<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C> <C>
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
VALLEY NATIONAL GASES INCORPORATED
--------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
<TABLE>
<S> <C> <C>
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated
and state how it was determined):
------------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
VALLEY NATIONAL GASES [LOGO]
VALLEY NATIONAL GASES INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
VALLEY NATIONAL GASES INCORPORATED
The Annual Meeting of the Shareholders of Valley National Gases
Incorporated, a Pennsylvania corporation (the "Company"), will be held at the
Pittsburgh Airport Marriott Hotel, Parkway West-Montour Run Exit, 100 Alten
Road, Coraopolis, Pennsylvania 15108, on Tuesday, October 28, 1997, commencing
at 9:00 a.m., Pittsburgh time, for the following purposes:
1. To elect one director;
2. To transact such other business, if any, as properly may be brought
before the meeting.
The close of business on September 16, 1997 has been designated as the
record date for the determination of Shareholders entitled to notice of and to
vote at the Annual Meeting or any adjournments thereof.
By order of the Board of Directors,
/s/ JOHN R. BUSHWACK
John R. Bushwack, Secretary
Wheeling, West Virginia
September 26, 1997
A PROXY FOR THE ANNUAL MEETING IS ENCLOSED HEREWITH. EVEN THOUGH YOU MAY
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, DATE AND EXECUTE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY. A POSTAGE-PAID RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE.
<PAGE> 3
VALLEY NATIONAL GASES INCORPORATED
67 43RD STREET
WHEELING, WEST VIRGINIA 26003
------------------------
PROXY STATEMENT
SEPTEMBER 26, 1997
------------------------
This proxy statement is furnished to the holders of Common Stock of Valley
National Gases Incorporated (the "Company") in connection with the solicitation
of proxies for use in connection with the Annual Meeting of the Shareholders
(the "Annual Meeting") to be held at the Pittsburgh Airport Marriott Hotel,
Parkway West-Montour Run Exit, 100 Alten Road, Coraopolis, Pennsylvania 15108,
on October 28, 1997 at 9:00 a.m., Pittsburgh time, and all adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of the Shareholders. Only holders of record of the Company's
Common Stock at the close of business on September 16, 1997 will be entitled to
vote at the Annual Meeting. Such holders are hereinafter referred to as the
"Shareholders." The Company is first mailing this proxy statement and the
enclosed form of proxy to Shareholders on or about September 26, 1997.
Whether or not you expect to be present in person at the meeting, you are
requested to complete, sign, date and return the enclosed form of proxy, and the
shares represented thereby will be voted in accordance with your instructions.
If you attend the meeting, you may vote by ballot. If you do not attend the
meeting, your shares of Common Stock can be voted only when represented by a
properly executed proxy.
Any person giving such a proxy has the right to revoke it at any time
before it is voted by giving written notice of revocation to the Secretary of
the Company, by duly executing and delivering a proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
The close of business on September 16, 1997 has been fixed as the record
date for the determination of the Shareholders entitled to vote at the Annual
Meeting. As of the record date, 9,620,084 shares of Common Stock were
outstanding and entitled to be voted at the Annual Meeting, with 98 holders of
record. Shareholders will be entitled to cast one vote on all matters for each
share of Common Stock held of record on the record date.
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended June 30, 1997 accompanies this proxy statement.
The solicitation of this proxy is made by the Board of Directors of the
Company. The solicitation will be by mail and the expense thereof will be paid
by the Company. In addition, proxies may be solicited by telephone, telefax or
other means, or personal interview, by directors, officers or regular employees
of the Company.
1
<PAGE> 4
ELECTION OF DIRECTORS
(ITEM 1 ON FORM OF PROXY)
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of
office of each class ending in successive years. At the Annual Meeting, one
director of the Company is to be elected for a term expiring at the Annual
Meeting in 2000, or until his successor has been elected and has qualified.
Certain information with respect to the nominee for election as a director
proposed by the Company and the other directors whose terms of office as
directors will continue after the Annual Meeting is set forth below. The nominee
and each of the directors has served in his principal occupation for the last
five fiscal years, unless otherwise indicated. Should the nominee be unable or
unwilling to serve (which is not expected), the proxies (except proxies marked
to the contrary) will be voted for such other person as the Board of Directors
of the Company may recommend.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME, AGE, PRINCIPAL OCCUPATION OR POSITION, OTHER DIRECTORSHIPS SINCE
- ----------------------------------------------------------------------------------- ---------
<S> <C>
TO BE ELECTED FOR TERM ENDING IN 2000:
Stanley M. Johnson, 47
Mr. Johnson has been a partner in the law firm of Bryan Cave LLP, New York, New
York, since 1991. Mr. Johnson received a B.A. degree in history from St. Benedict
College, a J.D. degree from Saint Louis University and D.E.A. degree in French
corporate law from the University of Paris.
TO CONTINUE IN OFFICE UNTIL 2000:
Ben Exley, IV, 50.................................................................. 1997
Mr. Exley was elected a Director of the Company in January 1997. He has served as
the President of Ohio Valley-Clarksburg, Inc. and Bailey Drug Company since 1993,
both of which are pharmaceutical distributors and wholly-owned subsidiaries of
Cardinal Health Inc. Mr. Exley has also served on the board of directors of
several companies, including BankOne West Virginia N.A. since 1994, BankOne
Wheeling-Steubenville N.A. since 1991 and Stone & Thomas, a chain of clothing
department stores, since 1991. Mr. Exley is a graduate of West Virginia Wesleyan
University with a Bachelor of Science degree in Business Administration. He also
holds a Masters in Business Administration degree from Northern Illinois
University.
William A. Indelicato, 58.......................................................... 1997
Mr. Indelicato was elected a Director of the Company in January 1997. Mr.
Indelicato has been President of ADE Vantage, Inc., a business consulting firm
which provides certain services to the Company, since July 1992. From 1988 to
1991, Mr. Indelicato served as General Business Director of Union Carbide
Industrial Gases Inc. Mr. Indelicato is also an associate professor of strategic
management at Pace University in New York. Mr. Indelicato received his Bachelor
of Science degree in Electrical Engineering from the University of Notre Dame and
his Masters in Business Administration from Pace University.
August Maier, 68................................................................... 1997
Mr. Maier was elected a Director of the Company in January 1997. In September
1997, Mr. Maier became an employee of the Company and now serves as Corporate
Director of Field Operations. He served as Chief Executive Officer of Houston
Fearless 79, a manufacturer of film processing equipment, from May 1995 until
August 1997. From October 1987 to May 1995, Mr. Maier was Chief Executive officer
of Holox, Inc., a manufacturer and distributor of industrial gases and welding
equipment, which is wholly owned by Hoeklos Ltd. of Holland. Mr. Maier received
his Bachelor of Science degree in Mechanical Engineering from the Indiana
Institute of Engineering and his Masters in Business Administration degree from
the Harvard Business School.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME, AGE, PRINCIPAL OCCUPATION OR POSITION, OTHER DIRECTORSHIPS SINCE
- ----------------------------------------------------------------------------------- ---------
<S> <C>
TO CONTINUE IN OFFICE UNTIL 1999:
Lawrence E. Bandi, 43.............................................................. 1997
Mr. Bandi has served as President and Chief Executive Officer of the Company
since March 1995 and April 1991, respectively, and as a director of Valley
National Gases, Inc. since March 1984. Mr.Bandi has held various other positions
with the Company since joining it in 1974. Mr. Bandi is a Director of the Ohio
Valley Industrial and Business Development Corporation, a private corporation
established for the purpose of attracting various business entities to West
Virginia. Mr. Bandi received his Bachelor of Science degree in Accounting from
Wheeling College and his Masters in Business Administration degree from Wheeling
Jesuit College.
R. Bruce Kraemer, 52............................................................... 1997
Mr. Kraemer was elected a Director of the Company in January 1997. He was the
owner of Reading Supplies Inc., a distributor of pipe, valves and fittings, until
its sale in June 1996. Mr. Kraemer was President of Weldco, Inc. from 1985 to
October 1996 and a sales representative of Weldco, Inc. from 1966 to 1985.
Weldco, Inc. was acquired by the Company in October 1996. Mr. Kraemer received a
degree from the Ohio College of Applied Sciences.
TO CONTINUE IN OFFICE UNTIL 1998:
Gary E. West, 60................................................................... 1997
Mr. West has served as Chairman of the Board of Directors of the Company or
Valley National Gases, Inc. since 1984. From 1970, when he purchased the Company,
to March 1995 Mr.West served as President of Valley National Gases, Inc. Mr.West
is primarily responsible for the growth and success of the Company. Mr. West has
also served as President of West Rentals, Inc. and Equip Lease Corp. and Vice
President of Acetylene Products Corp. since 1992, 1988 and 1985, respectively.
See "Certain Relationships and Related Transactions." Since June 1993, he has
served as a director of WesBanco Wheeling, and since June 1990 he has served as a
director of H.E. Newmann Co., a plumbing, heating and mechanical contracting
company. Mr. West received his Bachelor of Science degree in Business
Administration from West Liberty State College.
John R. Bushwack, 46............................................................... 1997
Mr. Bushwack has served as the Executive Vice President, the Chief Operating
Officer and a Director of the Company since January 1997. From 1991 to 1996, Mr.
Bushwack served in various positions with the Company, including Executive Vice
President of Sales and Acquisitions, Vice President of Sales and Acquisitions,
Vice President of Sales and General Manager. From 1987 to 1990, Mr. Bushwack
served as President of the Harvey Company, a gas distributor, and from 1990 to
1991 he served as Vice President and Director of Linde Gases of the Great Lakes,
also a gas distributor. In addition, Mr.Bushwack has been a Director of
Convenient Care Products Group, Ltd., a division of Westmoreland Health System,
since 1991.
James P. Hart, 43.................................................................. 1997
Mr. Hart was elected a Director of the Company in January 1997. He has been Vice
President and Chief Financial Officer of Industrial Scientific Corporation
("ISC"), a manufacturer of portable instruments used for detecting and monitoring
a variety of gases, since August 1994. From March 1984 to August 1994, Mr. Hart
was Treasurer and Controller of ISC. Mr. Hart holds a Bachelor of Science degree
in Accounting from Scranton University.
</TABLE>
COMMON STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND OFFICERS
The following table sets forth information regarding the amount of the
outstanding Common Stock as of September 19, 1997 beneficially owned by each
director and nominee, the Chief Executive Officer and the two
3
<PAGE> 6
other most highly compensated executive officers of the Company (each a "Named
Executive Officer") and all of the directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING(1)
- --------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Gary E. West................................................... 7,000,000(2) 72.8
Lawrence E. Bandi.............................................. 90,046 *
John R. Bushwack............................................... 34,829 *
William A. Indelicato.......................................... 78,866 *
Ben Exley, IV.................................................. 1,600 *
James P. Hart.................................................. 1,000 *
R. Bruce Kraemer............................................... 100,000 1.0
August E. Maier................................................ 2,000 *
Stanley M. Johnson............................................. -- --
All directors and executive officers as a group (9 persons).... 7,313,140 76.0
</TABLE>
- ---------
* Represents beneficial ownership of less than one percent.
(1) Percentages are determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(2) Gary E. West beneficially owns and controls the shares indicated through six
grantor retained annuity trusts.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to each
person known to the Company to be the beneficial owner of more than 5% of the
Company's outstanding Common Stock as of September 19, 1997:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
- ---------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Gary E. West(2)................................................. 7,000,000 72.8
</TABLE>
- ---------
(1) Percentages are determined in accordance with Rule 13d-3 under the Exchange
Act.
(2) Mr. West's address is c/o Valley National Gases Incorporated, 67 43rd
Street, Wheeling, West Virginia 26003. His shares are beneficially owned and
controlled through six grantor retained annuity trusts.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met four times during fiscal 1997. Each incumbent
director attended at least 75% of the meetings of the Board and committees on
which he served during 1997.
The Board of Directors has an Executive Committee, an Audit and Finance
Committee, and a Nominating and Compensation Committee, all of which were formed
in January 1997. The Executive Committee, of which Messrs. West, Bandi and
Indelicato are members, met five times in the past fiscal year. The Audit and
Finance Committee, of which Messrs. Hart, Bushwack, Kraemer and Maier are
members, met two times in the past fiscal year. This committee is responsible
for recommending a public accounting firm to be retained for the coming year and
reviews the work to be done by such firm and the adequacy of the Company's
internal controls. The Nominating and Compensation Committee, consisting of
Messrs. West, Indelicato and Exley, establishes and oversees the compensation
policies of the Company and determines executive compensation. The committee
held four meetings in the past fiscal year. See "Compensation Committee Report
on Executive Compensation."
4
<PAGE> 7
DIRECTOR COMPENSATION
The Company pays each director a $1,000 fee for each Board meeting attended
and a $500 fee for each Committee meeting attended. Directors are also
reimbursed for certain reasonable expenses incurred in attending meetings.
Officers of the Company do not receive any additional compensation for serving
the Company as members of the Board of Directors or any of its Committees.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Gary E. West....................... 60 Chairman of the Board of Directors
Lawrence E. Bandi.................. 43 President and Chief Executive officer
John R. Bushwack................... 46 Executive Vice President, Chief Operating Officer
and Secretary
Robert D. Scherich................. 37 Chief Financial Officer
</TABLE>
For more information about Messrs. West, Bandi and Bushwack, please see the
appropriate description under the above caption "Nominees and Continuing
Directors."
Robert D. Scherich, Chief Financial Officer. Mr. Scherich has served as the
Company's Chief Financial Officer since May 1996. From January 1993 to April
1996, he served as Controller and General Manager of Wheeling Pittsburgh Steel
Corporation, a subsidiary of WHX Corporation, and from January 1988 to December
1993 he served as Division Controller of such corporation. Mr. Scherich was an
accountant with Ernst & Whinney from 1981 to 1984. Mr. Scherich received a
Bachelor of Science degree in Accounting from Pennsylvania State University and
is a Certified Public Accountant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC"). Directors, executive officers and greater than
ten percent beneficial shareholders are required by SEC regulation to furnish
the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, or written representations from certain reporting persons that no
Forms 5 were required for these persons, the Company believes that all its
directors, executive officers and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during its fiscal year ended June 30, 1997.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information for the fiscal
year ended June 30, 1997 concerning the compensation paid and awarded to each of
the Named Executive Officers during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) ($)(3)
- --------------------------- ---- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gary E. West............... 1997 $ 61,428 $ 125,000 -- -- $9,712
Chairman
Lawrence E. Bandi.......... 1997 $ 96,238 $ 128,631 -- -- $9,712
President and Chief
Executive Officer
John R. Bushwack........... 1997 $ 127,572 $ 46,500 -- -- $9,712
Executive Vice President
and Chief Operating Officer
</TABLE>
- ---------
(1) Includes bonuses received in the reported year. The payment of bonuses is at
the discretion of the Nominating and Compensation Committee of the Board of
Directors.
(2) The Company has not included in the Summary Compensation Table the value of
incidental personal perquisites furnished by the Company to the Named
Executive Officers since such value did not exceed the lesser of $50,000 or
10% of the total of annual salary and bonus reported for any of such Named
Executive Officers.
(3) Represents contributions made by the Company on behalf of the Named
Executive Officers under the Company's 401(k) Plan during fiscal 1997.
STOCK OPTION AWARDS.
The following table presents certain information concerning stock options
granted during fiscal 1997 to each of the Named Executive Officers. The exercise
price for all of the grants of stock options was the fair market value of the
Common Stock on the dates of grant as determined by the Nominating and
Compensation Committee of the Board of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE $
SHARES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION FOR
GRANTED FISCAL YEAR ($/SH) DATE OPTION TERM(2)
---------- ------------ -------- ---------- -----------------------
NAME 5% 10%
- ----------------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary E. West................. -- -- -- -- -- --
Lawrence E. Bandi............ 42,000 28% 8.00 4/10/97 $211,300 $535,500
John R. Bushwack............. 25,000 17% 8.00 4/10/07 130,800 331,500
</TABLE>
- ---------
6
<PAGE> 9
(1) Represents qualified stock options granted pursuant to the Company's 1997
Stock Option Plan. For a description of the terms of such stock options, see
"--Benefit Plans--1997 Stock Option Plan" below.
(2) As required by the rules of the SEC, potential values are stated based on
the prescribed assumptions that Common Stock will appreciate in value from
the date of grant to the end of the option term at the indicated rates
(compounded annually) and therefore are not intended to forecast possible
future appreciation, if any, in the price of Common Stock.
BENEFIT PLANS
1997 Stock Option Plan. The Company adopted the 1997 Stock Option Plan (the
"Plan") in February 1997. The Plan provides for the issuance of options to
purchase up to 650,000 shares of Common Stock to key employees, officers and
directors of the Company and is administered by the Nominating and Compensation
Committee of the Board of Directors.
In fiscal 1997, the Company granted Lawrence E. Bandi, John R. Bushwack and
each of the five independent directors options to purchase 42,000, 25,000 and
5,000 shares, respectively, of the Common Stock. Except in the case of Messrs.
Bandi and Bushwack, the options vest three years after the date of the grant and
have a term of ten years. In the case of Messrs. Bandi and Bushwack, 12,500
options vest two years after the date of grant and 12,500 options (or the
balance of the options granted) vest on each subsequent anniversary until all of
such options have vested. The options are exercisable at a price equal to the
fair market value of the shares of Common Stock on the date of the grant. In the
case of key employees and officers, unexercised options granted under the Plan
are subject to forfeiture upon termination of employment for any reason other
than death, disability or normal retirement.
401(k) Plan. The Company has a qualified 401(k) savings and retirement plan
(the "401(k) Plan"). Eligibility to participate in the 401(k) Plan requires an
employee to have been employed with the Company for twelve months ("Eligible
Employees"). The 401(k) Plan allows Eligible Employees to defer into their plan
account a certain dollar amount or stated percentage of their salary, not to
exceed statutorily mandated annual limits (the "Employee Contributions").
Eligible Employees are 100% vested in their Employee Contributions. The Company
makes an annual contribution (the "Company Contribution") to all Eligible
Employees' plan account in an amount equal to 5% of their salary or wages.
Company Contributions vest over a term of seven years. The Company also makes a
determination each year based upon performance as to the amount, if any, of
additional contributions to be made to Eligible Employees' plan accounts. If a
determination is made to make additional contributions in any year, such amounts
are contributed on a pro rata basis to the plan accounts of Eligible Employees
who made voluntary contributions during such year. Distributions under the
401(k) Plan may be made at retirement, death, permanent disability or other
termination of employment, in a lump sum.
CERTAIN AGREEMENTS WITH EXECUTIVE OFFICERS
Lawrence E. Bandi and John R. Bushwack have entered into agreements with
the Company whereby the Company has agreed to pay each of them, or their
respective beneficiaries, certain death, disability and/or retirement benefits
provided that they are employed with the Company until their respective
retirements or death, and that with respect to retirement benefits, they do not
thereafter compete with the Company. In the event of the death or retirement of
Mr. Bandi or Mr. Bushwack, the Company is obligated to make payments of $2,000
and $1,000 per month, respectively, for eighty-four months. In the event of
disability, the Company is obligated to make payments of $2,000 and $1,000 per
month, respectively, for the duration of the disability, but not after 65 years
of age.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For a description of certain transactions involving Messrs. West and
Indelicato, see "Certain Relationships and Related Transactions."
7
<PAGE> 10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Nominating and Compensation Committee of the Board of Directors, which is
comprised of two non-employee directors and one employee director. The
Nominating and Compensation Committee works with management to develop
compensation plans for the Company and is responsible for determining the
compensation of each executive officer and recommending such compensation to the
Board of Directors. The Nominating and Compensation Committee was established in
January 1997 in anticipation of the Company's initial public offering.
Accordingly, the year ending June 30, 1998 will be the first fiscal year for
which such committee performs its duties. Executive compensation for prior years
was determined by Messrs. West and Bandi and approved by the full Board of
Directors.
The Company's executive compensation program is designed to align executive
compensation with the Company's business objectives and the executive's
individual performance and to enable the Company to attract, retain and reward
executive officers who contribute, and are expected to continue to contribute,
to the Company's long-term success. In establishing executive compensation, the
Committee is guided by the following principles: (i) the total compensation
payable to executive officers should be sufficiently competitive with the
compensation paid by competitive companies for officers in comparable positions
so that the Company can attract and retain qualified executives and (ii)
individual compensation should include components which reflect both the
financial performance of the Company and the performance of the individual.
The compensation of the Company's executive officers consists of a
combination of base salary, bonuses and equity-based compensation. In general,
the Company's compensation program attempts to limit increases in salaries and
favors bonuses based on revenues, operating profit and individual merit. The
Nominating and Compensation Committee believes that executive compensation
should be designed to motivate executives to increase shareholder value and
further believes that executive officers can best increase shareholder value by
managing the revenues and operating profit of the Company and by conceiving,
developing and positioning the leading products and services in the Company's
chosen markets.
Compensation payments in excess of $1 million to the Chief Executive
Officer or other executive officers are subject to a limitation of deductibility
for the Company under Section 162(m) of the Internal Revenue Code of 1986, as
amended. Certain performance-based compensation is not subject to the limitation
on deductibility. The Committee does not expect cash compensation to its Chief
Executive Officer or any other executive officer in the foreseeable future to be
in excess of $1 million.
BASE SALARY
The Nominating and Compensation Committee will set the base salary for
executives at the beginning of each fiscal year, based upon a review of the
salaries for comparable positions in companies in the Company's industry, the
historical compensation levels of the Company's executives and the individual
performance of the executives in the preceding year. Base salary for fiscal 1997
was set by Messrs. West and Bandi based upon similar criteria and approved by
the full Board of Directors.
MERIT BONUS PROGRAM
Each year the Nominating and Compensation Committee intends to adopt
management incentive plans for the executive officers, which reflect the
Committee's belief that a portion of each executive officer's compensation
should be tied to the achievement by the Company of its revenue and profit goals
and balance sheet performance objectives, and by each executive officer of his
individual objectives as determined by the Nominating and Compensation
Committee. Merit bonus goals based on the fiscal 1997 operating plan were
determined by Messrs. West and Bandi and approved by the Board of Directors at
the beginning of the fiscal year based upon similar criteria. In addition, the
plans for fiscal 1997 prescribed adjustments in the merit bonus goals based upon
the Company's actual operating profit. Quarterly, and at the end of the year,
the Board of Directors allocated merit bonuses to individual executives based on
the executive's performance relative to his or her performance objectives.
8
<PAGE> 11
STOCK-BASED COMPENSATION
Awards of stock options under the Company's stock option plan are designed
to closely tie the long-term interests of the Company's executives and its
shareholders and to assist in the retention of executives. The Nominating and
Compensation Committee selects the executive officers, if any, to receive stock
options and determines the number of shares subject to each option. However, all
grants of stock options are ultimately authorized by the Company's Board of
Directors. The Nominating and Compensation Committee's determination of the size
of option grants is generally intended to reflect an executive's position with
the Company and his or her contributions to the Company. Options generally have
a three-year vesting period to encourage key employees to continue in the employ
of the Company. The Compensation Committee reviews the outstanding unvested
options of the key executives from time to time and may grant additional options
to encourage the retention of key executives. Options for 67,000 shares were
granted to executive officers in fiscal 1997 to reward the executive officers
for their performance in fiscal 1996 and to establish appropriate incentives for
these key executives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's compensation generally is based on the same
policies and criteria as the other executive officers.
******
The foregoing report is provided by the following directors, who were
members of the Nominating and Compensation Committee on June 30, 1997:
Gary E. West
William A. Indelicato
Ben Exley, IV
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<PAGE> 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WELDCO, INC.
On October 11, 1996, the Company purchased substantially all of the assets
of Weldco, Inc. ("Weldco") pursuant to a Purchase and Sale Agreement dated as of
September 27, 1996 among the Company, Weldco and certain other persons (the
"Weldco Purchase Agreement"). R. Bruce Kraemer, a director of the Company, was
the principal shareholder of Weldco. Approximately $7.9 million of the purchase
price was paid by the delivery of the Company's promissory notes. Under the
Weldco Purchase Agreement, Weldco (or its shareholders following liquidation)
had the right, in the event of an initial public offering of the Company's
Common Stock, to convert a portion of the indebtedness evidenced by the
Company's promissory notes to shares of the Company's Common stock based upon
the initial public offering price of the Common Stock. Under this provision,
Weldco had the right to receive 350,000 shares of the Common Stock in exchange
for the cancellation of indebtedness in the amount of $2,800,000. In connection
with the Company's initial public offering, the Company and Weldco agreed that
rather than issuing 350,000 shares to Weldco, the Company would prepay
$1,720,000 under the Company's promissory notes and issue 135,000 shares of
Common Stock to Weldco (or its shareholders) immediately prior to the closing of
the offering. Certain shareholders of Weldco purchased 100,000 shares of Common
Stock in the offering. The Weldco Purchase Agreement further grants Weldco (or
its shareholders) the right to cause the Company to purchase shares of Common
Stock issued to Weldco (or its shareholders) pursuant to the conversion of
indebtedness. Such right is required to be exercised, if at all, within three
years following the closing of the initial public offering based upon the
initial public offering price plus interest from the date of issuance at the
rate of 6.6% per annum. This right applies to 235,000 shares of the Common
Stock.
WEST RENTALS, INC.
The Company leases 41 buildings from West Rentals, Inc., a West Virginia
corporation ("West Rentals"), 35 of which are leased pursuant to a Master Lease
Agreement (the "Master Lease") and six of which are leased pursuant to
pass-through subleases. Gary E. West, the Company's Chairman of the Board, is
the sole shareholder of West Rentals. The Master Lease terminates on July 31,
2007 and may be renewed for an additional five-year term. Currently, the Company
pays an aggregate of $151,623 a month to West Rentals as rent for all real
property leased. In addition, the Company pays all utility bills and fees as
well as all property and local taxes on the real property leased from West
Rentals. The Company also rents cylinders and trailers from West Rentals and
currently pays approximately $7,860 a month to West Rentals for such rentals.
Employees of the Company provide occasional construction, maintenance and
clerical related services to West Rentals. The Company bills West Rentals for
such services on an hourly basis. Aggregate expenditures by the Company under
the Master Lease and for rental of cylinders and trailers was approximately
$1,623,390 for the fiscal year ended June 30, 1997. The Company believes that
the amounts it has paid for rental of real property, cylinders and trailers have
not been less favorable than could have been obtained in arms-length
transactions with unaffiliated third parties.
ACETYLENE PRODUCTS CORP.
On December 31, 1996, the Company terminated an oral take-or-pay agreement
with Acetylene Products Corp. ("APC"), whose shareholders are all directors,
officers or employees of the Company. The agreement obligated the Company to
purchase a minimum quantity of acetylene on an annual basis regardless of
whether it accepted delivery of the acetylene. During fiscal 1997, the Company
paid APC $104,616. The Company also leases approximately 1,400 square feet of
space located in Wheeling, West Virginia from APC for use as an employee
training center at a cost of $700 per month. The lease has a one year term
expiring in October 1998. The Company believes that the current arrangements
with APC are not less favorable than could be obtained in arms-length
transactions with unaffiliated third parties.
INDELICATO CONSULTING ARRANGEMENT
William A. Indelicato, a director of the Company, provides consulting
services to the Company concerning all aspects of the Company's acquisition
program. Until June 30, 1997, these services were provided pursuant to a
consulting agreement (the "Prior Consulting Agreement") under which, in return
for his services, the Company
10
<PAGE> 13
accrued "credits" for Mr. Indelicato in amounts based upon hours worked and
hourly rates that varied depending upon criteria related to each particular
acquisition. Mr. Indelicato had the right to redeem accrued credits for cash at
any time within seven years from the date of accrual. The amount of the accrued,
unredeemed credits was adjusted proportionately following the end of each fiscal
year based upon the increase (but not any decrease) in the Company's net worth
since the end of the last fiscal year. In addition, Mr. Indelicato had the
right, in connection with a public offering of the Common Stock, to exchange all
or a portion of his accrued credits (excluding credits accrued for annual
adjustments) for shares of Common Stock based on the book value per share of
Common Stock as of the end of the fiscal year for which the credits were
accrued, in which case the accrued credits for annual adjustments would be
cancelled. Mr. Indelicato exchanged all the accrued credits for 96,366 shares of
Common Stock in connection with the Company's initial public offering, of which
30,000 shares were sold in the offering. Pursuant to the Prior Consulting
Agreement, the Company also retained ADE Vantage, Inc. ("ADE"), a consulting
company wholly-owned by Mr. Indelicato, to support Mr. Indelicato in providing
consulting services. The Company paid Mr. Indelicato a monthly retainer fee of
$1,000 and reimbursed his out-of-pocket expenses related to the performance of
services. Payments to Mr. Indelicato and ADE for fiscal 1997 totaled $183,986.
The Prior Consulting Agreement was terminated on June 30, 1997, and replaced
with a new agreement effective July 1, 1997. The new agreement provides for a
monthly retainer fee of $4,000, reimbursement of out-of-pocket expenses related
to the performance of services, and a variable payment for each acquisition
completed in an amount based primarily upon the purchase price and the annual
sales of the business acquired. In addition, the Company retains ADE to provide
consulting services. This agreement has a one year term, is renewable each year
for one year and can be terminated by either party giving ninety day notice.
EQUIPLEASE, CORP.
EquipLease Corp. ("EquipLease"), a corporation wholly-owned by Gary E.
West, rents its one airplane to the Company at an hourly rate of $220. The
Company paid a total of $87,100 to EquipLease for rental of the airplane during
fiscal 1997. The Company believes that the arrangements with EquipLease have not
been less favorable than could have been obtained in arms-length transactions
with unaffiliated third parties.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph sets forth a comparison for the period beginning April
10, 1997 (the date the Company's Common Stock began trading on the Nasdaq
National Market) and ending June 30, 1997, of the cumulative total return on a
$100.00 investment in the Company's Common Stock, based on the market price of
the Common Stock, with the cumulative total return, assuming reinvestment of
dividends, on an investment of $100.00 for the same period in companies on the
Nasdaq Stock Market (U.S.) and on the Index. The indices are included for
comparative purposes only. They do not necessarily reflect management's opinion
that such indices are an appropriate measure of the relative performance of the
Company's Common Stock and are not intended to forecast or be indicative of
future performance of the Common Stock.
<TABLE>
<CAPTION>
Measurement Period Valley National S&P Chemicals
(Fiscal Year Covered) Gases Inc. S&P 500 Index Composite
--------------------- --------------- ------------- -------------
<S> <C> <C> <C>
10 April 97 100 100 100
June 97 131.25 117.10 117.40
</TABLE>
VOTING
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock entitled to vote which are present in person or
represented by proxy at the 1997 Annual Meeting is required to elect the
director and to act on any other matters properly brought before the meeting.
Shares represented by proxies which are marked "withhold authority" with respect
to the election of the nominee for election as a director and proxies which are
marked to deny discretionary authority on other matters will be counted for the
purpose of determining the number of shares represented by proxy at the meeting.
Such proxies will thus have the same effect as if the shares represented thereby
were voted against such nominee and against such other matters, respectively. If
a broker indicates on the proxy that it does not have discretionary authority as
to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter. If no
specification is made on a duly executed proxy, the proxy will be voted FOR the
election of the director nominated by the Board of Directors and in the
discretion of the persons named as proxies on such other business as may
properly come before the meeting or any adjournment or postponement thereof.
The Company knows of no other matters to come before the meeting. However,
if any other matters properly come before the meeting or any postponement or
adjournment thereof, the proxies solicited hereby will be voted on such matters
in accordance with the judgment of the persons voting such proxies.
12
<PAGE> 15
SHAREHOLDER PROPOSALS
Proposals of Shareholders intended to be presented at the 1998 Annual
Meeting must be received by the Company by April 28, 1998 for inclusion in the
Company's proxy statement and proxy relating to that meeting. Upon receipt of
any such proposal, the Company will determine whether or not to include such
proposal in the proxy statement and proxy in accordance with regulations
governing the solicitation of proxies.
In order for a Shareholder to nominate a candidate for director, under the
Company's Bylaws, timely notice of the nomination must be given to the Company
in advance of the meeting. Ordinarily, such notice must be given not less than
60 nor more than 90 days before the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, then the Shareholder must give such notice not earlier
than 90 days prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement of such meeting is first
made. In certain cases, notice may be delivered later if the number of directors
to be elected to the Board of Directors is increased. The Shareholder filing the
notice of nomination must describe various matters as specified in the Company's
Bylaws, including such information as name, address, occupation, and number of
shares held.
In order for a Shareholder to bring other business before a Shareholder
meeting, timely notice must be given to the Company within the time limits
described above. Such notice must include a description of the proposed
business, the reasons therefor and other matters specified in the Company's
Bylaws. The Board or the presiding officer at the Annual Meeting may reject any
such proposals that are not made in accordance with these procedures or that are
not a proper subject for Shareholder action in accordance with applicable law.
These requirements are separate from and in addition to the requirements a
Shareholder must meet to have a proposal included in the Company's proxy
statement.
In each case the notice must be given to the Secretary of the Company,
whose address is 67 43rd Street, Wheeling, West Virginia 26003. Any Shareholder
desiring a copy of the Company's Restated Articles of Incorporation, as amended,
or Bylaws will be furnished a copy without charge upon written request to the
Secretary.
MISCELLANEOUS
Even if you plan to attend the meeting in person, please complete, sign,
date and return the enclosed proxy promptly. Should you attend the meeting, you
may revoke the proxy and vote in person. A postage-paid, return-addressed
envelope is enclosed for your convenience. No postage need be affixed if mailed
in the United States. Your cooperation in giving this your immediate attention
will be appreciated.
By Order of the Board of Directors
/s/ JOHN R. BUSHWACK
John R. Bushwack, Secretary
Wheeling, West Virginia
September 26, 1997
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<PAGE> 16
ANNEX A
FORM OF PROXY
[FRONT]
VALLEY NATIONAL GASES INCORPORATED
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Gary E. West and Lawrence E. Bandi, or
either of them, the true and lawful attorneys in fact, agents and proxies of
the undersigned to represent the undersigned at the Annual Meeting of the
Shareholders of VALLEY NATIONAL GASES INCORPORATED (the "Company") to be held
on Tuesday, October 28, 1997, commencing at 9:00 a.m., Pittsburgh time, at the
Pittsburgh Marriott Airport Hotel, Parkway West-Montour Run Exit, 100 Alten
Road, Coraopolis, Pennsylvania, and at any postponement or adjournment of said
meeting, and to vote all the shares of Common Stock of the Company standing on
the books of the Company in the name of the undersigned as specified below and
in the discretion of any such person on such other business as may properly
come before the meeting and any postponement or adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF SAID NOMINEE AS DIRECTOR AND IN
THE DISCRETION OF THE PROXIES ON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Please sign as registered and return promptly in the enclosed envelope
to: Valley National Gases Incorporated, ___________________________.
(continued and to be signed on reverse side)
X FOLD AND DETACH HERE X
<PAGE> 17
[BACK]
MARK CHOICE AS INDICATED IN THIS EXAMPLE [X]
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
1. Election of One Director
FOR NOMINEE LISTED (EXCEPT AS MARKED TO THE CONTRARY) [ ]
WITHHOLD AUTHORITY TO VOTE FOR NOMINEE LISTED [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME ON THE LIST BELOW.)
For term expiring in 2000:
Stanley M. Johnson
The undersigned hereby acknowledges receipt of the 1997 Annual Report to
Shareholders and the Notice of said Annual Meeting and accompanying Proxy
Statement.
Dated this _______ day of _________, 1997
_________________________________________
_________________________________________
(If Stock is owned in joint names, both
owners must sign, or if owned by a
corporation, partnership or trust, this
Proxy must be signed by an authorized
officer, partner or trustee.) If the
address at left is incorrect, please
write in the correct information.
X FOLD AND DETACH HERE X
