ -- --
EXECUTIVE OFFICERS:
David C. Grey........................................................ 4,000(1) *
Monte J. Mosiman..................................................... 16,266(1) *
Roger A. Larson...................................................... 46,147(1) 2.0%
Timothy R Fitzgerald................................................. 25,500(1) 1.1%
All executive officers and directors as a group (14 persons)......... 478,209(1) 19.8%
</TABLE>
- -------------------------
* Less than one percent
(1) Includes the following number of shares which could be acquired within 60
days of February 26, 1996 through the exercise of stock options: Mr. Drill,
8,000 shares; Mr. Grey, 4,000 shares; Mr. Mosiman, 8,000 shares; Mr. Larson,
8,000 shares; Mr. Fitzgerald, 25,000 shares; and all executive officers and
directors as a group, 85,500 shares.
4
<PAGE> 5
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of outside directors and is responsible for developing and
making recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Compensation Committee, pursuant to
authority delegated by the Board, determines on an annual basis the compensation
to be paid to the Chief Executive Officer and each of the other executive
officers of the Company.
It is the intention of the Committee to utilize a pay-for-performance
Compensation strategy that is directly related to achievement of the Company's
financial performance and growth objectives. The primary elements of the
executive compensation program are base salary, annual incentives, and long-term
incentives. These elements are designed to (i) provide compensation
opportunities that will allow the Company to attract and retain talented
executives who are essential to the Company's success; (ii) provide compensation
that rewards corporate performance and motivates the executives to achieve
corporate strategic objectives; and (iii) align the interests of executives with
the long-term interests of shareholders through stock-based awards.
BASE SALARY
Base salaries of the Company's executive officers are intended to be
competitive with the median base salaries paid by other corporations similar to
the Company and to serve as a platform for performance-based (incentive) pay.
Base salaries are determined for executive positions using compensation surveys,
taking into account variables such as geography, job comparability, size of the
company and nature of the business. In addition to base salary, executive
officers are eligible to participate in the Company's employee benefit plans on
the same terms as other employees.
ANNUAL INCENTIVES
The purpose of the Restated Cash Bonus Plan is to encourage employees to
have a positive vested interest in the success of the Company by providing a
direct financial incentive in the form of an annual cash bonus for achieving
predetermined financial objectives, specifically: revenue, net income and
earnings per share targets. Each employee is eligible to receive a cash bonus
expressed as a flat dollar amount or as a percentage of base salary depending on
which of six preestablished job levels the employee occupied. In fiscal 1995,
the Company did not meet its financial objectives, and no cash bonus awards were
paid under the plan.
LONG-TERM INCENTIVES
The 1994 Incentive Stock Option Plan is the basis of the Company's
long-term incentive plan for executive officers and other key employees. The
objective of the plan is to align executives' long-term interests with those of
the shareholders by creating a direct incentive for executives to increase
shareholder value. The stock option grants allow executives to purchase shares
of Company stock at a price equal to the fair market value of the stock on the
date of grant over a term of five years. One-third of the options become
exercisable on each of the first three anniversary dates following the date of
the grant. The award of option grants is consistent with the Company's objective
to include in total compensation a long-term equity interest for executive
officers, with greater opportunity for reward if long-term performance is
sustained. No stock options were granted to executive officers under this plan
in fiscal 1995.
In fiscal 1995, the Committee granted Mr. Fitzgerald 75,000 nonqualified
options to purchase Common Stock as part of an employment offer for the position
of Vice President of Operations. These options become exercisable equally over a
three year vesting period at an exercise price of $7.75, and expire five years
from the date of grant.
The Company offers an Employee Stock Purchase Plan in which eligible
employees can contribute between three and ten percent of their base pay to
purchase up to 500 shares of Common Stock per year.
5
<PAGE> 6
The shares are issued by the Company at a price per share equal to 85 percent of
market value on the first day of the offering period or the last day of the plan
year, whichever is lower. For the plan year ended September 30, 1995, four
executive officers participated in the plan. Mr. Drill is not allowed to
participate in the plan since he owns more than five percent of the Company's
Common Stock.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee determines compensation for the Chief Executive Officer on an
annual basis Mr. Drill's current base salary of $225,000 became effective
December 1, 1995. The Committee believes that this base salary is consistent and
competitive with salaries paid to Chief Executive Officers of manufacturing
companies similar in size to the Company, located in the Upper-Midwest region of
the country. There has been no change to Mr. Drill's base salary since fiscal
1989 because the Committee has chosen to link the opportunity for increased
compensation to the achievement of certain profit objectives for the Company.
Mr. Drill's salary was increased in December, 1995 because it had not been
increased since 1989 and it was felt that an increase was necessary to maintain
Mr. Drill's salary at a level competitive with those of Chief Executive Officers
of corporations the size of the Company.
The performance criteria for the annual incentive bonus plan of the Chief
Executive Officer is based on achieving growth in earnings per share. If the
Company achieves growth in earnings per share of 15 percent over the prior year,
the Chief Executive Officer will receive a cash bonus of 15 percent of base
salary. Growth in earnings per share of 25 percent or more will allow the Chief
Executive Officer to earn a cash bonus of 30 percent of base salary. Mr. Drill
did not receive a cash bonus in fiscal 1995 since the earnings per share growth
rate objective was not met.
CONCLUSION
The Committee believes that the executive compensation plan discussed in
this Proxy Statement is consistent with the overall corporate strategy for
continued growth in earnings and shareholder value.
Anton J. Christianson
Raymond R Good
Donald J. Kramer
Members of the Compensation Committee
6
<PAGE> 7
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer and the four most highly compensated executive officers of the Company
whose salary earned in fiscal 1995 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
NAME AND PRINCIPAL FISCAL CASH OTHER ANNUAL OPTION ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) COMPENSATION(3)
- ------------------------- ------ -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Scott F. Drill........... 1995 $200,000 -- -- -- --
Chairman, President, CEO 1994 200,000 -- -- 12,000 $ 5,060
and Treasurer 1993 200,000 $28,000 -- -- 3,802
David C. Grey(4)......... 1995 86,772 -- $52,251 -- --
Vice President, Business 1994 87,010 -- 39,650 -- 3,800
Development 1993 -- -- -- -- --
Monte J. Mosiman......... 1995 96,125 -- 34,333 -- --
Vice President, 1994 93,000 -- -- 12,000 3,181
International Sales 1993 92,167 13,020 -- -- 2,503
Roger A. Larson.......... 1995 122,000 -- -- -- --
Vice President, Domestic 1994 122,000 -- -- 12,000 4,172
Sales and Marketing 1993 117,333 17,080 -- -- 3,177
Timothy P. 1995 118,686 -- -- 75,000 --
Fitzgerald(5).......... 1994 -- -- -- -- --
Vice President, 1993 -- -- -- -- --
Operations
</TABLE>
- -------------------------
(1) Compensation for Mr. Grey and Mr. Mosiman includes amounts paid for
achieving certain sales objectives.
(2) Includes the number of stock options granted under the Company's Incentive
Stock Option Plan except for Mr. Fitzgerald who received a grant of 75,000
nonqualified options under a Nonqualified Stock Option Plan and Agreement.
(3) Includes annual contributions made by the Company to the Company's 401(k)
defined contribution plan.
(4) Mr. Grey has been an employee of the Company since 1990, and was named an
executive officer during fiscal 1994.
(5) Mr. Fitzgerald began employment with the Company as an executive officer on
November 28, 1994.
7
<PAGE> 8
OPTION GRANTS IN FISCAL 1995
The following table summarizes option grants in the fiscal year ended July
31, 1995 to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO FOR
EMPLOYEES OPTION TERM(2)
OPTIONS IN FISCAL EXERCISE ---------------------
NAME GRANTED(1) YEAR 1995 PRICE(1) EXPIRATION DATE 5% 10%
- ----------------------------- ---------- ---------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Scott F. Drill............... -- -- -- -- -- --
David C. Grey................ -- -- -- -- -- --
Monte J. Mosiman............. -- -- -- -- -- --
Roger A. Larson.............. -- -- -- -- -- --
Timothy P. Fitzgerald(5)..... 75,000 94.9% $ 7.75 August 10, 1999 $156,750 $354,750
</TABLE>
- -------------------------
(1) These options were granted at the closing market price for the Company's
stock on August 9, 1994, and vest in equal installments over a three-year
period.
(2) The compounding assumes a five-year exercise period for the option grant and
an exercise price of $7.75 per share. These amounts represent certain
assumed rates of appreciation only, based on Securities and Exchange
Commission rules. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
market conditions, and the continued employment of the option holder through
the vesting period. The amounts reflected in this table may not necessarily
be achieved. If the price of Varitronics Common Stock were to appreciate at
5% and 10% compounded rates over five years, Varitronics Common Stock would
have a closing price on August 10, 1999 of $9.84 and $12.48 per share,
respectively.
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND FISCAL YEAR-END OPTION VALUES
There were no option exercises in fiscal 1995 by any of the executive
officers included in the Summary Compensation Table. The values of the options
held by such persons as of July 31, 1995 follows:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott E. Drill................ -- -- 4,000 8,000 -- --
David C. Grey................. -- -- 2,000 2,000 $ 6,240 $ 6,240
Monte J. Mosiman.............. -- -- 4,000 8,000 -- --
Roger A. Larson............... -- -- 4,000 8,000 -- --
Timothy P. Fitzgerald......... -- -- -- 75,000 -- 75,000
</TABLE>
- -------------------------
(1) The value of unexercised in-the-money options represents the aggregate
difference between the market value of the shares, based on the July 31,
1995 closing price of $8.75 per share, and the applicable exercise prices.
8
<PAGE> 9
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return on the NASDAQ Total Return Index and the S&P Office Equipment and
Supplies Index over the same period (assuming the investment of $100 in the
Company's Stock, the NASDAQ Total Return Index and the S&P Office Equipment and
Supplies Index on July 31, 1990 and the reinvestment of all dividends).
<TABLE>
<CAPTION>
S&P Office
Measurement Period Varitronic Equipment
(Fiscal Year Covered) Systems, Inc. NASDAQ Index
<S> <C> <C> <C>
7/90 100 100 100
7/91 110 118 126
7/92 81 139 144
7/93 138 169 162
7/94 131 174 192
7/95 135 243 235
</TABLE>
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
The Company has entered into a termination of employment and change of
control arrangement with Mr. Drill, which provides for varying payment periods
depending on the circumstances of Mr. Drill's employment termination. If Mr.
Drill voluntarily terminates his employment, the Company will pay an amount
equal to his then-current base salary over a period of three years. In the event
of Mr. Drill's termination by the Company for any reason other than cause as
defined in his employment agreement, Mr. Drill will receive 1.5 times his
then-current base salary over a period of three years. In the event of his
termination due to a change of control of the Company, the Company will pay Mr.
Drill 2.8 times his then-current base salary over three years from the date of
such termination. However, the agreement contains a clause which provides that
the Company is not required to make any payments which constitute nondeductible
"excess parachute payments" as defined in the Internal Revenue Code. The
agreement also prohibits Mr. Drill from competing with the Company for a period
of three years after-termination.
The discussion contained on pages 8 and 9 of the Schedule 14D-9 regarding
the Severance Pay Agreements entered into between the Company and certain of its
executive officers and employees is hereby incorporated by reference.
CERTAIN TRANSACTIONS
The Company has entered into agreements with the designers of certain of
its lettering and labeling systems. The designers, Thomas K. McGourty and
Lawrence R. McGourty, are the father and brother, respectively, of Kevin B.
McGourty, who is Vice President of Product Planning for the Company. Pursuant to
these agreements, the McGourtys assigned to the Company all of their rights,
including patent rights, to the machines, supplies and related technology, in
exchange for a series of royalty payments. Payments under the
9
<PAGE> 10
agreements range from 1.9% to 3.8% of certain supply sales, and $10 per unit on
certain machine sales. The Company incurred royalty expenses of approximately
$612,000 under these agreements in fiscal 1995.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under federal securities laws, the Company's directors and officers, and
any beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission"). Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports during the fiscal year ended July 31, 1995.
Based upon information provided by officers and directors of the Company,
Mr. Grey, Mr. Mosiman and Ms. Lynn McKee each failed to file on a timely basis
one Form 4 report disclosing a single transaction during the 1995 fiscal year.
Each transaction has since been reported.
10
<PAGE> 11
ANNEX A
BRADY'S DIRECTOR DESIGNEES
Brady has provided the Company with the following information regarding the
Brady Designees. The Company assumes no responsibility for the accuracy or
completeness of such information.
The following table sets forth the name, age, business address, present or
principal occupation or employment and five-year employment history of each of
the Brady Designees. Unless otherwise indicated, the principal business address
of each such person is 6555 West Good Hope Road, Milwaukee, WI 53223. None of
the Brady Designees is a director of, or holds any position with, the Company,
and none of the Brady Designees owns any Shares.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Katherine M. Hudson................ 48 President, CEO and Director
Donald P. DeLuca................... 55 Senior Vice President, Treasurer, Assistant
Secretary, and Director
David R. Hawke..................... 41 Vice President, Signmark Group
Peter J. Lettenberger.............. 58 Secretary and Director
</TABLE>
KATHERINE M. HUDSON -- Mrs. Hudson joined the Company in January 1994, as
President, Chief Executive Officer and Director. Prior thereto she was a Vice
President at Eastman Kodak Company and General Manager of its Professional,
Printing and Publishing Image Division. She is also a director of Apple
Computer.
DONALD P. DELUCA -- Mr. DeLuca joined the Company as Vice President-Finance
and Chief Financial Officer in May 1990. He was promoted to Senior Vice
President in August 1994. Before joining Brady, he served as Executive Vice
President-Finance and Administration of CSC Industries, Inc. from 1987 to April
1990. Prior to that he served as Vice President, Treasurer and Secretary of
Cooperweld Corp. from 1974 to 1987. He is also a director of GAN North American
Insurance Company, GAN National Insurance Company and Fugitive Emissions
Control, Inc.
DAVID W. HAWKE -- Mr. Hawke joined the Company in 1979. He served as
General Manager of the Industrial Products Division from 1985 to 1991. From 1991
to February 1995, he served as Managing Director -- European Operations. In
March 1995, he was appointed to his present position.
PETER J. LETTENBERGER -- Mr. Lettenberger has served as a Director and
Secretary of the Company since January 1977. Mr. Lettenberger has been a member
of the Company's audit and compensation committees since April 1977 and October
1978, respectively, and has been chairman of the compensation committee since
June 1985. He is a partner of Quarles & Brady, general counsel to Company, which
firm he joined in 1964. He is also a director of Electronic Tele-Communications,
Inc. Mr. Lettenberger's business address is 411 East Wisconsin Avenue,
Milwaukee, WI 53202.
<PAGE> 1
[BRADY LETTERHEAD]
FOR: W.H. BRADY CO.
VARITRONIC SYSTEMS, INC.
For more information contact:
Donald P. DeLuca (414) 438-6810
FOR IMMEDIATE RELEASE
W.H. BRADY CO. REACHES MERGER AGREEMENT WITH VARITRONIC SYSTEMS, INC.
MILWAUKEE, Wis. (February 27, 1996)-- W.H. Brady Co. (Nasdaq: BRCOA) and
Varitronic Systems, Inc. (Nasdaq: VRSY) today jointly announced that they have
entered into a definitive merger agreement providing for the acquisition by
W.H. Brady Co. of all of the outstanding common stock of Varitronic for $17.50
per common share in cash.
In accordance with the merger agreement, which has been approved by the
boards of directors of both companies, an indirect subsidiary of W.H. Brady Co.
will commence a tender offer within three business days for all of the
outstanding Varitronic shares at $17.50 per common share in cash. Any shares
not acquired in the tender offer will be acquired at $17.50 per common share in
cash in a subsequent merger.
Brady and Varitronic stated that the tender offer will be made only
pursuant to definitive offering documents. Robert W. Baird & Co. Incorporated
is advising W.H. Brady Co. and Baird will act as dealer manager in connection
wit the offer. Brown, Gibbons, Lang & Co., L.P. has acted as financial advisor
to Varitronic Systems, Inc.
"We are extremely pleased that Varitronic will join the W.H. Brady Co.
family," said Katherine M. Hudson, W.H. Brady Co. president and chief executive
officer.
Donald J. Kramer, a Varitronic director, stated, "The agreement
announced today marks the beginning of another stage in the company's history
and serves the best economic interests of Varitronic's shareholders."
Varitronic, headquartered in Minneapolis, develops, manufactures and
markets supply-consuming lettering, labeling, signage and presentation systems
which enhance the quality, professionalism and effectiveness of a wide range of
communications. It also offers a broad range of consumable supplies and
accessories which are used with all of its products. Its manufacturing
facilities are located in the Minneapolis area.
W.H. Brady Co. is an international manufacturer of industrial
identification products and coated materials. It employs 2,100 people
worldwide and markets more than 30,000 industrial identification,
telecommunication, governmental, public utility, computer and data-storage
markets. In fiscal 1995 it reported $314 million in sales and $28 million in
net income. Its headquarters are at 6555 West Good Hope Road, Milwaukee. In
addition to having several U.S. operations, Brady has operations in Canada,
Belgium, France, England, Germany, Sweden, Scotland, Italy, Australia,
Singapore, Japan, Hong Kong, South Korea and New Zealand.
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
AMONG
W. H. BRADY CO.
BRADY USA, INC.
VSI ACQUISITION CO.
AND
VARITRONIC SYSTEMS, INC.
DATED AS OF FEBRUARY 27, 1996
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 27, 1996,
among W. H. BRADY CO., a Wisconsin corporation (the "Purchaser"), VSI
ACQUISITION CO., a Minnesota corporation (the "Sub") and a wholly-owned
subsidiary of BRADY USA, INC., a Wisconsin corporation ("BUSA"), which is
wholly-owned by the Purchaser, and VARITRONIC SYSTEMS, INC., a Minnesota
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Purchaser,
BUSA, the Sub and the Company have each determined that it is advisable and in
the best interest of each such respective Company and its stockholders, on the
terms and subject to the conditions of this Agreement, (a) for the Sub to
commence a cash tender offer to purchase all outstanding shares of common
stock, par value $0.01 per share, of the Company (the "Common Stock") and (b)
following the consummation of the cash tender offer, to merge the Sub into the
Company; and
WHEREAS, the Board of Directors of the Company has adopted
resolutions approving that Offer (as hereafter defined) and the Merger (as
hereafter defined) and recommending that the holders of the Common Stock accept
the Offer;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions hereafter set forth, the parties hereto do hereby agree as follows:
ARTICLE I.
THE OFFER
SECTION 1.01 The Offer. (a) Provided that this Agreement shall
not have been terminated in accordance with Section 8.01 hereof, as promptly as
practicable (but in any event within five business days of the date of this
Agreement), the Purchaser and BUSA shall cause the Sub to commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) an offer to purchase all outstanding shares of Common
Stock at a price of $17.50 per share, net to the seller in cash which shall
remain open for at least twenty (20) business days (the "Offer") and, subject
to the conditions of the Offer, shall use its best efforts to consummate the
Offer. The obligations of the Purchaser, BUSA and the Sub to consummate the
Offer, to accept for payment and to pay for any shares of Common Stock tendered
shall be subject only to those conditions set forth in Exhibit A hereto.
<PAGE> 3
(b) Neither the Purchaser, BUSA nor the Sub will,
without the prior written consent of the Board of Directors of the Company,
decrease the amount or change the form of the consideration payable in the
Offer, decrease the number of shares of Common Stock sought pursuant to the
Offer, change the conditions to the Offer, impose additional conditions or
terms to the Offer, amend or waive the condition that there be validly tendered
and not properly withdrawn prior to the expiration of the Offer a number of
shares of Common Stock which when added to the number of shares of Common Stock
owned by the Purchaser and its affiliates constitutes at least a two-thirds of
the then outstanding shares of Common Stock on a fully diluted basis, or amend
any term of the Offer in any manner adverse to holders of shares of Common
Stock. Assuming the prior satisfaction or waiver of the conditions to the
Offer, the Purchaser covenants and agrees to accept for payment and pay for, in
accordance with the terms of the Offer, shares of Common Stock tendered
pursuant to the Offer as soon as permitted to do so under applicable law,
provided that the Purchaser, BUSA, and the Sub shall have the right, upon
consultation with the Company, to extend the Offer (if without such extension
the Purchaser would be unable to consummate the Offer) to a date not later than
the 30th business day following the commencement of the Offer or for such
longer period as may be required by law.
(c) Notwithstanding anything to the contrary in this
Agreement, the Purchaser, BUSA, and the Sub further agree that, subject to the
terms and conditions of this Agreement, in the event that the conditions to the
Offer set forth in paragraphs (a) or (b) of Exhibit A hereto shall occur or
exist (and shall not have been waived), the Sub shall, at the Company's
request, extend the Offer to a date not later than the 40th business day
following the commencement of the Offer; provided, however, if the conditions
set forth in paragraph (d) shall not have been satisfied solely due to the
Company's breach of the condition described therein, the Purchaser, BUSA, and
the Sub shall, if reasonably requested by the Company, extend the Offer for
five business days to enable the Company to cure such breach.
(d) As soon as practicable on or before the date of
commencement of the Offer, but not later than three (3) business days after the
Execution of this Agreement, the Purchaser, BUSA, and the Sub shall file with
the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer which will contain the offer to
purchase and form of the related letter of transmittal (together with any
supplements or amendments thereto, the "Offer Documents"). The Offer Documents
will comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the Company's common stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Purchaser, BUSA, or
the Sub with respect to information supplied by
- 2 -
<PAGE> 4
the Company in writing for inclusion in the Offer Documents. The Purchaser,
BUSA, the Sub and the Company each agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that it
shall have become false or misleading in any material respect and the
Purchaser, BUSA, and the Sub each further agrees to take all steps necessary to
cause the Offer Documents as so corrected to be filed with the SEC and
disseminated to the Company's common stockholders, in each case as and to the
extent required by applicable federal securities laws. The Purchaser, BUSA,
and the Sub agree to provide the Company and its counsel in writing with any
comments the Purchaser, BUSA, the Sub or their counsel may receive from the SEC
or its Staff with respect to the Offer Documents promptly after the receipt of
such comments.
SECTION 1.02 Company Actions. The Company hereby consents to
the Offer and represents that (a) its Board of Directors or a duly authorized
committee thereof (at a meeting duly called and held) has (i) determined that
the Offer and the Merger (as hereinafter defined) taken together, are fair to
the common stockholders of the Company and (ii) resolved, subject to its
fiduciary duties under applicable laws as advised by counsel, to recommend
acceptance of the Offer and approval and adoption of this Agreement by the
common stockholders of the Company, and (b) Brown, Gibbons, Lang & Company,
L.P. has advised the Company's Board of Directors that the $17.50 per share of
Common Stock cash consideration to be received by the Company's common
stockholders in the Offer and the Merger, taken together, is fair to such
stockholders from a financial point of view (other than the Purchaser and its
affiliates). The Company hereby agrees to file with the SEC as soon as
practicable after the commencement of the Offer a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with any amendments or supplements
thereto, the "Schedule 14D-9") containing the recommendations described in the
first sentence of this Section 1.02. The Company, the Purchaser, BUSA, and the
Sub each agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and disseminated to the Company's common stockholders in each case and
to the extent required by applicable federal securities laws. The Company
agrees to provide the Purchaser, BUSA, and the Sub and their counsel, in
writing, with any comments the Company or its counsel may receive from the SEC
or its Staff with respect to the Schedule 14D-9 promptly after the receipt of
such comments. Notwithstanding anything contained in this Section 1.02, if the
Board of Directors of the Company determines in the exercise of its fiduciary
duties to withdraw, modify or amend its recommendation, such withdrawal,
modification or amendment shall not constitute a breach of this Agreement. The
Company hereby consents to the inclusion in the Offer of the recommendation
referred to in the first sentence of this Section 1.02. In connection with the
Offer, the Company will promptly furnish the Purchaser with mailing labels,
security position listings and any available listing or
- 3 -
<PAGE> 5
computer file containing the names and addresses of the record holders of the
shares of Common Stock as of a recent date and will furnish the Purchaser with
such information and assistance as the Purchaser or its agents may reasonably
request in communicating the Offer to the common stockholders of the Company.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the documents constituting the Offer and any other
documents necessary to consummate the Merger, the Purchaser, BUSA, and the Sub
and each of their affiliates and associates shall hold in confidence the
information contained in any of such labels, listings and files, will use such
information only in connection with the Offer and the Merger, and, if this
Agreement is terminated, will deliver to the Company the information and all
copies of such information then in their possession and in the possession of
their legal, accounting and financial advisors.
SECTION 1.03 Directors. (a) Promptly upon the purchase by the
Purchaser or any of its affiliates of such number of shares of Common Stock
which, when added to the number of shares of Common Stock beneficially owned by
the Purchaser and its affiliates, represents at least two-thirds of the
outstanding shares of Common Stock and from time to time thereafter, the
Purchaser shall be entitled to designate such number of directors, rounded up
to the next whole number but in no event more than one less than the total
number of directors, on the Board of Directors of the Company as will give the
Purchaser, subject to compliance with Section 14(f) of the Exchange Act,
representation on the Board of Directors of the Company equal to the product of
the number of directors on the Board of Directors of the Company and the
percentage that such number of shares of Common Stock so owned bears to the
number of shares of Common Stock outstanding, and the Company shall, upon
request by the Purchaser, promptly, at the Company's election, either increase
the size of the Board of Directors of the Company or exercise its best efforts
to secure the resignations of such number of directors as is necessary to
enable the Purchaser's designees to be elected to the Board of Directors of the
Company and shall cause the Purchaser's designees to be so elected.
(b) The Company's obligations to appoint designees to
its Board of Directors shall be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder. The Company shall promptly take all
actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill
its obligations under this Section 1.03 and shall include in the Schedule 14D-9
such information with respect to the Company and its officers and directors as
is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
this Section 1.03. The Purchaser will supply to the Company, in writing, and
be solely responsible for any information with respect to itself and its
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
- 4 -
<PAGE> 6
ARTICLE II.
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the relevant provisions of the
Minnesota Business Corporations Act (the "Minnesota Law"), the Sub shall be
merged with and into the Company (the "Merger") as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions set
forth in Article VII hereof. Following the Merger, the Company shall continue
as the surviving corporation (the "Surviving Corporation"), and the separate
corporate existence of the Sub shall cease.
SECTION 2.02 Effective Time. The Merger shall be consummated
by filing with the Minnesota Secretary of State a certificate of merger or
certificate of ownership and merger in such form as is required by, and
executed in accordance with, the relevant provisions of the Minnesota Law (the
time of such filing or such other time as may be set forth in the certificate
of merger or certificate of ownership and merger being the "Effective Time").
SECTION 2.03 Effects of the Merger. The Merger shall have the
effects set forth in the Minnesota Law. As of the Effective Time, the Company
shall be a wholly-owned subsidiary of the Purchaser.
SECTION 2.04 Articles of Incorporation and By-Laws. The
Articles of Incorporation and the By-Laws of the Company shall be the Articles
of Incorporation and By-Laws of the Surviving Corporation.
SECTION 2.05 Directors and Officers. The directors of the Sub
at the Effective Time shall become the directors of the Surviving Corporation
until their successors are duly elected and qualified. The officers of the
Company at the Effective Time shall become the officers of the Surviving
Corporation until their successors are duly appointed and qualified.
SECTION 2.06 Conversion of Shares. (a) Each share of Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares of Common Stock owned by the Purchaser or any affiliate of the
Purchaser or held in the treasury of the Company, and Dissenting Shares, as
defined in Section 3.01 hereof) shall, as of the Effective Time, and by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive $17.50 net to the holder in cash or any
higher price paid per share of Common Stock pursuant to the Offer (the "Merger
Consideration"), payable to the holder thereof, without interest thereon, upon
the surrender of the certificate formerly representing such share of Common
Stock. At and after the Effective Time, each holder of a certificate or
certificates that represented issued and outstanding shares of Common Stock
immediately prior to the Effective Time shall cease to have any rights as a
stockholder of the Company, except for the
- 5 -
<PAGE> 7
right to surrender such certificate or certificates in exchange for the Merger
Consideration or to perfect the right to receive payment for such shares
pursuant to Section 302A.471 of the Minnesota Law and Section 3.01 hereof if
such holder has validly exercised and not withdrawn such right to receive
payment for such shares.
(b) Each share of Common Stock held by the Purchaser
or any of its affiliates or held in the Company's treasury or by a subsidiary
of the Company shall, as of the Effective Time, and by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
and be canceled and be retired without payment of any consideration therefor.
(c) The Purchaser, BUSA, and the Sub acknowledge that
each share of Common Stock outstanding immediately prior to the date hereof
which was awarded as restricted stock pursuant to the Stock Option Plans (as
defined in Section 2.07 hereof) as of the date of acquisition of shares of
Common Stock pursuant to the Offer, will become fully vested and free of any
and all restrictions to which such shares of Common Stock are otherwise
subject.
SECTION 2.07 Stock Options. Prior to the purchase of shares of
Common Stock pursuant to the Offer, the Board of Directors of the Company (or,
if appropriate, any committee administering the Stock Option Plans) shall adopt
such resolutions or take such other actions as are necessary to adjust the
terms of all outstanding stock options to purchase Common Stock ("Options")
heretofore granted to employees and directors under any stock option plan,
program or arrangement of the Company (all such stock option plans, employee
stock purchase plans, programs and arrangements shall be collectively referred
to as the "Stock Option Plans") to provide for the cancellation of such Options
as set forth in this Section 2.07. As of the date of the acquisition of shares
of Common Stock pursuant to the Offer, each Option then outstanding, whether or
not then fully exercisable, shall be canceled in exchange for a payment from
the Company (subject to any applicable withholding taxes) equal to the product
of (x) the total number of shares of Common Stock subject to such Option and
(y) the excess of the consideration paid in the Offer over the exercise price
per share of Common Stock subject to such Option, payable in cash on the date
of acquisition of the shares of Common Stock pursuant to the Offer. The
Purchaser shall make available to the Company on the date of payment for the
shares of Common Stock pursuant to the Offer, in the form of a loan payable on
the earlier of (i) the Effective Time, and (ii) May 31, 1996, bearing interest
per annum at the prime rate of the Firstar Bank Milwaukee, N.A., cash (except
for cash payments to be made pursuant to the penultimate sentence of this
Section 2.07) in an aggregate amount necessary to make the payments pursuant to
the preceding sentence. Except as provided herein, or as otherwise agreed to
by the parties (i) the Stock Option Plans shall terminate as of the Effective
Time and the provisions in any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
the Company or any subsidiary, shall be deleted as of the Effective Time, and
(ii) the Company shall ensure
- 6 -
<PAGE> 8
that following the Effective Time no holder of an Option or any participant in
any Stock Option Plan or other plans, programs or arrangements shall have any
right thereunder to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary thereof. Notwithstanding any provision of this
Section 2.07 to the contrary, any Option granted to an officer of the Company
listed on Schedule 2.07 within six months and one day of the date such Option
would otherwise be canceled pursuant to this Section 2.07 shall be canceled and
the payments provided for in this Section 2.07 shall be made six months and one
day following the date of such grant. At the Effective Time, pursuant to an
escrow agreement to be entered into by the parties hereto, the Purchaser shall
deposit or cause to be deposited with an escrow agent reasonably acceptable to
the Company, to be selected by the Purchaser, cash in an aggregate amount
necessary to make the payments pursuant to the preceding sentence. Except as
may be set forth on Schedule 2.07(b), or as contemplated by Section 7.01(a)
hereof, no consent of any stockholder of the Company is or may be required in
connection with the transactions contemplated by this Section 2.07.
SECTION 2.08 Conversion of Sub Common Stock. Each share of
common stock, par value $.01 per share, of the Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one share of common stock of the Surviving Corporation.
SECTION 2.09 Stockholders' Meeting. If approval by the
Company's stockholders is required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in
accordance with applicable law:
(a) duly call, give notice of, convene and hold an
annual or special meeting (the "Stockholders' Meeting") of its stockholders as
soon as practicable following the expiration of the Offer for the purpose of
considering and taking action on this Agreement;
(b) subject to its fiduciary duties under applicable
laws as advised by counsel, include in the Proxy Statement (as hereinafter
defined) the recommendation of the Board of Directors that stockholders of the
Company vote in favor of the approval and adoption of this Agreement; and
(c) use its best efforts (i) to obtain and furnish the
information required to be included by it in the Proxy Statement, and, after
consultation with the Purchaser, respond promptly to any comments made by the
SEC with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time following the expiration of the Offer, and (ii) subject to
fiduciary duties of the Board of Directors under applicable law as advised by
counsel, to obtain the necessary approvals of the Merger and this Agreement by
its stockholders. The Purchaser agrees that, at the Stockholders' Meeting, all
of the shares of Common Stock
- 7 -
<PAGE> 9
acquired pursuant to the Offer or otherwise by the Purchaser, the Sub or any
other affiliate of the Purchaser will be voted in favor of the Merger and this
Agreement.
SECTION 2.10 Merger Without Meeting of Stockholders.
Notwithstanding the foregoing, if, following the completion of the Offer, the
Merger may be consummated under Minnesota Law without a vote of the Company's
stockholders, the parties hereto agree to take all necessary and appropriate
action to cause the Merger to become effective, as soon as practicable after
the acquisition of shares of Common Stock pursuant to the Offer, but in no
event later than thirty days thereafter.
SECTION 2.11 Closing. Upon the terms and subject to the
conditions hereof, as soon as practicable after consummation of the Offer, and
if required by law, after the vote of the stockholders of the Company in favor
of the adoption of this Agreement has been obtained, the Company (or the
Purchaser or the Sub, if appropriate) shall execute in the manner required by
the Minnesota Law and deliver to the Secretary of State of the State of
Minnesota the duly executed certificate of merger or certificate of ownership
and merger, and the parties shall take all such other and further actions as
may be required by law to make the Merger effective. Prior to the filing
referred to in this Section, a closing (the "Closing") will be held at the
offices of the Company (or such other place as the parties may agree) for the
purpose of confirming all the foregoing.
ARTICLE III.
DISSENTING SHARES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, in the event that appraisal rights are
available in connection with the Merger pursuant to the Minnesota Law, shares
of Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who did not vote in favor of
the Merger and comply with all of the relevant provisions of Section 302A.473
of the Minnesota Law (the "Dissenting Shares") shall not be converted into or
be exchangeable for the right to receive the Merger Consideration, unless and
until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their rights to appraisal under the Minnesota Law. If any
such holder shall have failed to perfect or shall have effectively withdrawn or
lost such right, such holder's shares of Common Stock shall thereupon be deemed
to have been converted into and to have become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration without any
interest thereon.
SECTION 3.02 Exchange of Certificates. (a) The Purchaser
shall deposit or cause to be deposited in trust with an exchange agent
reasonably acceptable to the Company to be selected by the Purchaser (the
"Exchange Agent") at the Effective Time cash
- 8 -
<PAGE> 10
in an aggregate amount necessary to make the payments pursuant to Section 2.06
hereof to holders (other than the Purchaser, BUSA, or the Sub or any of their
respective affiliates) of shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time (such amounts being
hereinafter referred to as the "Exchange Fund"), and to make the appropriate
cash payments, if any, to holders of Dissenting Shares. The Exchange Agent
shall, pursuant to irrevocable instructions, make the payments provided for in
the preceding sentence out of the Exchange Fund. The Exchange Agent shall
invest portions of the Exchange Fund as the Purchaser directs, provided that
all such investments shall be in obligations of or guaranteed by the United
States of America, in commercial paper obligations receiving the highest rating
from either Moody's Investors Services, Inc. or Standard & Poor's Corporation,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks with capital exceeding $50 million. The
Exchange Fund shall not be used for any other purpose, except as provided in
this Agreement. If for any reason (including, without limitation, losses
sustained by such investments) the Exchange Fund is inadequate to pay the
amount holders of Common Stock shall be entitled to hereunder, the Surviving
Corporation shall be liable for the payment thereof.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder, as of
the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Common Stock (the
"Certificates") a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificate
or payment therefor. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be paid in exchange therefor
cash in an amount equal to the product of the number of shares of Common Stock
formerly represented by such Certificate multiplied by the Merger
Consideration, and such Certificate shall forthwith be canceled. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 3.02, each Certificate (other than Certificates
representing shares of Common Stock owned by the Purchaser or any affiliate of
the Purchaser, and Dissenting Shares) shall represent for all purposes the
right to receive the Merger Consideration in
- 9 -
<PAGE> 11
cash multiplied by the number of shares of Common Stock evidenced by such
Certificate, without any interest thereon.
(c) After the Effective Time, there shall be no
transfers of shares of Common Stock which were outstanding immediately prior to
the Effective Time on the stock transfer books of the Surviving Corporation.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in this
Article III. As of the Effective Time, the stock ledger of the Company shall
be closed.
(d) Any portion of the Exchange Fund (including the
proceeds of any investments thereof) that remains unclaimed by the stockholders
of the Company for six months after the Effective Time shall be repaid to the
Surviving Corporation. Any stockholders of the Company who have not
theretofore complied with Section 3.01 hereof shall thereafter look only to the
Surviving Corporation for payment of their claim for the Merger Consideration,
without any interest thereon.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchaser and the Sub
as follows:
SECTION 4.01 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota and has all requisite corporate power and
authority to carry on its business as it is now being conducted. The Company
is duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be in good standing or so qualified would not have
a Material Adverse Effect.
SECTION 4.02 Capitalization. The authorized capital stock of
the Company consists of 10,000,000 shares of Common Stock, par value $.01 per
share, of which, as of February 26, 1996, 2,319,495 shares were issued and
outstanding and (b) 1,000,000 shares of Preferred Stock, par value $.01, none
of which are outstanding. All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable and free of preemptive rights. As of February 26, 1996,
193,500 shares of Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of all outstanding
Options and the employee Stock purchase plan. Except as set forth above and
for the Option provided in Section 9.09(d) and Exhibit B, there are not as of
the date hereof, and at the Effective Time there will not be,
- 10 -
<PAGE> 12
any outstanding or authorized subscriptions, options, warrants, calls, rights,
commitments or any other agreements of any character obligating the Company to
issue any additional shares of Common Stock or any other shares of capital
stock of the Company or any other securities convertible into or evidencing the
right to subscribe for any such shares.
SECTION 4.03 Corporate Power and Authority. The Company has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company and no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, if required, the approval and adoption of this Agreement by the
Company's stockholders). This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding obligation of each of the Purchaser, BUSA, and the Sub, this Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
SECTION 4.04 Reports. (a) Since January 1, 1995, the Company
has filed all required forms, reports and documents with the SEC required to be
filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which have complied as of their respective
filing dates in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, and the rules promulgated thereunder (collectively, the "SEC Reports").
None of the SEC Reports, including without limitation any financial statements
or schedules included therein, at the time filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(b) The consolidated balance sheets and the related
consolidated statements of net earnings and of changes in financial position
(including the related notes thereto) of the Company included in the SEC
Reports fairly present the consolidated financial position of the Company and
its subsidiaries as of their respective dates, and the results of consolidated
operations and changes in consolidated financial position for the periods
presented therein, all in conformity with generally accepted accounting
principles applied on a consistent basis (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments), except as
otherwise noted therein, and except that the quarterly financial statements do
not contain all of the footnote disclosures required by generally accepted
accounting principles.
- 11 -
<PAGE> 13
SECTION 4.05 Offer Documents; Proxy Statement; Other
Information. The Schedule 14D-9 and if required for the consummation of the
Merger under applicable law, a Proxy Statement will comply in all material
respects with the applicable federal securities laws, except that no
representation is made by the Company with respect to information supplied by
the Purchaser or any affiliate of the Purchaser, in writing, for inclusion in
the Schedule 14D-9 or the Proxy Statement or any amendments or supplements
thereto. The Schedule 14D-9 will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with
the SEC, shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by the Company
with respect to information supplied by the Purchaser or the Sub in writing for
inclusion in the Schedule 14D-9. None of the information relating to the
Company and its subsidiaries supplied in writing by the Company for inclusion
in the Offer Documents or the Proxy Statement, including any amendments or
supplements to either of the foregoing, or any schedules required to be filed
with the SEC in connection therewith, will, at the respective times the Offer
Documents or Proxy Statement or any amendments or supplements thereto are filed
with the SEC or mailed to the stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The letter to stockholders, notice of meeting, proxy statement and
form of proxy, or the information statement, as the case may be, to be
distributed to stockholders in connection with the Merger, are collectively
referred to herein as the "Proxy Statement".
SECTION 4.06 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby will (i) conflict with or
result in a breach of any provision of the certificate of incorporation or
by-laws of the Company; (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except (A) in connection with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) pursuant to the applicable requirements of the Securities Act and
the Exchange Act, (C) the filing of the certificate of merger or certificate of
ownership and merger pursuant to the Minnesota Law, (D) pursuant to any
applicable state securities, "Blue Sky" or takeover laws, including Chapter 80B
of the Minnesota Statutes (E) any consents, approvals, authorizations or
permits, filings or notifications required to be given or made to any foreign
jurisdiction, or (F) except where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not in
the aggregate have a Material Adverse Effect or a material adverse effect on
the consummation of the transactions contemplated hereby; or (iii)
- 12 -
<PAGE> 14
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, except for violations which would not in the
aggregate have a Material Adverse Effect or a material adverse effect on the
consummation of the transactions contemplated hereby.
SECTION 4.07 Brokerage Fees and Commissions. Except for those
fees and expenses payable to Brown, Gibbons, Lang & Company, L.P., the Company
hereby represents and warrants to the Purchaser with respect to the Company,
that no person or entity is entitled to receive from the Company, or any of its
subsidiaries any investment banking, brokerage or finder's fee in connection
with this Agreement or the transactions contemplated hereby based upon
arrangements made by or on behalf of the Company.
SECTION 4.08 Events Subsequent to August 1, 1995. Except as
described on Schedule 4.08, or related to transactions involving the Purchaser
or the Purchaser's affiliates since August 1, 1995, there has not been any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Company. Without limiting the
foregoing, since that date:
(i) The Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, for more than
$200,000 in the aggregate, other than for a fair consideration in the
ordinary course of business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) either requiring payment by the Company of more
than $250,000 or other than in the ordinary course of business
(except for the renewal of the lease for the Company's corporate
headquarters and product purchase orders and agreements in the ordinary
course of business and in amounts and on terms consistent with past
practices);
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $500,000 to which the Company is a party
or by which it is bound;
(iv) the Company has not imposed any security interest
upon any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$500,000 or outside the ordinary course of business;
(vi) the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized
- 13 -
<PAGE> 15
lease obligation involving more than $250,000 in the aggregate (other
than agreements with Norwest Equipment Finance);
(vii) the Company has not granted any license or
sublicense of any rights under or with respect to any intellectual
property;
(viii) the Company has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the ordinary course of business;
(ix) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the ordinary course of business, except as disclosed on Schedule 6.08;
(x) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees outside the ordinary course of business, except
as disclosed on Schedule 6.08.
SECTION 4.09 Intellectual Property. The Company owns or has
the right to use pursuant to license, sublicense, agreement, or permission all
intellectual property necessary for the operation of the business of the
Company as presently conducted (excluding property for which the loss of
ownership or right to use would result in a loss of not more than $100,000
annually) and there is no pending or threatened challenge to the Company's
ownership or right to use any of the foregoing.
SECTION 4.10 Litigation. Except litigation relating to the
Purchaser and BUSA or as disclosed on Schedule 4.10, there is no action, order,
writ, injunction, judgment or decree outstanding or any claim, suit,
litigation, proceeding, labor dispute, arbitral action, governmental audit or
investigation (collectively, "Actions") pending or threatened and the Company
does not have any knowledge of an event that reasonably can be expected to
result in pending or threatened material litigation.
SECTION 4.11 Contracts. Except as disclosed on Schedule 4.11
all contracts involving more than $100,000 to which the Company is a party are
valid and binding and in full force and effect and there are no defaults
thereunder or events which with notice or the passage of time would constitute
a default by the Company or by any other party thereto, except for such
defaults and events as to which requisite waivers or consents have been
obtained; and neither the execution of this Agreement nor the effectuation of
this plan of merger will constitute a default under or breach of any such
contract.
- 14 -
<PAGE> 16
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND SUB
The Purchaser and the Sub represent and warrant to the Company
as follows:
Section 5.01 Organization and Qualification. Each of the
Purchaser, BUSA, and the Sub is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to carry on its business as
it is now being conducted. Each of the Purchaser, BUSA, and the Sub is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be in good standing or so qualified would not in the aggregate have
a material adverse effect on the financial condition or results of operations
of the Purchaser and its subsidiaries taken as a whole. The Sub is a
corporation wholly owned by BUSA that was recently formed for the purpose of
engaging in the transactions described in this Agreement and has not engaged in
any activity other than those incidents to the foregoing.
SECTION 5.02 Corporate Power and Authority. Each of the
Purchaser, BUSA, and the Sub has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by the Purchaser, BUSA, and
the Sub of this Agreement and the consummation by the Purchaser, BUSA, and the
Sub of the transactions contemplated hereby have been duly authorized by the
respective Boards of Directors of the Purchaser, BUSA, and the Sub, and the
stockholder of the Sub, and no other corporate proceedings on the part of the
Purchaser, BUSA, or the Sub are necessary to authorize this Agreement, or
commence the Offer or to consummate the transactions so contemplated by this
Agreement (including the Offer). This Agreement has been duly and validly
executed and delivered by each of the Purchaser, BUSA, and the Sub and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, this Agreement constitutes the legal, valid and binding obligation of
each of the Purchaser, BUSA, and the Sub, enforceable against each of the
Purchaser, BUSA, and the Sub in accordance with its terms.
SECTION 5.03 Offer Documents; Proxy Statement. The Offer
Documents and the Offer will comply in all material respects with applicable
federal securities laws, except that no representation is made by the Purchaser
with respect to information supplied by the Company, in writing, or inclusion
in the Offer Documents or any amendments or supplements thereto. None of the
information supplied by the Purchaser and its affiliates, in writing, for
inclusion in the Proxy Statement or any amendments or supplements thereto will,
at the respective times the Proxy Statement or any
- 15 -
<PAGE> 17
amendments or supplements thereto are filed with the SEC, at the time that the
Proxy Statement or any amendment or supplement thereto is mailed to the
Company's stockholders, or, at the time of the Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 5.04 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by the Purchaser and the Sub nor the
consummation by the Purchaser or the Sub of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
respective Articles of Incorporation or by-laws (or other similar governing
documents) of the Purchaser, BUSA, or the Sub; (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
applicable requirements of the HSR Act, (B) pursuant to the applicable
requirements of the Securities Act and the Exchange Act, (C) the filing of the
certificate of merger or certificate of ownership and merger pursuant to the
Minnesota Law, (D) pursuant to any applicable state securities, "Blue Sky" or
takeover laws, (E) any consents, approvals, authorizations or permits, filings
or notifications required to be given or made to any foreign jurisdiction, or
(F) where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not in the aggregate have
any material adverse effect on the financial condition or results of operations
of the Purchaser and its subsidiaries taken as a whole or a material adverse
effect on the consummation of the transactions contemplated hereby; or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Purchaser, except for violations which would not have in the
aggregate any material adverse effect on the financial condition or results of
operations of the Purchaser and its subsidiaries taken as a whole or a material
adverse effect on the consummation of the transactions contemplated hereby.
SECTION 5.05 Financing. The Purchaser, BUSA, and the Sub have
and will have immediately prior to the consummation of the Offer, and at the
Closing, sufficient funds necessary to timely consummate the Offer and the
Merger and the other transactions contemplated hereby including the payment of
related fees and expenses.
SECTION 5.06 Financial Statements. The Purchaser has delivered
to the Company copies of the audited consolidated and unaudited consolidating
balance sheets of W. H. Brady Co., a Wisconsin corporation, as of July 31, 1995
and 1994 and the related audited consolidated statements of income,
stockholders' equity and cash flows for the fiscal years then ended (including
the related notes thereto) (the "Brady Financial Statements"). The Brady
Financial Statements fairly present the consolidated financial position of
Brady as of their respective dates, and the results of
- 16 -
<PAGE> 18
consolidated operations and changes in consolidated financial position for the
periods therein, all in conformity with generally accepted accounting
principles.
SECTION 5.07 Conduct of Business. Since January 31, 1996,
Brady and its subsidiaries have conducted, and from the date of this Agreement
until the Effective Time each of Brady and its subsidiaries will conduct, their
operations in the ordinary and usual course of business and consistent with
past practice (and Brady will not pay any extraordinary dividends or make any
other extraordinary payments or transfers to any affiliate that is not a
subsidiary), except for transactions contemplated by this Agreement and the
financing thereof.
ARTICLE VI.
COVENANTS
SECTION 6.01 Conduct of Business of the Company. Except as
contemplated by this Agreement or as set forth in Schedule 6.01, during the
period from the date of this Agreement to the Effective Time, the Company and
its subsidiaries will each conduct its operations according to its ordinary and
usual course of business and consistent with past practice. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement or as set forth in Schedule 6.01, prior to the Effective Time,
neither the Company nor any of it subsidiaries, as the case may be, will,
without the prior written consent of the Purchaser, (i) issue, sell, pledge or
encumber, or authorize or propose the issuance, sale, pledge or encumbrance of
(A) any shares of capital stock of any class (including the shares of Common
Stock), or securities convertible into any such shares, or any rights, warrants
or options to acquire any such shares or other convertible securities, or grant
or accelerate any right to convert or exchange any securities of the Company or
any of its subsidiaries for such shares, other than shares of Common Stock
issuable upon exercise of currently outstanding Options, or (B) any other
securities in respect of, in lieu of or in substitution for shares of Common
Stock outstanding on the date hereof; (ii) redeem, purchase or otherwise
acquire, or propose to redeem, purchase or otherwise acquire, any of its
outstanding securities (including the shares of Common Stock); (iii) split,
combine or reclassify any shares of its capital stock or declare or pay any
dividend or distribution on any shares of capital stock of the Company; (iv)
except pursuant to agreements or arrangements in effect on the date hereof
which have been disclosed to the Purchaser, authorize any capital expenditure
in excess of $500,000 in the aggregate, make any acquisition or disposition of
a material amount of assets (other than inventory) or securities, enter into or
amend or terminate any contract, material to the business of the Company and
its subsidiaries taken as a whole, or release or relinquish any contact rights
or claims, material to the business of the Company and its subsidiaries taken
as a whole; (v) pledge or encumber any material assets of the Company except in
the ordinary course of business; (vi) incur any
- 17 -
<PAGE> 19
long-term debt for borrowed money or short-term debt for borrowed money in an
aggregate amount in excess of $100,000.00 except for debt incurred in the
ordinary course of business (including, without limitation, to fund working
capital needs; (vii) propose or adopt any amendments to the Articles of
Incorporation or By-Laws of the Company; (viii) adopt a plan of complete or
partial liquidation or resolutions providing for the complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
subsidiaries; (ix) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person except wholly owned subsidiaries of the Company in the
ordinary course of business and consistent with past practice; (x) make any
loans, advances or capital contributions to, or investments in, any other
person (other than loans or advances to subsidiaries and customer loans or
advances to employees in accordance with past practices); (xi) except as
required by applicable laws, adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
severance, termination, employment or other employee benefit plan, agreement,
trust, fund, policy or other arrangement for the benefit or welfare of any
employee or director or former employee or director or, except as required by
applicable laws, increase the compensation or fringe benefits of any employee
or pay any employee or pay any benefit not required by any existing plan,
arrangement or agreement; (xii) make any tax election or settle or compromise
any federal, state, local or foreign income tax liability, except in the
ordinary course of business and consistent with past practice; or (xiii) agree
in writing or otherwise to take any of the foregoing actions. Following the
date of this Agreement, the Company will review its financing documents to
determine if the consent of any third party is required in connection with the
transactions contemplated hereby. If following such review, the Company
becomes actually aware that any such consent is required, it will so notify the
Purchaser, and the parties hereto shall use their respective best efforts to
secure such consent; provided, however, that for this purpose "best efforts"
shall not require the Company or the Purchaser to make any payment in order to
secure any such consents.
SECTION 6.02 No Solicitation. Neither the Company nor any of
its subsidiaries, nor any of their respective officers, directors, employees,
representatives, agents or affiliates, shall, directly or indirectly,
encourage, solicit, initiate or, except as is required in the exercise of the
fiduciary duties of the Company's directors and officers under applicable laws
upon advice of counsel to the Company, participate in any way in discussions or
negotiations with, or knowingly provide any information to, any corporation,
partnership, person or other entity or group (other than the Purchaser or any
affiliate or an associate of the Purchaser) concerning any merger, sale of
substantially all the assets, sale of shares of capital stock or similar
transactions involving the Company or any material subsidiary or division of
the Company; provided, however, that nothing contained in this Section 6.02
shall prohibit the Company or its Board of Directors from (i)
- 18 -
<PAGE> 20
taking and disclosing to the Company's stockholders a position with respect to
a tender offer by a third party pursuant to Rules 14d-9 and 14e- 2(a)
promulgated under the Exchange Act, (ii) making such disclosure to the
Company's stockholders which, in the judgment of the Board of Directors with
the advice of counsel, may be required under applicable law or (iii) providing
information to, or participating in discussions or negotiations with, any party
that has actually made, and which the Board of Directors believes in good faith
would be capable of effecting an acquisition of the Company on terms that are
superior, from a financial point of view, to the Offer and the Merger. The
Company will promptly communicate to the Purchaser if it is furnishing
information to or engaging in negotiations with any third party with respect to
the acquisition of the Company or any of its assets or subsidiaries.
SECTION 6.03 Access to Information. (a) Between the date of
this Agreement and the Effective Time, the Company will, upon reasonable notice
to Raymond F. Good or his designee, allow the Purchaser and its authorized
representatives reasonable access in a manner reasonably acceptable to Mr. Good
or his designee during regular business hours to its plants, offices,
warehouses, other facilities and books and records concerning (i) any change
to, termination of, or refusal to extend any agreement with any distributor or
supplier since August 1, 1995, (ii) any change in the Company's right to use,
or ownership of, its intellectual property, or (iii) its inventory. The
Company will also make its employees available for interviews with the
Purchaser, with Company personnel present for reasonable purposes in a manner
reasonably acceptable to Mr. Good or his designee.
(b) Except as otherwise required by law, Purchaser or its
agents will not, and will cause its authorized representatives not to, disclose
any information to third parties obtained pursuant to this Section 6.03 except
its attorneys, financial advisors and lenders and then only for purposes
related to the consummation of the transactions contemplated by this Agreement.
Upon any termination of this Agreement, Purchaser will collect and deliver to
the Company all documents obtained by it or any of its authorized
representatives then in their possession and any copies thereof.
SECTION 6.04 Notification of Certain Matters. Each of the
Company and the Purchaser shall give prompt notice to the other party of any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement.
SECTION 6.05 Best Efforts. Subject to the terms and conditions
herein provided, and with respect to the Company, to the fiduciary duties of
the Board of Directors of the Company under applicable laws, each of the
parties hereto agrees to (i) promptly make their respective filings and
thereafter make any other required submissions under the HSR Act with respect
to the Offer and Merger and (ii) use its best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, in the case of the
- 19 -
<PAGE> 21
Purchaser, BUSA, and the Sub, the filings required under Minnesota Statutes
Chapter 80B, as amended, with respect to the Offer and Merger. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
SECTION 6.06 Indemnification and Insurance. (a) The Surviving
Corporation and the Purchaser agree that the Surviving Corporation will at all
times exercise the powers granted to it by its Articles of Incorporation, its
By-laws, and by applicable law to indemnify to the fullest extent possible
present or former directors, officers, employees and agents of the Company
against claims made against them arising from their service in such capacities.
The Surviving Corporation and the Purchaser agree that until six years from the
Effective Time, the Articles of Incorporation and By-laws of the Surviving
Corporation shall not be amended to reduce or limit the rights of indemnity
afforded to the present and former directors and officers of the Company, or
the ability of the Surviving Corporation to indemnify them, nor to hinder,
delay or make more difficult the exercise of such rights of indemnity or the
ability to indemnify.
(b) The Purchaser will honor and guarantee the
Surviving Corporation's performance of all contracts, agreements and
commitments of the Company or any of its subsidiaries which indemnify any
current or former employee or current or former director of the Company or any
of its subsidiaries, as disclosed on Schedule 6.06(b).
(c) Should any claim or claims be asserted or made
against any present or former director, officer, employee or agent of the
Company, arising from his services as such, within six years from the Effective
Time, the provisions of this Section 6.06 respecting the Articles of
Incorporation and the By-laws of the Surviving Corporation shall continue in
effect until the final disposition of all such claims.
(d) Any indemnified party wishing to claim
indemnification under this Section, upon learning of any such action, suit,
claim, proceeding or investigation, shall promptly notify the Purchaser and the
Surviving Corporation thereof and the Purchaser and the Surviving Corporation
shall cooperate in the defense of any such matter; provided, however, that any
failure so to notify the Purchaser and the Surviving Corporation of any
obligation to indemnify such indemnified party or of any other obligation
imposed by this Section shall not affect such obligations unless such failure
to so notify materially prejudices the rights of the Purchaser and the
Surviving Corporation to defend any such action, suit, claim, proceeding or
investigation. The indemnified parties as a group shall retain only one
counsel in each jurisdiction to represent them with respect to any single
action; provided, however, in the event that there is, under applicable
standards of professional conduct, a conflict between the positions of any two
or more indemnified parties, the Purchaser and such indemnified
- 20 -
<PAGE> 22
parties may retain, at the expense of the Purchaser and the Surviving
Corporation, as the case may be, such number of additional counsel as are
necessary to eliminate all conflicts of the type referred to above.
(e) In the event any claim is made against present or
former directors, officers or employees of the Company that is covered or
potentially covered by insurance, the Surviving Corporation and the Purchaser
shall do nothing that would forfeit, jeopardize, restrict or limit the
insurance coverage available for that claim until the final disposition of that
claim.
SECTION 6.07 Company Indebtedness. Prior to the Effective
Time, the Company shall cooperate with the Purchaser in taking such actions as
are reasonably appropriate or necessary in connection with the redemption,
prepayment, modification, satisfaction or elimination of any outstanding
long-term indebtedness of the Company or any of its subsidiaries with respect
to which a consent is required to be obtained to effectuate the Merger and the
transactions contemplated by this Agreement and has not been so obtained
(provided that prior to consummation of the Merger, the Company shall not be
required to actually redeem, prepay, modify, satisfy or eliminate any such
outstanding long-term indebtedness, make any payment or undertake any
obligation in order to secure any such consents or take any steps which would
irrevocably lead to any of the foregoing).
SECTION 6.08 Benefit Plans. (a) Schedule 6.08(a) includes all
employee benefit plans, programs, policies and agreements which provide
compensation or other benefits upon a termination of employment, voluntary or
involuntary, for the 17 highest paid employees of the Company or its
subsidiaries or which include a "change of control" provision, and a complete
and correct copy (or model form) of each such plan, program, policy and
agreement has been provided to Purchaser. Schedule 6.08(a) also sets forth the
annual compensation and average annual compensation, as the case may be, as of
the date of this Agreement for purposes of calculating the amount payable for
each of the 17 highest paid employees of the Company or its subsidiaries and
any other employee covered by a change of control provision under any of the
plans, programs, policies and agreements listed on Schedule 6.08(a).
(b) The Purchaser will honor and cause the Surviving
Corporation to honor and perform its obligations under each of the plans,
programs, policies and agreements set forth on Schedule 6.08(b), but only to
the extent consistent with the terms and conditions of any such plan, program,
policy or agreement (or model form thereof) disclosed to the Purchaser. The
Company believes the method of calculation provided to the Purchaser under
certain of such plans, programs, policies or agreements is correct and proper.
(c) If any salaried or non-union hourly employee of
the Company or any of its subsidiaries is or becomes a participant in any
written employee benefit plan or program of the Purchaser or
- 21 -
<PAGE> 23
any member of its controlled group within the meaning of Section 414(b) or (c)
of the Internal Revenue Code of 1986, as amended (the "Code"), such employee
shall be credited under such plan or program with all service prior to the
Effective Time with the Company and its subsidiaries (and any predecessor
employer) to the extent credit was given by the Company and its subsidiaries
for purposes of eligibility for all purposes and vesting under such plan or
program.
(d) The Purchaser and the Sub acknowledge that
consummation of the Offer will constitute a change of control of the Company
(to the extent such concept is relevant) for purposes of any and all of the
agreements and plans specified on Schedule 6.08(a).
(e) The Purchaser and the Sub agree to the amendment
of the compensation and benefit plans and programs set forth below in this
Section 6.08(e) to permit the acceleration of payment thereunder on or after
the later of the date of the acquisition of shares of Common Stock pursuant to
the Offer or five business days after the participant's termination of
employment for any reason (other than his or her retirement at or after age 65,
death or disability); provided, however, that such termination occurs within
two years after such acquisition of Common Stock and that no payments shall be
accelerated or made to the extent they could constitute non-deductible excess
parachute payments within the meaning of Section 280G(b)(1) and (2)(A) of the
Code. The Company has not entered into, adopted or amended after July 31, 1995
any employee benefit plan, program, policy or agreement, or any other agreement
or arrangement with respect to any employee or director of the Company or any
of its subsidiaries, except as listed on Schedule 6.08.
SECTION 6.09 Extension of Acquisition Options. The Company
will use its best efforts to obtain an extension of the options to purchase the
companies identified on Schedule 6.01 to a date subsequent to the Effective
Time. If the Company is unable to obtain such extensions, it will consult with
Purchaser before exercising either of those acquisition options set forth on
Schedule 6.01.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.01 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver, where permissible, at or prior to the
Effective Time, of the following conditions:
(a) this Agreement shall have been adopted by the
affirmative vote of the stockholders of the Company owning at least
- 22 -
<PAGE> 24
two-thirds of the Company's outstanding Common Stock in accordance with
applicable law, if such vote is required by applicable law;
(b) no statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any United States court or governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger; provided,
however, that the parties shall use their best efforts to have any such order,
decree or injunction vacated or reversed;
(c) any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated; and
(d) the Sub shall have purchased all shares of Common
Stock validly tendered and not withdrawn pursuant to the Offer; provided,
however, that this condition shall not be applicable to the obligations of the
Purchaser, BUSA or the Sub in violation of the terms of this Agreement or the
Offer if the Sub fails to purchase shares of Common Stock tendered pursuant to
the Offer.
ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time notwithstanding
approval thereof by the stockholders of the Company, but prior to the Effective
Time:
(a) by mutual written consent duly authorized by the
Boards of Directors of the Company (excluding any representative of the
Purchaser or an affiliate of the Purchaser), the Purchaser and the Sub;
(b) by either the Purchaser or the Company, if the
Effective Time shall not have occurred on or before December 31, 1996 (provided
that the right to terminate this Agreement under this Section 8.01(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Effective
Time to occur on or before such date);
(c) by either the Purchaser or the Company, if any
court of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
non-appealable; provided, however, that the parties shall use their best
efforts to have any such order, decree, ruling or injunction vacated or
reversed;
- 23 -
<PAGE> 25
(d) by the Purchaser, if (i) due to an occurrence or
circumstance that would result in a failure to satisfy any of the conditions
set forth in Exhibit A hereto, the Sub shall have (A) failed to commence the
Offer as provided in Section 1.01 hereof within 20 days following the date of
this Agreement; (B) terminated the Offer or the Offer shall have expired
without the purchase of shares of Common Stock thereunder at any time after the
latest date, if any, to which the Offer shall have been extended pursuant to
Section 1.01(c) hereof or (C) failed to pay for shares of Common Stock pursuant
to the Offer by the 40th business day following such commencement, unless such
failure to commence, termination or failure to pay for shares of Common Stock
shall have been caused by or resulted from the failure of the Sub or the
Purchaser to perform in any respect its material covenants and agreements
contained in this Agreement or Offer; or (ii) prior to the purchase of shares
of Common Stock pursuant to the Offer, the Board of Directors of the Company
shall have withdrawn or modified in a manner adverse to the Purchaser its
approval or recommendation of the Offer, this Agreement or the Merger, or shall
have recommended another offer, or shall have resolved to do any of the
foregoing; provided, however, the Purchaser shall have no right to terminate
this Agreement and abandon the Merger if the Company withdraws or modifies its
recommendation of the Offer, this Agreement or the Merger, by reason of taking
and disclosing to the Company's stockholders a position contemplated by Rule
14e-2(a)(2) or (3) promulgated under the Exchange Act with respect to another
proposal, and if within ten days of taking and disclosing to its stockholders
the aforementioned position, the Company publicly reconfirms its recommendation
of the Offer, this Agreement or the Merger and takes and discloses to the
Company's stockholders a recommendation to reject such other proposal as
contemplated by Rule 14e-2(a)(1) promulgated under the Exchange Act; or
(e) by the Company, if (i) due to an occurrence or
circumstance that would result in a failure to satisfy any of the conditions
set forth in Exhibit A hereto or otherwise, the Sub shall have (A) failed to
commence the Offer as provided in Section 1.01 hereof within 20 days following
the date of this Agreement, (B) terminated the Offer or the Offer shall have
expired without the purchase of shares of Common Stock thereunder at any time
after the latest date, if any, to which the Offer shall have been extended
pursuant to Section 1.01(c) hereof or (C) failed to pay for shares of Common
Stock pursuant to the Offer by the 40th business day following such
commencement, unless such failure to commence, termination or failure to pay
for shares of Common Stock shall have been caused by or resulted from the
occurrence or existence of the condition described in paragraph (D) of Exhibit
A hereto, or (ii) prior to the purchase of shares of Common Stock pursuant to
the Offer, (A) a corporation, partnership, person or other entity or group
shall have made a bona fide proposal that the Board of Directors of the Company
believes, in good faith after consultation with its legal and financial
advisors, is more favorable to the Company and its stockholders than the Offer
and the Merger, (B) the Sub does not make, within ten days of the Sub receiving
notice of such third party proposal, an offer which the
- 24 -
<PAGE> 26
Board of Directors believes, in good faith after consultation with its legal
and financial advisors, is at least as favorable to the Company's stockholders
as such third party proposal, it being understood that the Company shall remain
obligated to pay the fees to the Purchaser pursuant to Section 9.09 hereof.
SECTION 8.02 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section 8.01 hereof,
this Agreement, except for the provisions of this Section 8.02 and Sections
6.03(b) and 9.09 hereof, shall forthwith become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders. Nothing in this Section 8.02 shall relieve any party to this
Agreement of liability for breach of this Agreement.
SECTION 8.03 Amendment. To the extent permitted by applicable
law, this Agreement may be amended by action taken by or on behalf of the
Boards of the Company (excluding any representative of the Purchaser or an
affiliate of the Purchaser), the Purchaser and the Sub at any time before or
after adoption of this Agreement by the stockholders of the Company; provided,
however, that, after any such stockholder approval, no amendment shall be made
which decreases the Merger Consideration or which adversely affects the rights
of the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
SECTION 8.04 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken by or on behalf of the
respective Boards of Directors of the Company (excluding any representatives or
directors appointed by or elected on behalf of the Purchaser or an affiliate of
the Purchaser), the Purchaser or the Sub, may (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (iii)
waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties.
The representations and warranties made in Articles IV and V shall not survive
beyond the Effective Time. This Section 9.01 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Effective Time.
- 25 -
<PAGE> 27
SECTION 9.02 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof except the Confidentiality Agreement, dated February 2,
1996, between the Company and the Purchaser and (b) shall not be assigned by
operation of law or otherwise, provided that the Purchaser or the Sub may
assign any of their rights and obligations to any wholly-owned, direct or
indirect subsidiary of the Purchaser, but no such assignment shall relieve the
Purchaser or the Sub of its obligations hereunder. It is understood and agreed
that either the Purchaser, or any wholly-owned subsidiary of the Purchaser, may
purchase shares of Common Stock under the Offer.
SECTION 9.03 Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 9.04 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given when delivered in person, by cable, telegram, telecopier
or telex, or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to the Purchaser, BUSA or the Sub:
W.H. Brady Co.
6555 W. Good Hope Road
P.O. Box 571
Milwaukee, WI 53201
Attention: Mr. Donald P. DeLuca
with a copy to:
Quarles & Brady
411 E. Wisconsin Avenue
Milwaukee, WI 53202
Attention: Conrad G. Goodkind, Esq.
if to the Company:
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, Minnesota 56421
Attention: Mr. Scott F. Drill
- 26 -
<PAGE> 28
with a copy to:
Best & Flanagan
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: James C. Diracles, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the matter set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.05 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota
regardless of the laws that might otherwise govern under principles of
conflicts of laws applicable thereto.
SECTION 9.06 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
SECTION 9.07 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Agreement except for all of Articles II and III and Section 6.06.
SECTION 9.08 Counterparts. This Agreement may be executed in
counterparts, manually or by facsimile, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
SECTION 9.09. Expenses. (a) All costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses. Notwithstanding the foregoing, the
Purchaser shall cause the Surviving Corporation to pay any and all taxes on the
transfer of real property to the Purchaser or the Surviving Corporation imposed
by any governmental authority. The Purchaser and the Surviving Corporation
shall indemnify and hold the stockholders of the Company harmless from and
against any and all liabilities arising out of or related to the payment of
such taxes.
(b) The Purchaser acknowledges and agrees that the
Company has disclosed that it is indebted for fees and expenses (including fees
and expenses of its counsel and investment advisors) incurred by it in
connection with the transactions contemplated by this Agreement as set forth in
Schedule 9.09. To the best knowledge of the Company, the fees and expenses
listed in Schedule 9.09 represent the only significant fees and expenses
incurred by the Company in connection with the transactions contemplated by
this Agreement. It is understood that certain of such fees and expenses may be
paid by the Company prior to the
- 27 -
<PAGE> 29
execution of this Agreement, and the Purchaser agrees to refrain from taking
any action which would interfere with the payment of the foregoing fees and
expenses by the Company.
(c) If this agreement or the transactions contemplated
hereby are terminated or abandoned (unless at such time the Purchaser or the
Sub shall be in breach in any material respect of any of its obligations or
representations and warranties hereunder) and prior to or contemporaneously
with such termination or abandonment, any corporation, partnership, person,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act)
other than the Purchaser or any of its subsidiaries or affiliates
(collectively, "Person"), shall have acquired or beneficially owns (and failed
to tender such shares) (as defined in Rule 13d-3 promulgated under the Exchange
Act) at least 33.34% of the then outstanding shares of Common Stock, then the
Company shall promptly (and in any event within 2 days of receipt by the
Company of written notice from the Purchaser) pay the Purchaser the sum of (x)
one million dollars and (y) all actual, documented out-of-pocket expenses
relating to the Offer and the Merger in an amount up to seven hundred and fifty
thousand dollars.
(d) The Company grants to the Sub an irrevocable
option (the "Option") as set forth in Exhibit B to purchase the number of
shares of Common Stock of the Company equal to 19.9% of those outstanding as of
the date hereof at a purchase price of $17.50 per share on the terms and
conditions of Exhibit B hereto.
SECTION 9.10 Certain Definitions. For purposes of this
Agreement:
(a) "Subsidiary" shall mean, when used with reference to
an entity, any corporation, a majority of the outstanding voting securities of
which are owned directly or indirectly by such entity.
(b) "Material Adverse Effect" shall mean any material
adverse change in the financial condition or results of operations of the
Company and its subsidiaries taken as a whole.
SECTION 9.11 Performance by Sub. The Purchaser hereby agrees
to cause the Sub to comply with its obligations hereunder and under the Offer
and to cause the Sub to consummate the Merger as contemplated herein.
SECTION 9.12 Publicity. So long as this Agreement is in
effect, each of the Purchaser and the Sub, on the one hand, and the Company, on
the other hand, promptly shall consult and cooperate with the other prior to
issuing any press release or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to
consultation, except as may be required by law or by obligations pursuant to
any listing agreement with any national
- 28 -
<PAGE> 30
securities exchange and except to allow internal communications with employees.
- 29 -
<PAGE> 31
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
W.H. BRADY CO.
By:/s/ Katherine M. Hudson
------------------------------
Katherine M. Hudson
Chief Executive Officer
BRADY USA, INC.
By:/s/ Katherine M. Hudson
------------------------------
Katherine M. Hudson
President
VSI ACQUISITION CO.
By:/s/ Katherine M. Hudson
------------------------------
Katherine M. Hudson
President
VARITRONIC SYSTEMS, INC.
By:/s/ Anton J. Christianson
------------------------------
Anton J. Christianson
- 30 -
<PAGE> 32
EXHIBIT A
The capitalized terms used in this Exhibit A have the meanings
set forth in the attached Agreement, except that the term "Merger Agreement"
shall be deemed to refer to the attached Agreement.
Notwithstanding any other provisions of the Offer, the Purchaser
shall not be required to accept for payment, purchase or pay for any shares of
Common Stock tendered, and may terminate or, subject to the terms of the Merger
Agreement, amend the Offer and may postpone the acceptance for payment of and
payment for shares of Common Stock, if (A) on or prior to the time at which the
Offer shall have expired (i) the number of shares of Common Stock validly
tendered and not withdrawn immediately prior to the expiration of the Offer,
when added to the shares of Common Stock then beneficially owned by the
Purchaser and its affiliates, shall not constitute two-thirds of the shares of
Common Stock outstanding on a fully diluted basis or (ii) any applicable
waiting periods under the HSR Act shall not have expired or been terminated, or
(B) at any time on or after February 28, 1996 and before the time of acceptance
for payment for any such shares of Common Stock any of the following conditions
exist or shall occur and remain in effect:
(a) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange, (ii) a declaration of
a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) a commencement of a war, armed
hostilities or other national or international calamity directly
or indirectly involving the United States, (iv) any material
limitation (whether or not mandatory) by any governmental
authority on, or any other event which might materially and
adversely affect the extension of credit by lending
institutions, or (v) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof; or
(b) there shall have been any statute, rule or
regulation enacted, promulgated, entered or enforced or deemed
applicable, or any decree, order or injunction entered or
enforced by any government or governmental authority in the
United States or by any court in the United States that (i)
restrains or prohibits the making or consummation of the Offer
or the consummation of the Merger, (ii) prohibits or restricts
the ownership or operation by the Purchaser (or any of its
affiliates or subsidiaries) of any portion of its or the
Company's business or assets which is material to the business
of all such entities taken as a whole or (iii) imposes material
limitations on the ability of the Purchaser effectively to
acquire or to hold or to exercise full
A-1
<PAGE> 33
rights of ownership of the shares of Common Stock, including,
without limitation, the right to vote the shares of Common Stock
purchased by the Purchaser on all matters properly presented to
the stockholders of the Company; provided, however, that the
Purchaser and the Sub shall have used their best efforts to have
any such decree, order or injunction vacated or reversed,
including, without limitation, by proffering their willingness
to accept an order embodying any arrangement required to be made
by the Purchaser or the Sub pursuant to Section 6.05(iii) of the
Merger Agreement (and notwithstanding anything in this
subsection (b) to the contrary, no terms, conditions or
provisions of an order embodying such an arrangement shall
constitute a basis for the Purchaser asserting nonfulfillment of
the conditions contained in this subsection (b)); or
(c) the Merger Agreement shall have been terminated in
accordance with its terms; or
(d) (i) the Company shall have breached or failed to
perform any of its covenants or agreements which breach or
failure to perform is material to the obligations of the Company
under the Merger Agreement taken as a whole, (ii) any of the
representations and warranties of the Company set forth in the
Merger Agreement shall not have been true in any respect which
is material to the Company and its subsidiaries taken as a
whole, in each case, when made or (iii) a Material Adverse
Effect has occurred, provided that the aggregate effect under
(i), (ii), and (iii) shall be in excess of $500,000; or
(e) the Board of Directors of the Company shall have
publicly withdrawn or modified in any material respect adverse
to the Purchaser its recommendation of the Offer; provided,
however, the Purchaser shall have no right to terminate the
Offer or not accept for payment or pay for any shares of Common
Stock if the Company withdraws or modifies its recommendation of
the Offer and the Merger, by reason of taking and disclosing to
the Company's stockholders a position contemplated by Rule 14e-
2(a)(2) or (3) promulgated under the Exchange Act with respect
to another proposal, and if within ten days of taking and
disclosing to its stockholders the aforementioned position, the
Company publicly reconfirms its recommendation of the Offer and
Merger and takes and discloses to the Company's stockholders a
recommendation to reject such other proposal as contemplated by
Rule 14e-2(a)(1) promulgated under the Exchange Act; or
(f) the Purchaser and the Company shall have agreed
that the Purchaser shall terminate the Offer,
A-2
<PAGE> 34
which, in the reasonable judgment of the Purchaser, makes it inadvisable to
proceed with the Offer or with such acceptance for payment or payments.
Subject to the terms and provisions of the Merger Agreement the
foregoing conditions are for the sole benefit of the Purchaser and may be
asserted by the Purchaser regardless of the circumstances giving rise to any
such condition and may be waived by the Purchaser in whole or in part, at any
time and from time to time, in the sole discretion of the Purchaser. The
failure by the Purchaser at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
A-3
<PAGE> 35
EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of February 27, 1996 by and among W.H. Brady
Co., a Wisconsin corporation ("Brady"), and Varitronic Systems, Inc., a
Minnesota corporation (the "Company").
WHEREAS, concurrently with the execution and delivery of this Agreement, the
Company, Brady, Brady USA, Inc., a Wisconsin corporation and VSI Acquisition
Co., a Minnesota corporation ("Sub"), are entering into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, upon the terms and subject to the conditions
thereof, for the merger of the Company with and into the Sub (the "Merger").
WHEREAS, as a condition to Brady's willingness to enter into the Merger
Agreement, Brady has requested that the Company agree, and the Company has so
agreed, to grant to Brady an option with respect to certain shares of the
Company's common stock, par value $.01 ("Common Stock"), on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, to induce Brady to enter into the Merger Agreement, and in
consideration of the mutual covenants and agreements set forth herein and in
the Merger Agreement, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants Brady an irrevocable
option (the "Company Option") to purchase the number of shares of Common Stock
equal to 19.9% of shares of Common Stock outstanding as of the date hereof,
subject to adjustment as provided in Section 11 (such shares being referred to
herein as the "Company Shares"), of the Company (the "Company Common Stock") in
the manner set forth below at a price (the "Exercise Price") per Company Share
of $17.50 payable in cash. Capitalized terms used herein but not defined
herein shall have the meanings set forth in the Merger Agreement.
2. Exercise of Option. The Company Option may be exercised by
Brady, in whole or in part, at any time or from time to time until the Company
Option expires. In the event Brady wishes to exercise the Company Option,
Brady shall deliver to the Company a written notice (an "Exercise Notice")
specifying the total number of Company Shares it wishes to purchase. Each
closing of a purchase of Company Shares (a "Closing") shall occur at a place,
on a date and at a time designated by Brady in an Exercise Notice delivered at
least two business days prior to the date of
<PAGE> 36
the Closing. The Company Option shall terminate upon the earlier of the Merger
pursuant to the Merger Agreement or December 31, 1996. Notwithstanding the
foregoing, the Company Option may not be exercised if Brady is in material
breach of any of its material representations or warranties, or in material
breach of any of its covenants or agreements, contained in this Agreement or in
the Merger Agreement. Upon the giving by Brady to the Company of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, Brady shall
be deemed to be the holder of record of the Company Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Company Shares shall not
then be actually delivered to Brady.
3. Conditions to Closing. The obligation of the Company to issue
the Company Shares to Brady hereunder is subject to the conditions, which may
be waived by the Company in its sole discretion, that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the Company Shares
hereunder shall have been terminated; (ii) all material consents, approvals,
orders or authorizations of, or registrations, declarations or filings with,
any federal state or local administrative agency or commission or other federal
state or local governmental authority, if any, required in connection with the
issuance of the Company Shares hereunder shall have been obtained or made, as
the case may be, and (iii) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. Closing. At any Closing, (a) the Company will deliver to Brady
or its designee a single certificate in definitive form representing the number
of the Company Shares designated by Brady in its Exercise Notice, such
certificate to be registered in the name of Brady and to bear the legend set
forth in Section 12, and (b) Brady will deliver to the Company the aggregate
purchase price for the Company Shares so designated by wire transfer of
immediately available funds or certified check or bank check. The Company
shall pay all expenses, and any and all United States federal, state and local
taxes and other charges that may be payable in connection with the preparation,
issue and delivery of stock certificates under this Section 4 in the name of
Brady or its designee.
5. Representations and Warranties of the Company. The Company
represents and warrants to Brady that (a) the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has the corporate power and authority to enter into this
Agreement, and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company and no other
-2-
<PAGE> 37
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or any of the transactions contemplated hereby, (c) this
Agreement has been duly executed and delivered by the Company, constitutes a
valid and binding obligation of the Company and, assuming this Agreement
constitutes a valid and binding obligation of Brady, is enforceable against the
Company in accordance with its terms, (d) the Company has taken all necessary
corporate action to authorize and reserve for issuance and to permit it to
issue, upon exercise of the Company Option, and at all times from the date
hereof through the expiration of the Company Option will have reserved,
authorized and unissued Company Shares equal to the number of Shares equal to
19.9% of the outstanding Shares of Common Stock dated hereof, such amount being
subject to adjustment as provided in Section 11, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Company
Shares to Brady upon the exercise of the Company Option, Brady will acquire the
Company Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) the execution and delivery of
this Agreement by the Company does not, and the consummation by the Company of
the transactions contemplated hereby will not, violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or lapse of time, or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under or the creation of a lien, pledge, security interest or
other encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation") of
the Company or any of its subsidiaries.
6. Representations and Warranties of Brady. Brady represents and
warrants to the Company that (a) Brady is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Brady and the consummation by Brady of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Brady and no other corporate proceedings on the part of Brady are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Brady and constitutes a
valid and binding obligation of Brady, and, assuming this Agreement constitutes
a valid and binding obligation of Company, is enforceable against Brady in
accordance with its terms.
7. Brady Put. At the request of Brady by written notice, the
Company shall repurchase from Brady the number of
-3-
<PAGE> 38
Shares specified in the put notice (the "Put") at $17.50 per share, provided
that the Put is limited to Company Shares acquired by Brady pursuant to the
Company Option. Payment shall be made by the Company to Brady in two business
days.
8. Voting of Shares. Brady shall vote any shares of capital stock
acquired by such party pursuant to this Agreement, or otherwise beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act")) as it sees fit.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date,
Brady shall not, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any Company Shares
acquired pursuant to this Agreement, other than (i) pursuant to Section 7, (ii)
in accordance with Section 9(b) or Section 10 or (iii) an assignment to an
affiliate of Brady or to carry out the Merger or the Offer pursuant to the
Merger Agreement.
(b) Permitted Sales. Brady shall be permitted to sell any
Company Shares beneficially owned by it pursuant to the Option if such sale is
made pursuant to a tender offer, exchange offer, merger, or similar
transaction.
10. Registration Rights. Brady may by written notice (the
"Registration Notice") to the Company request the Company to register under the
Securities Act all or any part of the Company Shares beneficially owned by
Brady (the "Registrable Securities") pursuant to a bona fide firm commitment
underwritten public offering (a "Permitted Offering"). The Registration Notice
shall include a certificate executed by Brady and its proposed managing
underwriter (the "Manager"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good faith
belies that, based on the then prevailing market conditions, it will be able to
sell the Registrable Securities at a per share price equal to at least 80% of
the then fair market value of such shares. The Company (and/or any person
designated by the Company) shall thereupon have the option exercisable by
written notice delivered to Brady within 10 business days after the receipt of
the Registration Notice, irrevocably to agree to purchase all or any part of
the Registrable Securities proposed to be so sold for cash at a price (the
"Option Price") of $17.50 per Share. Any such purchase of Registrable
Securities by the Company (or its designee) hereunder shall take place at a
closing to be held at the principal executive offices of the Company or at the
offices of its counsel at any reasonable date and time designated by the
Company and/or such designee in such notice within 20 business days after
delivery of such notice. Any payment for the shares to be purchased shall be
made by delivery at the
-4-
<PAGE> 39
time of such closing of the Option Price in immediately available funds.
If the Company does not elect to exercise its rights pursuant to this Section
10 with respect to all Registrable Securities, it shall use its best efforts to
effect, as promptly as practicable, the registration under the Securities Act
of the unpurchased Registrable Securities proposed to be so sold; provided,
however, that (i) neither party shall be entitled to more than an aggregate of
two effective registration statements hereunder and (ii) the Company will not
be required to file any such registration statement during any period of time
(not to exceed 40 days after such request in the case of clause (A) below or 90
days in the case of clauses (B) and (C) below) when (A) the Company is in
possession of material non-public information which it reasonably believes
would be determined to be disclosed at such time and, in the opinion of counsel
to the Company, such information would have to be disclosed if a registration
statement were filed at that time; (B) the Company is required under the
Securities Act to include audited financial statements for any period in such
registration statement and such financial statements are not yet available for
inclusion in such registration statement; or (C) the Company determines, in its
reasonable judgment, that such registration would interfere with any financing,
acquisition or other material transaction involving the Company or any of its
affiliates. The Company shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 10 to be qualified
for sale under the securities or Blue-Sky laws of such jurisdictions as Brady
may reasonably request and shall continue such registration or qualification in
effect in such jurisdiction; provided, however, that the Company shall not be
required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 10 are subject to the
condition that Brady shall provide the Company with such information with
respect to such holder's Registrable Securities, the plans for the distribution
thereof and such other information with respect to such holder as, in the
reasonable judgment of counsel for the Company, is necessary to enable the
Company to include in such registration statement all material facts required
to be disclosed with respect to a registration thereunder.
A registration effected under this Section 10 shall be effected at the
Company's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Brady, and the Company shall provide to the
underwriters such documentation (including certificates, opinions of counsel
and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings as such underwriters may reasonably require. In
connection with any such registration, the
-5-
<PAGE> 40
parties agree (i) to indemnify each other and the underwriters in the customary
manner, (ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering and (iii) to take all further
actions which shall be reasonably necessary to effect such registration and
sale (including, if the Manager deems it necessary, participating in road-show
presentations).
The Company shall be entitled to include (at its expense) additional shares
of its common stock in a registration effected pursuant to this Section 10 only
if and to the extent the Manager determines that such inclusion will not
adversely affect the prospects for success of such offering.
11. Adjustment Upon Changes in Capitalization. Without limitation
to any restriction on the Company contained in this Agreement or in the Merger
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, or the sale of Common Stock or
the grant of any option to anyone other than Brady, the type and number of
shares or securities subject to the Company Option, and the purchase price per
share provided in Section 1, shall be adjusted appropriately to restore to
Brady its rights hereunder, including the right to purchase from the Company
(or its successors) shares of Company Common Stock representing 19.9% of the
outstanding Company Common Stock for the aggregate Exercise Price calculated as
of the date of this Agreement as provided in Section 1.
12. Restrictive Legends. Each certificate representing shares of
Company Common Stock issued to Brady pursuant to the Option, shall include a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF FEBRUARY 27, 1996, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Brady shall have delivered
to the Company a copy of a letter from the staff of the Securities and Exchange
Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such legend is not required for
purposes of the Securities Act; and (ii) the reference
-6-
<PAGE> 41
to the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement
and under circumstances that do not require the retention of such reference.
In addition, such certificates shall bear any other legend as may be required
by law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. Binding Effect; No Assignment; No Third Party Beneficiaries.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the rights
or the obligations of either party hereto are assignable, except by operation
of law, or with the written consent of the other party. Nothing contained in
this Agreement, express or implied, is intended to confer upon any person other
than the parties hereto and their respective permitted assigns any rights or
remedies of any nature whatsoever by reason of this Agreement. Any Shares sold
by Brady in compliance with the provisions of Section 10 shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement.
14. Specific Performance. The parties recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate or
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
15. Entire Agreement. This Agreement, the Confidentiality Agreement
and the Merger Agreement (including the exhibits and schedules thereto)
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and thereof.
16. Further Assurances. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary or in order to consummate the transactions contemplated hereby.
-7-
<PAGE> 42
17. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith the execution and delivery of an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law,
the intent of the parties hereto with respect to such provision and the
economic effects thereof. If for any reason any such court or regulatory
agency determines that Brady is not permitted to acquire the full number of
shares of Company Common Stock provided in Section 1 hereof (as the same may be
adjusted), it is the express intention of the Company to allow Brady to acquire
or to require the Company to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof. Each party agrees
that, should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith, or not take any action required
herein, the other party shall not be entitled to specific performance of such
provision or part hereof or to any other remedy, including but not limited to
money damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
18. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, or (ii)
sent by reputable overnight courier service, or (iii) telecopies (which is
confirmed), or (iv) five days after being mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
-8-
<PAGE> 43
A. If to Brady, to:
W.H. Brady Co.
6555 West Good Hope Road
Milwaukee, WI 53223
Attention: Donald P. DeLuca
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202-4497
Attention: Conrad G. Goodkind, Esq.
B. If to the Company, to:
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, MN 55926
Attention: Raymond F. Good
with a copy to:
Best & Flanagan
4000 First Bank Place
601 Second Avenue South
Minneapolis, MN 44502-2371
Attention: James C. Diracles, Esq.
19. Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of Minnesota
applicable to agreements made and to be performed within such State.
20. Interpretation. When a reference is made in this Agreement to a
Section such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of
which, taken together, shall constitute one and the same instrument.
-9-
<PAGE> 44
22. Expenses. Except as otherwise expressly provided herein or in
the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
23. Amendments; Waiver. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in
the case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
24. Extension of Time Periods. The time periods for exercise of
certain rights under the Agreement shall be extended to the extent necessary to
avoid any liability under Section 16(b) of the Exchange Act by reason of such
exercise.
25. Replacement of Company Option. Upon receipt by the Company of
evidence reasonably satisfactory to it on the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, the Company will execute and deliver a new
Agreement of like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
W.H. BRADY CO.
By: /s/ Katherine M. Hudson
---------------------------
Name: Katherine M. Hudson
---------------------
Title: President
--------------------
VARITRONIC SYSTEMS, INC.
By: /s/ Anton J. Christianson
--------------------------
Anton J. Christianson
-10-
<PAGE> 1
EXHIBIT (C)2(I)
SEVERANCE PAY AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of December, 1995 by and
between ("Employee") and Varitronic Systems, Inc., a Minnesota corporation
("VSI").
RECITALS
WHEREAS, Employee is currently employed by VSI; and
WHEREAS, by a VSI Compensation Committee resolution dated December 1, 1995,
the Board of Directors of VSI has agreed, in light of the importance to VSI of
Employee's continued and diligent service, to make severance payments to
Employee in the event of the termination of Employee's employment under certain
conditions; and
WHEREAS, Employee and VSI desire to establish the terms of such severance
pay;
AGREEMENT
NOW, THEREFORE, in consideration of the recitals stated above and
incorporated herein and the mutual promises and covenants made herein, the
parties hereby agree as follows:
1. Severance Pay. (a) In the event of a Change of Control, as defined
below:
(i) if the Employee is not retained or hired by the surviving or
acquiring corporation, or, if retained or hired by such corporation,
Employee is Involuntarily Terminated, as defined below, within twenty-four
(24) months, then Employee shall be entitled to severance pay in an amount
equal to one and one-half (1 1/2) times Annual Base Salary, as defined
below, in effect as of the date of the Change of Control;
(ii) if the Employee is retained or hired by such corporation but
Employee is Constructively Terminated, as defined below, within twenty-four
(24) months after the Change of Control, Employee shall be entitled to
severance pay equal to one and one-half (1 1/2) times Annual Base Salary in
effect as of the date of the Change of Control; and
(iii) if the transaction closes before June 30, 1996 and the Employee
elects to voluntarily terminate employment within thirty (30) days after
the Change of Control, Employee shall be entitled to severance pay in an
amount equal to one (1) times Annual Base Salary in effect as of the date
of the Change of Control.
(b) Employee shall receive the amount of severance pay in one of the two
following manners at the election of the Employee made as of the date of this
Agreement:
(i) A lump sum payment paid thirty (30) days after termination; or
(ii) Equal monthly payments beginning thirty (30) days after
termination and continuing for eighteen (18) months if the Employee is
receiving 1.5 times Annual Base Salary; or for twelve (12) months if the
Employee is receiving 1 times Annual Base Salary.
It is the intention of the parties that the severance payments under this
paragraph shall not constitute "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, and any
regulations thereunder. If the independent accountants acting as auditors for
VSI on the date of a Change of Control (or another accounting firm designated by
them) determine that the severance payments under this Agreement may constitute
"excess parachute payments," the payments shall be reduced to the maximum amount
which may be paid without the payments being "excess parachute payments." The
determination shall take into account (i) whether the payments are "parachute
payments" under Section 280G and, if so, (ii) the amount of payments under the
Agreement that constitutes reasonable compensation under Section 280G.
<PAGE> 2
(c) Employee shall also receive medical coverage, dental coverage and life
insurance coverage at the same amounts and level as of the date of employment
termination for a period of equal to the period of severance pay specified
above. (Subject to payment by the employee of the same portion of the premiums
for any such benefits previous paid.)
(d) For the purposes of this paragraph, a Change of Control is defined to
include the following transactions if the then current Board of Directors of VSI
determines that such transaction is a Change of Control within the intent of
this Agreement: (1) a merger or other combination in which VSI's shareholders
own less than a majority of the outstanding stock of the surviving corporation,
(2) a sale of all or substantially all of VSI's assets, or (3) the acquisition
of a majority of VSI's outstanding stock by a single person or a group acting in
concert.
(e) For the purposes of this paragraph, "Involuntarily Terminated" is
defined to mean termination without Cause, as defined below.
(f) For the purposes of this paragraph, "Constructively Terminated" is
defined as: (1) a reduction in Annual Base Salary of more than 10% when compared
with Annual Base Salary in effect immediately prior to the Change of Control;
(2) a significant diminution in authority or responsibility; (3) a requirement
to involuntarily relocate more than fifty (50) miles from the Employee's current
location; or (4) a significant increase in travel requirement resulting in the
Employee being required to travel outside the Twin Cities metropolitan area at
least 25% more often than for the comparable period immediately prior to the
Change of Control.
(g) For the purposes of this paragraph, Cause is defined to include, but is
not limited to, the following:
(1) Unreasonable neglect, absenteeism, incompetence, or
insubordination;
(2) Dishonesty, fraud, or breach of trust in connection with the
affairs of VSI;
(3) Conviction of any felony, gross misdemeanor, or misdemeanor, other
than a minor traffic offense;
(4) Death;
(5) Physical or mental disability of Employee which renders Employee
unable to perform the essential functions of Employee's position after
reasonable accommodation; or
(6) Breach of any of the material terms or conditions contained in any
employment contract between Employee and VSI.
VSI shall act reasonably and in good faith in determining whether cause exists,
and a finding of cause by VSI shall be conclusive for all purposes, precluding
any remedy of Employee at law or equity.
(h) For the purposes of this paragraph, "Annual Base Salary" is defined to
mean the base compensation rate of Employee not including incentive compensation
or fringe benefits. Fringe benefits shall include medical, life and disability
insurance, 401K contributions, current non-cash compensation received by the
Employee, and other current fringe benefits provided by VSI to the Employee.
2. Non-Competition. (a) In consideration for the severance pay provided in
Section 1 above, Employee agrees that during the term this Agreement is in
effect, and for a period of eighteen (18) months (or for twelve (12) months if
the Employee is receiving one (1) times Annual Base Salary) thereafter, Employee
shall not (i) compete with either VSI or the surviving or acquiring corporation
in any way which provides a product, process, system or service which is the
same as or similar to or competes with, or has a usage allied to, a product,
process, system or service of VSI, whether as owner, partner, shareholder,
director, officer, employee, or consultant, in the United States or (2) solicit
other employees of VSI or the surviving or acquiring corporation to become
employed by another employer.
(b) In the event Employee is offered employment by the acquiring or
surviving corporation, but Employee declines to accept such employment, the
noncompete agreement described in paragraph (a) above shall apply.
2
<PAGE> 3
(c) The parties recognize that money damages would not be an adequate
remedy to VSI for breach of the foregoing covenant and agree that in the event
of breach of such covenant VSI is entitled to seek additional judicial relief,
including, but not limited to, restraining orders, injunctions, and an
accounting. Employee agrees to pay all costs of VSI, including reasonable
attorneys' fees, incurred in securing enforcement of the foregoing covenant.
3. Enforcement Costs. Employee and VSI agree to pay all costs of the other,
including reasonable attorneys' fees, incurred in securing enforcement of any
breach of this Agreement.
4. Interpretation. This Agreement constitutes the entire agreement between
the parties on the subject matter hereof and supersedes any prior oral or
written agreements between the parties. This Agreement can be modified only by a
writing signed by both parties. This Agreement shall be interpreted in
accordance with the laws of the State of Minnesota. This Agreement is binding
upon, and shall inure to the benefit of, each of the parties and their
respective heirs, representatives, successors and assigns.
5. Venue. Any disputes arising under or related to this Agreement shall be
under the sole and exclusive jurisdiction of the Hennepin County State District
Court located in Minneapolis, Minnesota.
<TABLE>
<S> <C>
- -------------------------------------------- VARITRONIC SYSTEMS, INC.
Employee By
-----------------------------------------
Its
-----------------------------------------
</TABLE>
3
<PAGE> 4
EXHIBIT (C)2(II)
SEVERANCE PAY AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of December, 1995 by and
between Jody Grams ("Employee") and Varitronic Systems, Inc., a Minnesota
corporation ("VSI").
RECITALS
WHEREAS, Employee is currently employed by VSI; and
WHEREAS, by a VSI Compensation Committee resolution dated December 1, 1995,
the Board of Directors of VSI has agreed, in light of the importance to VSI of
Employee's continued and diligent service, to make severance payments to
Employee in the event of the termination of Employee's employment under certain
conditions; and
WHEREAS, Employee and VSI desire to establish the terms of such severance
pay;
AGREEMENT
NOW, THEREFORE, in consideration of the recitals stated above and
incorporated herein and the mutual promises and covenants made herein, the
parties hereby agree as follows:
1. Severance Pay. (a) In the event of a Change of Control, as defined
below:
(i) if the Employee is not retained or hired by the surviving or
acquiring corporation, or, if retained or hired by such corporation,
Employee is involuntarily terminated within twenty-four (24) months, then
Employee shall be entitled to severance pay in an amount equal to one
(1) time annual base salary calculated as of the time of the Change of
Control; or
(ii) if the Employee is retained or hired by such corporation and such
Employee is Constructively Terminated, as defined below, within twenty-four
(24) months after the Change of Control, Employee shall be entitled to
severance pay equal to three-quarters (.75) times annual base salary
calculated as of the time of the Change of Control.
(b) Employee shall receive the amount of severance pay in one of the two
following manners at the election of the Employee made as of the date of this
Agreement:
(i) A lump sum payment paid thirty (30) days after termination; or
(ii) Equal monthly payments beginning thirty (30) days after
termination and continuing for 12 months if the Employee is receiving 1
times annual base salary or 9 months if the Employee is receiving .75 times
annual base salary.
It is the intention of the parties that the severance payments under this
Section shall not constitute "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended, and any
regulations thereunder. If the independent accountants acting as auditors for
VSI on the date of a Change of Control (or another accounting firm designated by
them) determine that the severance payments under this Agreement may constitute
"excess parachute payments," the payments may be reduced to the maximum amount
which may be paid without the payments being "excess parachute payments." The
determination shall take into account (i) whether the payments are "parachute
payments" under Section 280G and, if so, (ii) the amount of payments under the
Agreement that constitutes reasonable compensation under Section 280G.
(c) Employee shall also receive medical coverage, dental coverage and life
insurance coverage at the same amounts and level as of the date of employment
termination for a period equal to the period of severance pay specified above.
(Subject to payment by the employee of the same portion of the premiums for any
such benefits previous paid.)
<PAGE> 5
(d) For the purposes of this paragraph, a Change of Control is defined to
include the following transactions if the then current Board of Directors of VSI
determines that such transaction is a Change of Control within the intent of
this Agreement: (1) a merger or other combination in which VSI's shareholders
own less than a majority of the outstanding stock of the surviving corporation,
(2) a sale of all or substantially all of VSI's assets, or (3) the acquisition
of a majority of VSI's outstanding stock by a single person or a group acting in
concert.
(e) For the purposes of this paragraph, "Involuntarily Terminated" is
defined to mean termination without Cause, as defined below.
(f) For the purposes of this paragraph, "Constructively Terminated" is
defined as: (1) a reduction in Annual Base Salary of more than 10% when compared
with Annual Base Salary in effect immediately prior to the Change of Control;
(2) a significant diminution in authority or responsibility; (3) a requirement
to involuntarily relocate more than fifty (50) miles from the Employee's current
location; or (4) a significant increase in travel requirement resulting in the
Employee being required to travel outside the Twin Cities metropolitan area at
least 25% more often than for the comparable period immediately prior to the
Change of Control.
(g) For the purposes of this paragraph, Cause is defined to include, but is
not limited to, the following:
(1) Unreasonable neglect, absenteeism, incompetence, or
insubordination;
(2) Dishonesty, fraud, or breach of trust in connection with the
affairs of VSI;
(3) Conviction of any felony, gross misdemeanor, or misdemeanor, other
than a minor traffic offense;
(4) Death;
(5) Physical or mental disability of Employee which renders Employee
unable to perform the essential functions of Employee's position after
reasonable accommodation; or
(6) Breach of any of the material terms or conditions contained in any
employment contract between Employee and VSI.
VSI shall act reasonably and in good faith in determining whether cause exists,
and a finding of cause by VSI shall be conclusive for all purposes, precluding
any remedy of Employee at law or equity.
(h) For the purposes of this paragraph, "Annual Base Salary" is defined to
mean the base compensation rate of Employee not including incentive compensation
or fringe benefits. Fringe benefits shall include medical, life and disability
insurance, 401K contributions, current non-cash compensation received by the
Employee, and other current fringe benefits provided by VSI to the Employee.
2. Non-Competition. (a) In consideration for the severance pay provided in
Section 1 above, Employee agrees that during the term this Agreement is in
effect, and for a period of one (1) year (or for nine (9) months if the Employee
is receiving three-quarters times annual base salary) thereafter, Employee shall
not (i) compete with either VSI or the surviving or acquiring corporation in any
way which provides a product, process, system or service which is the same as or
similar to or competes with, or has a usage allied to, a product, process,
system or service of VSI, whether as owner, partner, shareholder, director,
officer, employee, or consultant, in the United States or (ii) solicit other
employees of VSI or the surviving or acquiring corporation to become employed by
another employer.
(b) In the event Employee is offered employment by the acquiring or
surviving corporation, but Employee declines to accept such employment, the
noncompete agreement described in paragraph (a) above shall apply.
(c) The parties recognize that money damages would not be an adequate
remedy to VSI for breach of the foregoing covenant and agree that in the event
of breach of such covenant VSI is entitled to seek additional judicial relief,
including, but not limited to, restraining orders, injunctions, and an
accounting.
2
<PAGE> 6
Employee agrees to pay all costs of VSI, including reasonable attorneys' fees,
incurred in securing enforcement of the foregoing covenant.
3. Interpretation. This Agreement constitutes the entire agreement between
the parties on the subject matter hereof and supersedes any prior oral or
written agreements between the parties. This Agreement can be modified only by a
writing signed by both parties. This Agreement shall be interpreted in
accordance with the laws of the State of Minnesota. This Agreement is binding
upon, and shall inure to the benefit of, each of their parties and their
respective heirs, representatives, successors and assigns.
4. Venue. Any disputes arising under or related to this Agreement shall be
under the sole and exclusive jurisdiction of the Hennepin County State District
Court located in Minneapolis, Minnesota.
<TABLE>
<S> <C>
- --------------------------------------------- VARITRONIC SYSTEMS, INC.
Employee
By
---------------------------------------------
Its
---------------------------------------------
</TABLE>
3
<PAGE> 1
EXHIBIT (C)3
BROWN, GIBBONS, LANG & COMPANY, L.P.
INVESTMENT BANKERS
<TABLE>
<S> <C>
1111 SUPERIOR AVENUE, SUITE 900 225 WEST WASHINGTON STREET, 9TH FLOOR
CLEVELAND, OHIO 44114 CHICAGO, ILLINOIS 60606
(216) 241-2800 (312) 658-1600
TELECOPIER (216) 241-7417 TELECOPIER (312) 368-1988
</TABLE>
January 5, 1996
Mr. Scott F. Drill
Varitronic Systems, Inc.
300 Interchange North
300 Highway 169 South
Minneapolis, MN 55426
Dear Scott:
This will confirm the understanding and agreement between Brown, Gibbons,
Lang & Company, L.P. (BGL) and Varitronic Systems, Inc. ("Varitronic" or the
"Company") as follows:
1. The Company hereby engages BGL to act as exclusive financial
advisor to the Company (together with its affiliates, subsidiaries,
successors, properties and principals, the "Company") in connection with a
potential Transaction involving the Company. For purposes hereof, a
"Transaction" shall mean, whether in one or a series of transactions, the
sale or other transfer, directly or indirectly, of all or a substantial
portion of the assets or securities of the Company or any other
extraordinary corporate transaction involving the Company, whether by way
of a merger or consolidation, reorganization, recapitalization or
restructuring, negotiated purchase, minority investment or partnership,
collaborative venture or otherwise, or any combination of the
aforementioned.
2. BGL hereby accepts the engagement described in paragraph 1 and, in
that connection, agrees to:
(a) review the business and operations of the Company and its
historical and projected financial condition and results of operations;
(b) assist the Company in the preparation and negotiation of any
confidentiality agreement to be entered into by third parties in
connection with a Transaction;
(c) assist the Company in presentations, discussions, due diligence
and negotiations relating to a Transaction;
(d) only if so specifically instructed by the Board of Directors of
the Company in writing, identify potential parties to a transaction
(other than W. H. Brady Co.) and contact such parties and/or their
representatives on behalf of the Company, and assist the Company in the
preparation of a confidential information package describing the Company
and its operations;
(e) advise the Company as to the timing, structure and pricing of a
Transaction;
(f) provide such other financial advisory and investment banking
services as are customary for similar transactions and as may be
mutually agreed upon by the Company and BGL;
(g) keep and maintain all non-public information which BGL receives
concerning the Company confidential, limit its disclosure internally
only to those employees who have been appropriately admonished
concerning its confidential nature and have a need to know, use it or
disclose it to third parties only as contemplated by this agreement or
as required by law, and return
<PAGE> 2
to Varitronic or destroy, upon request, all writings or other tangible
materials furnished to BGL containing such information and,
(h) BGL will (i) render an opinion, in such form as it shall
consider appropriate (if requested by the Company, such opinion shall be
in writing) as to the fairness, from a financial point of view, to the
Company's common stockholders of the consideration to be received by
such stockholders in the Possible Transaction or (ii) advise the Board
of Directors that it is unable to render such an opinion due to the
inadequacy of such consideration.
3. As compensation for BGL's services hereunder, the Company hereby
agrees to pay BGL the following fees:
(a) A retainer fee of $50,000 to BGL will be due upon execution of
this Agreement. This retainer fee will be fully credited against the
transaction fee payable in section 3(b) hereof.
(b) A transaction fee (the "Transaction Fee") equal to a percentage
of the Transaction Value (as defined immediately below):
5% (five percent) of the first $1 million, plus
4% (four percent) for the second $1 million, plus
3% (three percent) for the third $1 million, plus
2% (two percent) for the fourth $1 million, plus
1% (one percent) of the amount in excess of $4 million up to $40
million, plus
2.5% (two point five percent) of the Transaction Value in excess of
$40 million,
payable in cash promptly upon consummation of a Transaction if, during the term
of this agreement or within 12 months thereafter, a Transaction is consummated
or definitive agreement is entered into that subsequently results in a
Transaction.
"Transaction Value" shall mean the total proceeds and other consideration
paid or received in connection with a Transaction (which consideration shall be
deemed to include amounts in escrow), including, without limitation: (i) cash,
(ii) notes, securities and other property; (iii) the present value of any
payments made in installments; (iv) the present value of any amounts payable
under consulting agreements, agreements not to compete or similar arrangements
entered into in connection with a Transaction (including such payments to
management); (v) the present value of any contingent payments (whether or not
related to future earnings or operations); and (vi) if the Transaction involves
the disposition of assets, the net value of current assets not sold. In addition
to the foregoing, Transaction Value shall also include the value of any equity
interest retained by any of the current owners of the Company. For purposes of
computing any fees payable to BGL hereunder, non-cash consideration shall be
valued as follows: (x) publicly traded securities shall be valued at the average
of their bid/ask closing prices (as reported in The Wall Street Journal) for the
five trading days prior to the closing of the Transaction and (y) any other
non-cash consideration shall be valued at the fair market value thereof as
determined in good faith by the Company and BGL.
4. In addition to any fees that may be payable to BGL hereunder (and
regardless for whether a Transaction occurs), the Company hereby agrees from
time to time upon request to reimburse BGL promptly for travel and other
out-of-pocket expenses incurred by BGL in performing its services hereunder,
including, without limitation, the reasonable fees and expenses of its legal
counsel.
5. Recognizing that BGL's role is advisory, the Company agrees to indemnify
and hold harmless BGL, its affiliates and their respective officers, directors,
employees, agents and controlling persons (collectively, the "Indemnified
Parties"), from and against any losses, claims, damages and liabilities, joint
or several, related to or arising in any manner out of any transaction, proposal
or any other matter (collectively, the "Matters") contemplated by the engagement
of BGL hereunder, and will promptly reimburse the Indemnified Parties for all
expenses (including fees and expenses of legal counsel) as incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim related to or rising in any manner out of the engagement of
BGL hereunder, or any action or proceeding arising therefrom (collectively,
"Proceedings"), as whether or not such Indemnified Party is a formal party to
any such Proceeding. Notwithstanding the
2
<PAGE> 3
foregoing, the Company shall not be liable in respect of any losses, claims,
damages, liabilities or expenses that a court of competent jurisdiction shall
have determined by final judgment resulted solely from the gross negligence or
willful misconduct (including breach of contract) of an Indemnified Party. The
Company further agrees that it will not, without the prior written consent of
BGL, settle, compromise or consent to the entry of any judgment in any pending
or threatened Proceeding in respect of which indemnification may be sought
hereunder (whether or not BGL and each other Indemnified Party hereunder from
all liability arising out of such Proceeding).
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims, damages
and liabilities in such proportion as is appropriate to reflect the relative
benefits to the Company and its stockholders on the one hand, and BGL on the
other, in connection with the Matters to which such relative benefits but also
the relative faults of such parties as well as any other equitable
considerations. It is hereby agreed that the relative benefits to the Company
and/or its stockholders and to BGL with respect to BGL's engagement shall be
deemed to be in the same proportion as (i) the total value paid or received or
to be paid or received by the Company and/or its stockholders pursuant to the
Matters (whether or not consummated) for which BGL is engaged to render
financial advisory services bears to (ii) the fees paid to BGL in connection
with such engagement. In no event shall the Indemnified Parties contribute or
otherwise be liable for an amount in excess of the aggregate amount of fees
actually received by BGL pursuant to such engagement (excluding amounts received
by BGL as reimbursement of expenses).
The indemnity, reimbursement and contribution obligations of the Company
shall be in addition to any liability which the Company may otherwise have and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange
Act of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of this letter or BGL's engagement and (iv) whether or
not BGL shall, or shall not be called upon to, render any formal or informal
advice in the course of such engagement.
6. (a) The Company recognizes and confirms that BGL, in acting pursuant to
this engagement, will be using information in reports and other information
provided by others, including without limitation, information provided by or on
behalf of the Company, and BGL does not assume responsibility for and may relay,
without independent verification, on the accuracy and completeness of any such
reports and information. The Company hereby warrants that any information
relating to the Company that is furnished to BGL by or on behalf of the Company
will be fair, accurate and complete and will not contain any material omissions
or misstatements of fact. The Company agrees that any information or advice
rendered by BGL or its representatives in connection with this engagement is for
the confidential use of the Company's Board of Directors only in its evaluation
of a Transaction and, except as otherwise required by law, the Company will not
and will not permit any third party to disclose or otherwise refer to such
advice or information in any manner without BGL's prior written consent.
(b) The Company agrees that, at all times during the Engagement, the
Company will give BGL (i) notice of any material development affecting the
Company as soon as reasonably practicable, but not later than the time at which
an announcement of any such development is released to the general public or any
other party, (ii) copies of any financial reports as soon as reasonably
practicable, but not later than the earliest time the Company makes the same
available to others, and (iii) such other information concerning the business
and financial condition of the Company as BGL may from time to time reasonably
request.
3
<PAGE> 4
7. The Company agrees that after the closing of a Transaction, BGL has the
right to place advertisements in financial and other newspapers and journals at
its own expense describing its services to the Company hereunder.
8. Subject to the provisions of paragraphs 2(g), 3 (but only for the period
provided in 3(b)), 4, 5 and 6(a) which shall survive any termination of this
Agreement, either BGL or the Company may terminate BGL's engagement hereunder at
any time without cause by giving the other party at least 10 days' prior written
notice of termination.
9. We understand and you agree, that there are not brokers, representatives
or other persons which have an interest in compensation due BGL from this
transaction.
10. This Agreement may not be amended or modified except in writing. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio, regardless of the laws that might otherwise govern under
applicable principles for conflicts of law thereof.
11. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersedes any prior oral or
written agreements or understandings.
If the foregoing correctly sets forth the understanding and agreement between
BGL and the Company, please so indicate in the space provided for that purpose
below, whereupon this letter shall constitute a binding agreement.
BROWN, GIBBONS, LANG & CO. L.P.
BY: /s/ WILLIAM R. NORTON
--------------------------------------------------------
William R. Norton
Senior Vice President
AGREED:
BY: /s/ SCOTT F. DRILL
--------------------------------------------------------
Scott F. Drill
Chairman, President and Chief Executive Officer
Varitronic Systems, Inc.
Date: January 5, 1996
-------------------------------------------------------
4
