<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VALLEN CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Leighton J. Stephenson, Secretary
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
[ ] 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:
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4) Date Filed:
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<PAGE>
[VALLEN LOGO APPEARS HERE]
13333 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 10, 1995
To the Shareholders of
Vallen Corporation:
The 1995 annual meeting of shareholders of Vallen Corporation, a Texas
corporation (the "Company"), will be held in the Fourth Floor Auditorium of
NationsBank Center, located at 700 Louisiana, Houston, Texas, on Tuesday,
October 10, 1995, at 10:00 A.M., Houston time, for the following purposes:
1. To elect a Board of Directors to serve until the next annual meeting
of shareholders and until their respective successors have been duly
elected and qualified;
2. To approve the Vallen Corporation Executive Incentive Compensation
Plan;
3. To amend the Vallen Corporation Employee Stock Purchase Plan to change
the requirements relating to age and service requirements and to make
certain other technical amendments.
4. To amend the Vallen Corporation 1993 Non-Employee Director Stock
Option Plan to increase the number of stock options granted to each non-
employee director under such plan.
5. To ratify the appointment of KPMG Peat Marwick as independent auditors
for the Company for the fiscal year ending May 31, 1996; and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record as of the close of business on August 30, 1995, are
entitled to notice of and to vote at the annual meeting.
By order of the Board of Directors,
Leighton J. Stephenson
Secretary
Dated: September 13, 1995
YOUR VOTE IS IMPORTANT. PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO
THAT YOUR SHARES CAN BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF
YOUR PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND
THE MEETING. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
[VALLEN LOGO APPEARS HERE]
13333 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement and the enclosed form of proxy are furnished on behalf
of the Board of Directors for use in connection with the annual meeting of
shareholders of Vallen Corporation (the "Company") to be held October 10, 1995,
and any and all adjournments thereof. Such solicitation is being made by mail,
commencing on or about September 15, 1995, and may also be made in person or by
telephone or telegraph by officers, directors and regular employees of the
Company. Arrangements may be made with brokerage houses or other custodians,
nominees and fiduciaries to send proxy material to their principals. All
expenses incurred in the solicitation of proxies will be borne by the Company.
Any shareholder executing a proxy may revoke it at any time before it is used
at the meeting by signing and delivering a proxy bearing a later date, by
giving notice in writing to the secretary of the Company at any time prior to
its use or by voting in person. All properly executed proxies received by the
Company and not revoked will be voted at the meeting.
Only shareholders of record of the Company's common stock ("Common Stock") at
the close of business on August 30, 1995, are entitled to notice of, and to
vote at, the meeting. At such date, 7,250,988 shares of Common Stock were
outstanding. Each share of Common Stock is entitled to one vote; shareholders
do not have the right to cumulate their votes with respect to the election of
directors. Abstentions and broker non-votes will be included in the
determination of the number of shares represented at the meeting, and will have
the same effect as a vote against a proposal.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of the
Company's common stock as of August 21, 1995, by each person who was known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, by each of the Company's directors, by each of the executive
officers listed in the Summary Compensation Table, and by all directors and
executive officers as a group. Each of the persons listed is believed to have
sole power to vote and dispose of the shares shown below, unless otherwise
noted.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
-----------------------
NUMBER PERCENTAGE
BENEFICIAL OWNER OF SHARES OF TOTAL
---------------- --------- ----------
<S> <C> <C>
Leonard J. Bruce...................................... 4,060,064 56.36%
13333 Northwest Freeway
Houston, Texas 77040
Quest Advisory Corporation/Quest Advisory Co., a
General Partnership.................................. 714,079(2) 9.91%
1414 Avenue of the Americas
New York, New York 10019
James W. Thompson..................................... 2,640 *
Robin R. Hutton....................................... 42,964 *
Leighton J. Stephenson................................ 1,155 *
Woodie M. Zachry, Jr.................................. 4,844 *
Kirby Attwell......................................... 3,250 *
J.M. Wayne Code....................................... 83,874 1.16%
Darvin M. Winick...................................... 1,900 *
Directors and Executive Officers as a Group (10
Persons).............................................. 4,201,161 58.34%
</TABLE>
--------
*Less than 1% of the outstanding common stock.
(1) Determined on the basis of 7,203,563 shares outstanding, except that shares
underlying options exercisable within 60 days are deemed outstanding for
purposes of listing the number of shares owned by the above persons and
calculating the percentage owned by holders thereof. Shares subject to such
unexercised options were 2,000, 2,000 and 4,000, respectively, for Messrs.
Attwell, Winick and directors and executive officers as a group.
(2) Information based on the most recent Schedule 13G report.
2
<PAGE>
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Although the Board of Directors consists of five members, only four directors
have been nominated by the Board of Directors for election at the meeting. The
Board of Directors intends to elect a person to fill the vacancy in the near
future. Each director will hold office until the next annual meeting of
shareholders and until his successor is duly elected and qualified. Unless
otherwise specified, all properly executed proxies received by the Company will
be voted at the annual meeting or any adjournment thereof for the election of
the nominees listed in the following table. Directors are elected by a
plurality vote. The Board of Directors believes that each nominee will be
willing and able to serve. However, if any such person is unable to serve for
good cause, or unwilling to serve for any reason, proxies will be voted for the
election of another person selected by the Company's Board of Directors.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
CURRENTLY HELD WITH THE COMPANY
(AND OTHER CURRENT DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION, IF DIFFERENT)
---- --- -------- ------------------------------------
<C> <C> <C> <S>
Leonard J. Bruce................. 75 1960 Chairman of the Board; Member,
Compensation Committee
James W. Thompson................ 44 1994 President and Chief Executive
Officer
Darvin M. Winick................. 65 1984 Member, Audit and Compensation
Committees (President of Winick
Consultants)
Kirby Attwell.................... 59 1978 Member, Audit and Compensation
Committees (President of Travis
International, Inc.)
</TABLE>
Mr. Bruce, who has 47 years of experience in safety equipment distribution,
founded the Company in 1947. He has been Chairman of the Board of Directors
since 1960.
Mr. Thompson joined the Company in June of 1994 as President and Chief
Operating Officer of Vallen Safety Supply Company. He was named President and
Chief Executive Officer in January of 1995. He was formerly employed by
Westburne Supply Company of Naperville, Illinois as Senior Group Vice
President, and prior to that he was with Westinghouse Electric Supply Company
for 18 years.
Dr. Winick has been President of Winick Consultants, or its related
management consulting firms, since 1981.
Mr. Attwell has been President of Travis International, Inc., a holding
company for specialty wholesale distribution operations, since January 1987.
The Board of Directors held six meetings during the fiscal year ended May 31,
1995. During the last fiscal year, no incumbent director attended fewer than
75% of the total number of meetings of the Board of Directors or committees on
which he served during the period for which he was a director or committee
member.
The Company has a Compensation Committee and an Audit Committee. The
Compensation Committee, which administers the Company's employee stock option
plan (without the participation of Mr. Bruce), the employee stock purchase plan
and the annual incentive compensation plan, and which makes base salary and
bonus incentive recommendations, met three times during the year ended May 31,
1995. The Audit Committee reviews the reports of the Company's independent
auditors and met once during the year ended May 31, 1995.
Each outside director of the Company is entitled to receive compensation of
$8,000 per year plus $700 for each board and committee meeting attended. Non-
employee directors also receive options under the Non-Employee Director Stock
Option Plan approved in 1993, an amendment to which is being considered at the
meeting. Details of this plan are further described under "PROPOSAL NO. 4 -
AMENDMENT OF THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN."
3
<PAGE>
MANAGEMENT COMPENSATION AND BENEFITS
SUMMARY COMPENSATION TABLE
The Summary Compensation Table includes individual compensation information
on the Chief Executive Officer and the four other most highly paid executive
officers, as well as the Company's Chief Executive Officer who retired prior to
the end of the year, for services rendered in all capacities for each of the
years in the three-year period ended May 31, 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS
--------------------------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) SARS($) COMPENSATION($)(2)
------------------ ---- --------- -------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce........ 1995 $234,000 $122,251 $ 6,918 -- $ 8,689
Chairman of 1994 234,000 -- 6,649 -- 9,240
the Board 1993 225,000 -- 6,963 -- 10,078
James W. Thompson(3).... 1995 $190,000 $122,251 $ 2,235 100,000 $ --
President and Chief
Executive Officer
Robin R. Hutton......... 1995 $137,417 $ 55,869 $ 2,126 -- $ 7,522
Executive Vice 1994 137,417 -- 2,286 21,000 14,318
President 1993 132,132 -- 2,364 -- 8,491
Leighton J.
Stephenson(4).......... 1995 $100,000 $ 50,626 $ -- 10,000 $ --
Vice President, 1994 46,218 -- -- -- --
Secretary and
Treasurer
Woodie M. Zachry, Jr.... 1995 $117,804 $ 17,165 $ 2,226 21,000 $ 4,783
Vice President and 1994 109,200 -- 2,218 -- 7,625
General Manager, 1993 105,000 30,975 2,192 -- 7,464
Encon Safety
Products, Inc.
J. M. Wayne Code(5)..... 1995 $118,386 $ -- $11,620(5) -- $ 3,219
1994 198,800 -- 4,256 -- 9,240
1993 191,000 -- 2,119 -- 7,741
</TABLE>
--------
(1) For each year, the incremental cost to the Company of personal benefits
provided to each of the executive officers did not exceed the lesser of
$50,000 or 10% of aggregate salary and bonus.
(2) The amounts shown for 1995 were accrued in respect of the Company's
payments to its profit-sharing plan and the Company's contributory funding
of the related 401(k) Plan, in which most Company employees are eligible to
participate.
(3) Mr. Thompson became President and Chief Executive Officer effective January
1, 1995 after joining the Company in June 1994.
(4) Mr. Stephenson became Vice President, Secretary and Treasurer of the
Company effective January 3, 1994.
(5) Mr. Code retired as President and Chief Executive Officer and became a non-
employee director effective December 31, 1994, receiving $9,200 in
directors' fees from January 1, 1995 through the end of the fiscal year.
4
<PAGE>
EMPLOYMENT AGREEMENT
Effective January 1, 1995, Mr. James W. Thompson was named President and
Chief Executive Officer of Vallen Corporation. When Mr. Thompson was named
President and Chief Operating Officer of Vallen Safety Supply Company in June
1994, he entered into an employment agreement that provides for a minimum base
salary of $190,000 annually; minimum bonus incentive for fiscal 1995 equal to
25% of base salary, payable 50% in cash and 50% in Common Stock; inclusion
under the Company's Annual Incentive Compensation Plan for executive officers
(as outlined under "--Report of the Compensation Committee"); and an option to
purchase 100,000 shares of Common Stock at an exercise price of $12.75 (the
closing stock price on June 6, 1994 was $11.75). The agreement also contains
provisions regarding termination of employment conditions which could result in
Mr. Thompson's being paid an amount equal to his annual base salary, or twice
his annual base salary, depending upon the conditions of termination.
STOCK OPTION GRANTS, EXERCISES AND HOLDINGS
Stock options to purchase 100,000 shares of Common Stock at an exercise price
of $12.75 and 31,000 shares of Common Stock at an exercise price of $13.00 were
granted to management level employees under the Option Plan during the year
ended May 31, 1995. Vesting of such options is dependent upon the attainment of
specific fiscal year net earnings per share levels, beginning in fiscal 1995.
However, all options that remain outstanding will vest and become exercisable
on or after February 19, 2003, whether or not the specified goals are attained.
The specified net earnings per share levels were not attained for fiscal year
1995.
Set forth below is information relating to stock options granted to or
exercised by the executive officers during the 1995 fiscal year and the number
of shares of Common Stock covered by, and the value of, outstanding stock
options held by them at May 31, 1995. At no time during the year did the
Company have any outstanding stock appreciation rights. Mr. Bruce is excluded
from the table as he did not hold any stock options during the year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------
GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
---------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James W. Thompson....... 100,000 76.4% $12.75 02/19/2003 $677,000 $1,652,043
Leighton J. Stephenson.. 10,000 7.6% $13.00 02/19/2003 $ 68,069 $ 148,666
Roland C. Wolff......... 21,000 16.0% $13.00 02/19/2003 $130,347 $ 312,200
</TABLE>
--------
(1) Options are exercisable for any fiscal year after 1993 as follows, (subject
to vesting at February 19, 2003 as set forth above):
(a) 1/3 of shares subject to option when the Company reports earnings per
common share of at least $1.20, as adjusted for stock dividends or
splits.
(b) An additional 1/3 of shares subject to option when the Company reports
earnings per common share of at least $1.40, as adjusted for stock
dividends or splits.
(c) The remaining 1/3 of shares subject to option when the Company reports
earnings per common share of at least $1.60, as adjusted for stock
dividends or splits.
5
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES COVERED BY VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED MAY 31, 1995 MAY 31, 1995(2)
ON VALUE ------------------------- -------------------------
NAME(1) EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James W. Thompson....... -- $-- -- 100,000 $-- $400,000
Robin R. Hutton......... -- -- -- 21,000 -- 21,000
Woodie M. Zachry, Jr.... -- -- -- 21,000 -- 21,000
Leighton J. Stephenson.. -- -- -- 10,000 -- 37,500
Roland C. Wolf.......... -- -- -- 21,000 -- 78,750
</TABLE>
--------
(1) All options held by Mr. Code expired upon his retirement on December 31,
1994.
(2) The amounts shown on the differences between the per share stock option
exercise prices and the closing price of Company common stock on June 1,
1995 of $16.75 per share as reported by The NASDAQ Stock Market, multiplied
by the number of shares covered by the unexercised stock options.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is composed of two
outside directors and the Company's Chairman and majority shareholder. The
Compensation Committee establishes compensation policies for its executive
officers, and the two outside directors grant and set the terms of awards under
the Company's stock option plan.
Compensation Philosophy. The Company seeks to retain, motivate and reward
executives by providing short and long-term compensation that is tied to
achievement of shareholder value and Company performance objectives. During the
year ended May 31, 1995, the executive compensation program consisted of base
salary, an annual incentive plan based upon achievement of return-on-
shareholders'-equity objectives and Company stock options awarded in current
and prior years. In addition, bonuses for executives and certain key employees
were awarded taking into consideration the Company's overall performance for
the year, including return on average shareholder equity, increase in net
sales, and increase in earnings per common share. The Compensation Committee
does not assign specific weights to any of the factors it considers when
determining the Company's overall performance for the year.
The Compensation Committee takes into account various quantitative and
qualitative indicators of corporate and individual performance in determining
the level of compensation of its executive officers. While the Compensation
Committee considers such corporate performance measures as net income, earnings
per common share, return on average common stockholders' equity and return on
average total assets, the Compensation Committee generally does not apply any
specific, quantitative formula in making decisions as to base compensation.
Increases in the base compensation of particular executive officers may vary
within a target range as defined for specific positions, or may, on occasion,
be outside the target range, depending upon the Compensation Committee's
evaluations of the individual's work performance.
Executive Compensation. Because of the financial success of the Company for
the year ended May 31, 1995, the Compensation Committee granted to the
executive officers of the Company bonuses payable fifty percent in shares of
Common Stock and fifty percent in cash. In awarding the bonuses, the Company
evaluated annual quantitative criteria based upon gross profits, net income and
earnings per shares, as well as qualitative factors relating to each officer's
individual job performance.
The Company's executive officers, including its Chief Executive Officer, were
eligible to participate in the Annual Incentive Compensation Plan (the "Old
Incentive Plan"). Under the Old Incentive Plan, an "annual award pool" for each
year is established in an amount equal to twenty percent of the portion of net
income in excess of the net income required to achieve a fifteen percent return
on average equity. Each officer
6
<PAGE>
was awarded a percentage of the annual award pool for the year, which
percentage may be set by the Compensation Committee initially during the plan
year, and thereafter may be increased by the Compensation Committee upon
completion of the year. Fifty percent of each participant's award would be paid
in a single cash payment after the end of the applicable fiscal year. The
remaining fifty percent of each participant's award would be paid in the form
of Company common stock. No amounts were accrued for the Old Incentive Plan for
the 1995 fiscal year, since the fifteen percent return on average equity was
not met. Subsequent to the end of the fiscal year, the Old Incentive Plan has
been terminated by the Board of Directors, and a new Executive Incentive
Compensation Plan has been adopted, subject to shareholder approval (See
PROPOSAL NO. 2--ADOPTION OF EXECUTIVE INCENTIVE COMPENSATION PLAN).
The Compensation Committee believes that the grant of stock options to its
executives aligns the interests of the executives with the interests of the
shareholders by providing a direct correlation between an increase in
shareholder value and executive compensation. The Compensation Committee
(without the participation of Mr. Bruce, who does not serve on the committee
which administers the Stock Option Plan) periodically grants and sets the terms
of stock option awards. Options were granted during the year ended May 31, 1995
as shown under "Option Grants in Last Fiscal Year."
Chief Executive Officer Compensation. The Compensation Committee determines
the compensation of James W. Thompson, the President and Chief Executive
Officer, in substantially the same manner as the compensation of the other
executive officers of the Company. In particular, the Compensation Committee
recognized Mr. Thompson's important role in significantly increasing the
Company's net sales and net earnings over the prior year, and in initiating
several acquisition transactions that closed subsequent to the year end.
Pursuant to his employment agreement, Mr. Thompson received an annual base
salary of $190,000 and an option to purchase 100,000 shares of Common Stock. In
addition, in accordance with the compensation philosophy and process described
above, the Compensation Committee awarded Mr. Thompson a bonus consisting of
$51,887 in cash and 2,440 shares of Common Stock. Because of Mr. Thompson's
leadership contributions to the Company, this bonus exceeded the minimum bonus
level of twenty-five percent of annual base salary provided for in Mr.
Thompson's employment agreement.
THE COMPENSATION COMMITTEE
Kirby Attwell, Chairman
Leonard J. Bruce
Darvin Winick
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bruce, who is a member of the Compensation Committee, is the Company's
Chairman of the Board.
7
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG VALLEN CORPORATION,
INDUSTRY INDEX* AND MEDIA GENERAL COMPOSITE INDEX**
[IN THE PROXY STATEMENT SENT TO SECURITY HOLDERS, A LINEAR GRAPH PLOTTED FROM
THE POINTS IN THE TABLE BELOW APPEARS HERE.]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
---------------------------------------
1990 1991 1992 1993 1994 1995
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Vallen Corp............................. 100 125.39 106.31 81.78 64.06 89.96
Industry Index*......................... 100 99.07 96.29 122.07 136.33 134.57
Broad Market**.......................... 100 108.98 119.67 134.98 134.57 163.66
</TABLE>
ASSUMES $100 INVESTED ON MAY 31, 1990
ASSUMES DIVIDEND REINVESTED
* This index consists of machinery, equipment and supplies distributors from
Standard Industry Code #508, and has been prepared by and is available from
Media General Financial Services, P. O. Box 85333, Richmond, VA 23293.
** The Media General Composite Index is a broad market index of 7,000 NASDAQ,
NYSE and AMEX issues.
8
<PAGE>
PROPOSAL NO. 2--ADOPTION OF EXECUTIVE INCENTIVE COMPENSATION PLAN
The Board of Directors of the Company has adopted the Executive Incentive
Compensation Plan (the "Incentive Plan") to be effective June 1, 1995, subject
to shareholder approval. A copy of the Incentive Plan is included in this Proxy
Statement as Annex A. The following discussion is a summary only and reference
is made to Annex A for a complete description of the Incentive Plan.
The purpose of the Incentive Plan is to serve as an incentive in attracting
and retaining personnel for positions of responsibility and to provide key
employees with an additional incentive to contribute to the success of the
Company. The Incentive Plan is administered by a committee comprised of the
outside directors who serve on the Compensation Committee, Messrs. Attwell and
Winick (the "Committee"). No member of the Committee is eligible to participate
in the Incentive Plan while a member of the Committee or during the year prior
to appointment thereto.
The individuals who are eligible to participate in the Incentive Plan are
such executive officers and key employees of the Company and its subsidiaries
as may be determined from time to time by the Committee. In order to be
allocated an award under the Incentive Plan, a participant must be employed by
the Company or a subsidiary on the date on which allocations are made by the
Committee as discussed below. For the year ending May 31, 1996, the Committee
has named Messrs. Bruce, Thompson and Stephenson as the participants in the
Incentive Plan.
Under the Incentive Plan, the "annual award pool" for each year will be an
amount equal to the sum of (i) a percentage of the increase in earnings per
share for the current year over the prior year multiplied by the weighted
average number of outstanding shares, (ii) a percentage of that portion of net
income for the year in excess of net income required to achieve a designated
return on shareholder equity, and (iii) an amount sufficient to pass on to
participants the tax benefits that would otherwise accrue to the Company as a
result of payments under the Incentive Plan. The percentages of the increases
in earnings per share net income that are to be contributed to the annual award
pool, as well as the designated return on shareholder equity referred to in
clause (ii) above, shall be established by the Committee as early as reasonably
practicable in each year. For the year ending May 31, 1996, the Committee has
determined that the percentage contribution applicable to any earnings per
share increase shall be 3%, the percentage contribution applicable to any net
income increase shall be 3.8%, and the threshold for the return on shareholder
equity shall be 10%.
After the annual award pool has been determined following the end of a
particular year, each participant for such year may be awarded a percentage of
the pool for the year, which percentage will be determined in the absolute
discretion of the Committee. The Committee may award all, a portion, or none of
the annual award pool as it desires. The Chief Executive Officer of the Company
may offer advice to the Committee regarding the allocations of the annual award
pool to participants who report to the CEO.
At the Committee's discretion, up to fifty percent of each participant's
award will be paid in the form of Company common stock, and the remaining
portion of each participant's award is to be paid in full to the participant in
the form of a single cash payment after the end of the applicable fiscal year,
except that if Mr. Bruce is a participant in any year then his award will be
paid one hundred percent in cash. The shares of stock will not be subject to
any vesting schedule; however, Rule 16b-3 promulgated by the Securities and
Exchange Commission requires that such shares be held for six months from the
date of grant. Pursuant to the Incentive Plan, 100,000 shares of the Company's
common stock are reserved for issuance in connection with the stock portion of
incentive awards. The number of reserved shares will be subject to adjustment
to reflect any subdivisions or consolidations of shares, stock dividends or
certain other capital readjustments.
The Board may modify, revise or terminate the Incentive Plan at any time and
from time to time; provided, however, that any amendment to the Incentive Plan
that would require the vote or approval of a specified percentage of the
Company's stockholders in order to assure that the Incentive Plan complies with
Rule 16b-3 promulgated by the Securities and Exchange Commission may only be
made after obtaining the
9
<PAGE>
required stockholder vote or the taking of other action in connection with the
amendment that the Board deems advisable to operate the Incentive Plan in
accordance with Rule 16b-3.
The Company will be entitled to a deduction for federal income tax purposes
in the amount of the cash portion of awards paid for a given fiscal year and
the value of any stock awarded pursuant to the Incentive Plan that vests in
such year. The participant will recognize income for federal income tax
purposes in the amount of the cash portion of an award paid during his taxable
year, plus the amount of the value of any shares awarded pursuant to the
Incentive Plan.
The affirmation vote of the holder of a majority of the shares of Common
Stock represented and entitled to vote at the meeting is required to approve
the adoption of the Incentive Plan. Unless otherwise specified, all properly
executed proxies received by the Company will be voted in favor of the
Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ADOPTION OF THE INCENTIVE
PLAN.
PROPOSAL NO. 3--AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has amended the Employee Stock Purchase Plan ("Stock
Purchase Plan"), subject to shareholder approval, to change the age and service
requirements for participation in the plan. A copy of the amendment is included
in this Proxy Statement as Annex B. The following discussion is a summary of
the effects of the amendment.
Prior to the amendment, an employee of the Company or a subsidiary who worked
at least 20 hours per week more than five months during a plan year was
eligible to participate in the Stock Purchase Plan as of the first day of the
plan year coincident with or next following completion of one year of
continuous service. The amendment to the Stock Purchase Plan provides that
effective December 31, 1994, the one year of continuous service requirement be
reduced to a six month requirement.
Approximately 684 employees are currently eligible to participate in the
Stock Purchase Plan, under which they make an election to participate in
purchasing shares of Common Stock through periodic payroll deductions. All
payroll deductions received or held by the Company may be used for any valid
corporate purpose. The Stock Purchase Plan is administered by a committee
comprised of three members of the Board of Directors who are not eligible to
participate in the Stock Purchase Plan while a member of such committee. The
Compensation Committee is currently designated as the committee that
administers the Stock Purchase Plan. The issue price of shares of Common Stock
is the lesser of (i) 85% of the market price (as defined in the Stock Purchase
Plan) of the Common Stock determined as of the first trading date of the
calendar year on the market on which the Company's Common Stock is traded or
(ii) 85% of the market price of the Common Stock as determined as of the last
trading date during the calendar year on the market on which the Company's
Common Stock is traded. The accumulated payroll deductions credited to a
participant's account which are not withdrawn prior to the end of a calendar
year are automatically used by the committee administering the Stock Purchase
Plan, on behalf of each such participant, to purchase from the Company the
maximum number of whole shares of Common Stock that such amount will purchase
at the applicable "issue price" as defined above.
The Company has reserved 450,000 shares of Common Stock (subject to typical
anti-dilution adjustments) for issuance pursuant to the Stock Purchase Plan.
The Board of Directors has the right to terminate the Stock Purchase Plan at
any time and may also amend it at any time in any respect. However, certain
amendments require the approval of the Company's shareholders in order for the
Stock Purchase Plan to comply with Rule 16b-3 adopted by the Securities
Exchange Commission.
The Board of Directors also made certain technical amendments to the Stock
Purchase Plan with regard to references to applicable sections of the Internal
Revenue Code of 1986, as amended.
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The Board believes that its policy of encouraging employees of the Company to
acquire a proprietary interest in the Company will be better served by lowering
the one year service requirement to six months, and has accordingly approved
the proposed amendment to the Stock Purchase Plan. The affirmative vote of the
holders of a majority of the shares of Common Stock represented and entitled to
vote at the meeting is required to approve the adoption of the amendment to the
Stock Purchase Plan. Unless otherwise specified, all properly executed proxies
received by the Company will be voted in favor of the amendment.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ADOPTION OF THE AMENDMENT
TO THE STOCK PURCHASE PLAN.
PROPOSAL NO. 4--AMENDMENT OF THE 1993 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
The Board of Directors has amended the 1993 Non-Employee Director Stock
Option Plan ("Director Plan"), subject to shareholder approval, to increase the
number of options granted to each non-employee director. A copy of the First
Amendment to the Director Plan is included in this Proxy Statement as Annex C.
The following discussion is a summary of the effects of the amendment.
Prior to the amendment, options were automatically granted to each director
who is not also an officer of the Company according to a formula set forth in
the Director Plan that resulted in grants of options to purchase 3,000 shares
of Common Stock, and such options vested and became exercisable as to 1,000
shares on each annual anniversary of the date of grant. The amendment to the
Director Plan changes the formula to increase the number of shares granted to
5,001, with such options vesting and becoming exercisable as to 1,667 shares on
each annual anniversary of the grant date.
On the date of each annual meeting of the shareholders of the Company, each
non-employee director then in office who did not previously receive a grant of
options under the Director Plan receives the grant under the formula. The
exercise price of each option is the average last reported sales price of the
Common Stock on the NASDAQ Stock Market for the last five trading days (on
which sales have occurred) preceding and including the date of grant. Messrs.
Attwell and Winick were eligible to and did receive grants exercisable for
3,000 shares of Common Stock under the Director Plan effective October 12, 1993
with an exercise price of $14.80 per share. On September 1, the last reported
sale price of the Common Stock on the NASDAQ Stock Market was $18.625.
In order to provide current non-employee directors with similar benefits
under the amended formula, the amendment also provides that each non-employee
director on the date of the effectiveness of the amendment (which will be
October 10, 1995 if the amendment is approved by the shareholders) who has
previously received a grant under the formula will receive additional options
for 2,001 shares, with such options vesting and becoming exercisable on the
first anniversary of the grant date. The exercise price of each option is
calculated in the same fashion as described in the paragraph above. As of the
date of this Proxy Statement, Messrs. Attwell and Winick are the only non-
employee directors eligible to receive the grant of options to purchase an
additional 2,001 shares of Common Stock.
The Company has reserved 30,000 shares of Common Stock (subject to typical
anti-dilution adjustments) for issuance pursuant to the Director Plan. The
Board of Directors has the right to terminate the Director Plan at any time and
may also amend it at any time in any respect; provided that shareholder
approval is necessary for any change that would materially increase the
benefits accruing to participants, change the aggregate number of shares
issuable, reduce the option price or change the class of persons eligible to
receive options. The Director Plan is administered by the Board, but because
the principal terms of the option grants are fixed in the Director Plan, the
Board has no discretion to select which directors receive options, the number
of shares subject to such grants or the exercise price thereof.
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The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the adoption of the amendment to the
Director Plan. Unless otherwise specified, all properly executed proxies
received by the Company will be voted in favor of the amendment.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ADOPTION OF THE AMENDMENT
TO THE DIRECTOR PLAN.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
AMENDMENT TO
1993 NON-EMPLOYEE
DIRECTOR STOCK
OPTION PLAN
NAME AND POSITION NUMBER OF SHARES
----------------- -----------------
<S> <C>
Leonard J. Bruce...................................... -0-
Chairman of the Board
James W. Thompson..................................... -0-
President and Chief Executive Officer
Robin R. Hutton....................................... -0-
Executive Vice President
Leighton J. Stephenson................................ -0-
Vice President, Secretary and Treasurer
Woodie M. Zachry, Jr.................................. -0-
Vice President and General Manager, Encon Safety
Products, Inc.
J. M. Wayne Code...................................... -0-
Executive Group....................................... -0-
Non-Executive Group................................... 4,002
Non-Executive Officer Employee Group.................. -0-
</TABLE>
The benefits to be received by participants under the terms of the Incentive
Plan and as a result of the amendment to the Stock Purchase Plan are not yet
determinable. Under the Incentive Plan, such benefits are subject to the
discretion and approval of a committee of the Board of Directors, and the
proposed amendment to the Stock Purchase Plan affects the timing of eligibility
rather than the level of benefits under the Stock Purchase Plan.
PROPOSAL NO. 5--SELECTION OF INDEPENDENT AUDITORS
KPMG Peat Marwick were independent auditors of the Company for the year ended
May 31, 1995. The Board of Directors has appointed KPMG Peat Marwick as
auditors of the Company for the year ending May 31, 1996. A representative of
KPMG Peat Marwick will be present at the meeting to make a statement if he
desires and to respond to appropriate questions.
Management recommends that the appointment of KPMG Peat Marwick as
independent auditors for the Company for the fiscal year ending May 31, 1996,
be ratified by the shareholders. Unless otherwise indicated, all properly
executed proxies received by the Company will be voted for such ratification at
the meeting or any adjournment thereof. A majority adverse vote will be
considered as a direction to the Board of Directors to select other auditors in
the following year.
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OTHER MATTERS
As of this date, management is not aware that any other matters are to be
presented for action at the meeting, but the proxy form sent herewith, if
executed and returned, gives discretionary authority with respect to any other
matters that may come before the meeting.
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, executive officers, and ten percent shareholders are required to
report to the Securities and Exchange Commission, by specific due dates,
transactions and holdings in the Company's Common Stock. Subject to and in
accordance with Item 405 of Regulation S-K, the Company believes that during
the fiscal year ended May 31, 1995, all such filing requirements were satisfied
in a timely manner, except that no Form 3 was filed with respect to Roland C.
Wolff, who, although not formally elected to the position until August 1995,
has effectively acted in the capacity of Executive Vice President--Marketing of
the Company, since February 1995.
PROPOSALS BY SHAREHOLDERS
Security holders desiring to present proposals to the shareholders of the
Company at the 1996 annual meeting of shareholders, and to have such proposals
included in the Company's proxy statement and proxy, must submit their
proposals to the Company so as to be received no later than May 12, 1996.
REPORTS
A COPY OF THE COMPANY'S MOST RECENT ANNUAL REPORT ON FORM 10-K, INCLUDING
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, IS AVAILABLE TO
SHAREHOLDERS FREE OF CHARGE FROM THE COMPANY UPON WRITTEN REQUEST TO LEIGHTON
J. STEPHENSON, SECRETARY AND TREASURER, P. O. BOX 3587, HOUSTON, TEXAS 77253-
3587.
By order of the Board of Directors,
Leighton J. Stephenson
Secretary
Dated:September 13, 1994
Houston, Texas
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<PAGE>
ANNEX A
VALLEN CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
ARTICLE I
Definitions
As used in this Plan with initial capital letters, the following terms have
the meanings hereinafter set forth, unless the context reasonably requires a
broader, narrower or different meaning.
1.1 AWARD. "Award" means the amount determined under Section 6.1.
1.2 BENEFICIARY. "Beneficiary" means a person designated by the Participant,
in accordance with Section 7.4, to receive any unpaid portion of any Award
distributable under the Plan on account of the death of the Participant.
1.3 BOARD. "Board" means the Board of Directors of the Company.
1.4 CODE. "Code" means the Internal Revenue Code of 1986, as amended.
1.5 COMMITTEE. "Committee" means the committee appointed by the outside
directors of the Compensation Committee of the Board to administer the Plan.
1.6 COMPANY. "Company" means Vallen Corporation, a Texas corporation, or any
successor which assumes the Plan.
1.7 COMPANY STOCK. "Company Stock" means shares of the Company's common
stock, $.50 par value, including those reserved under Section 2.3 for issuance
in connection with any stock payment under Section 7.3.
1.8 DESIGNATED PERCENTAGE. "Designated Percentage" means that certain
numerical percentage established by the Committee as early as reasonably
practicable in each Year with respect to the calculation of certain elements of
the Annual Award Pool for that Year, with different Designated Percentages
applying to different elements.
1.9 DESIGNATED RETURN ON SHAREHOLDER EQUITY. "Designated Return on
Shareholder Equity" means a certain percentage return on Shareholder Equity to
be established by the Committee as early as reasonably practicable in each
Year, with "Shareholder Equity" meaning the average of each of the twelve
monthly averages of the beginning and ending shareholders' equity of the
Company for the applicable year as determined by the Company in accordance with
generally accepted accounting principles then in force.
1.10 EARNINGS PER SHARE. "Earnings Per Share" means the earnings per share of
Common Stock, as determined by the Company in accordance with generally
accepted accounting principles then in force, as shown on the Company's
financial statements.
1.11 EFFECTIVE DATE. "Effective Date" means June 1, 1995.
1.12 EMPLOYEE(S). "Employee(s)" means executive officers or other key
employee(s) of the Company or of any designated Subsidiary.
1.13 MARKET PRICE. "Market Price" means the average of each of the twelve
arithmetical means between the highest and lowest trading prices of the Company
Stock on the last trading date of each month during the applicable year, as
reported on the National Association of Securities Dealers Automatic
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Quotations System (National Market System). Notwithstanding the foregoing, if
there shall be any material alteration in the present system of reporting sales
prices of the Company Stock, or if the Company Stock shall no longer be quoted
on the over-the-counter markets, the Market Price of the Company Stock shall be
determined using such method as shall be determined by the Committee.
1.14 NET INCOME. "Net Income" means net earnings, as determined by the
Company in accordance with generally accepted accounting principles then in
force, as shown on the Company's financial statements.
1.15 PARTICIPANT. "Participant" means each Employee of the Company or a
Subsidiary who at any time during the Year is selected by the Committee to
participate in the Plan.
1.16 PLAN. "Plan" means the Vallen Corporation Annual Incentive Compensation
Plan, the terms of which are set forth herein, and as the same may hereafter be
amended from time to time.
1.17 SUBSIDIARY. "Subsidiary" means any wholly-owned subsidiary of the
Company or of any wholly-owned subsidiary thereof or any other corporation or
business venture in which the Company owns, directly or indirectly, a
significant financial interest if the Board designates such corporation or
business venture to be a Subsidiary for the sole purposes of this Plan for any
Year, and if the board of directors (or equivalent governing authority) of such
corporation or business venture consents to being so designated as a
Subsidiary.
1.18 VALLEN TAX RATE. "Vallen Tax Rate" means for the applicable Year the
highest stated federal income tax rate applicable to the Company as a U.S.
corporation.
1.19 WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES. "Weighted Average Number
of Outstanding Shares" means the average of each of the twelve monthly weighted
averages of the number of shares of Common Stock outstanding during the
applicable Year, as determined by the Company in accordance with generally
accepted accounting principles then in force, provided that if shares of Common
Stock have been issued during the applicable Year in connection with an
acquisition that is treated for accounting purposes as a "pooling of
interests," then the determination under this definition shall treat the shares
so issued as having been outstanding for the entire applicable Year.
1.20 YEAR. "Year" means the twelve-month period corresponding to the fiscal
year of the Company and for purposes of this Plan refers to the Year for which
Awards have been made pursuant to Section 4.1.
ARTICLE II
The Plan
2.1 NAME. The Plan generally shall be known as the "Vallen Corporation
Executive Incentive Compensation Plan." Each Year's Plan shall be designated by
the Year to which it relates.
2.2 PURPOSE. The purpose of the Plan is to promote the growth and general
prosperity of the Company and each Subsidiary, motivate Employees to achieve
strategic, financial and operating objectives, reward improvement in financial
performances, and provide a total compensation package that is competitive in
industry by permitting the Company and each Subsidiary to attract and retain
superior personnel for positions of substantial responsibility and to provide
key Employees with an additional incentive to contribute to the success of the
Company and each Subsidiary.
2.3 COMPANY STOCK RESERVE. The Company shall reserve 100,000 shares of
Company Stock for issuance under the Plan. In the event that the shares of
Company Stock should, as a result of a stock split or stock dividend or
combination of shares or any other change, or exchange for other securities, by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, be increased or decreased
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or changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or of another corporation, the number of
reserved shares of Common Stock then remaining shall be appropriately adjusted
to reflect such action. If any such adjustment shall result in a fractional
share, such fraction shall be disregarded. Upon the allocation of shares under
Section 7.3, this reserve shall be reduced by the number of shares so
allocated, and upon the reacquisition of any shares pursuant to Section 7.3,
Section 7.5 or Section 8.1, the reserve shall be increased by such number of
shares, and such shares may again be the subject of allocations under the Plan.
Distributions of shares of Company Stock may, as the Board shall in its sole
discretion determine, be made from authorized but unissued shares or from
treasury shares. All authorized and unissued shares issued in accordance with
the Plan shall be fully paid and nonassessable shares and free from preemptive
rights.
2.4 EFFECTIVE DATE. The Plan shall become effective upon the Effective Date.
Each successive annual Plan shall become effective as of the first day of the
Year to which it relates.
ARTICLE III
Administration
3.1 COMPOSITION OF THE COMMITTEE. The Plan shall be solely administered by a
committee to be appointed by the Board, which Committee shall consist of at
least two members of the Board. The members of the Committee shall be
"disinterested persons" as such term is defined from time to time in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, or any successor rule.
The Board shall have the power from time to time to remove members of the
Committee and to fill vacancies on the Committee arising by resignation, death,
removal, or otherwise. The Committee shall designate a chairman from among its
members, who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held at
such times and places as shall be determined by the Committee.
3.2 ADMINISTRATION BY COMMITTEE. The Plan shall be administered by the
Committee. Subject to the express provisions of the Plan, the Committee shall
have sole discretion and authority to determine from among Employees the ones
to whom and the time or times at which Awards may be made. Subject to the
express provisions of the Plan, the Committee shall also have complete
authority to interpret and construe the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, to determine the need for, or the details
and provisions of an award agreement, and to make all other determinations
necessary or advisable in the administration of the Plan.
3.3 ACTION BY COMMITTEE. A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting at which a quorum is present shall
decide any question brought before the meeting and shall be the act of the
Committee. In addition, the Committee may take any other action otherwise
proper under the Plan by an affirmative vote, taken without a meeting, of a
majority of its members.
3.4 DELEGATION. The Committee may, in its discretion, delegate one or more of
its duties to an officer or Employee of the Company or a committee composed of
officers and Employees of the Company, but may not delegate its authority to
construe the Plan or to make the determinations specified in Section 3.2.
3.5 RELIANCE UPON INFORMATION. The Committee shall not be liable for any
decision or action taken in good faith in connection with the administration of
the Plan. Without limiting the generality of the foregoing, any such decision
or action taken by the Committee in reliance upon any information supplied to
it by any officer of the Company or any Subsidiary, the Company's or any
Subsidiary's legal counsel or the Company's or any Subsidiary's independent
accountants in connection with the administration of the Plan shall be deemed
to have been taken in good faith.
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3.6 RESPONSIBILITY AND INDEMNITY. No member of the Committee shall be liable
for any act done or any determination made hereunder in good faith. The Company
and each Subsidiary hereby agrees to indemnify and hold harmless each member of
the Committee from and against any and all losses, claims, damages,
liabilities, costs and expenses, including but not limited to, liability for
any judgments or settlements consented to in writing by any such member of the
Committee, which consent will not be unreasonably withheld, and reasonable
attorneys' fees arising out of or in connection with or as a direct or indirect
result of such member's serving on the Committee, except only those losses,
claims, damages, liabilities, costs and expenses, if any, arising out of, or in
connection with, or as a direct or indirect result of, the Committee member's
bad faith, gross negligence or willful neglect of his duties hereunder. Each
affected member of the Committee shall promptly notify the Company and each
Subsidiary of any claim, action or proceeding for which such member may seek
indemnity. Such indemnity is a continuing obligation and shall be binding on
the Company and each Subsidiary and their successors, whether by merger or
otherwise, and assigns. In addition, such indemnity shall survive the
resignation or removal of the Committee member and/or the termination of the
Plan.
ARTICLE IV
Participation
4.1 PARTICIPATION. For each Year, the Committee shall select those Employees
of the Company who shall be Participants. The Committee's determination shall
be communicated to Participants as early as reasonably practical in each Year.
An individual shall be a Participant in the Plan only with respect to each Year
for which he has been selected by the Committee. Unless the Committee in its
absolute discretion waives this requirement, a Participant must be in the
employment of the Company on the date of allocation of the Annual Award Pool
pursuant to Section 6.1 in order to be allocated a percentage of the Annual
Award Pool for the applicable year.
ARTICLE V
Annual Award Pool
5.1 ANNUAL AWARD POOL. The "Annual Award Pool" for each Year shall be an
amount equal to the sum of the following:
(i) an amount equal to a Designated Percentage of the product of (x) the
increase in Earnings Per Share for the current Year over the prior Year,
multiplied by (y) the Weighted Average Number of Outstanding Shares for the
current Year, provided that if during the Year there has been a stock split
or stock dividend as combination of shares or any other change in the
outstanding number of shares of Common Stock the Committee in its
discretion may increase or decrease the amount determined pursuant to this
clause (i) to appropriately reflect such change;
(ii) an amount equal to a Designated Percentage of that portion of Net
Income for the Year in excess of Net Income required to achieve the
Designated Return on Shareholder Equity (with the sum of clause (i) plus
clause (ii) being referred to herein as the "Formula Amount"); and
(iii) an amount equal to (x) the Formula Amount, divided by (y) 1 minus
the Vallen Tax Rate, minus (z) the Formula Amount.
ARTICLE VI
Allocation of Awards
6.1 ALLOCATION OF ANNUAL AWARD POOL. As soon as practicable after audited
financial statements for the Company are available following the close of each
Year and the determination of the Annual Award Pool for that Year, the Annual
Award Pool shall be allocated by the Committee in its absolute
A-4
<PAGE>
discretion among Participants. The Committee may in its absolute discretion
allocate all, a portion of or none of an Annual Award Pool for any given Year.
The Chief Executive Officer may offer advice to the Committee regarding the
allocation of the Annual Award Pool to Participants who report to the CEO.
6.2 LIMITATION ON AWARD. No Participant shall receive an Annual Award in
excess of one hundred percent (100%) of his or her annual base salary for the
applicable Year.
ARTICLE VII
Distributions and Payments
7.1 PAYOR OF AWARDS. Subject to the following provisions hereof, any Award
payable under the Plan with respect to a Participant for a given Year shall be
the obligation of and paid by the Company or any Subsidiary, whichever may be
applicable, or any successor pursuant to Section 9.2, which employed the
Participant at the time the Award was made. Adoption and maintenance of the
Plan by the Company and any Subsidiary shall not create a joint venture or
partnership relationship among or between such persons for purposes of payment
of Awards under the Plan or for any other purpose.
7.2 STOCK PAYMENT
(a) AMOUNT AND TIMING OF DELIVERY OF COMPANY STOCK. At the Committee's
discretion, up to fifty percent (50%) of the Award may be paid as hereinafter
provided to the Participant in the form of Company Stock, except that any Award
to Leonard J. Bruce if he is a Participant in the applicable Year shall be paid
one hundred percent (100%) in cash pursuant to Section 7.3. The number of
shares of Company Stock shall be determined by dividing the stock payment
amount determined by the Committee by the Market Price and such shares of
Company Stock shall be issued in the form of a certificate for such shares as
promptly as administratively possible. If necessary to assure compliance with
provisions of Rule 16b-3 promulgated by the Securities and Exchange Commission,
or any successor or similar provisions thereto, requiring that equity
securities issued under the Plan be held for six months from the date of grant
in order for such grant to be exempt from Section 16(b) of the Securities Act
of 1933 (the "Securities Act"), the certificates issued pursuant to the
immediately preceding sentence shall be held by the Company and (subject to
Section 7.2(c) and Section 7.2(d)) delivered to Participants as promptly as
administratively practicable following the six-month anniversary of the date on
which the Committee allocates the Annual Award Pool.
(b) ADJUSTMENTS FOR CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. In the event
that the shares of Company Stock should, as a result of a stock split or stock
dividend or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation, the number of shares then allocated
for the stock payment portion of an Award shall be appropriately adjusted to
reflect such action. If any such adjustment shall result in a fractional share,
such fraction shall be disregarded. In the event any such transaction shall
result in holders of Common Stock acquiring the right to receive other
securities or property in addition to or in lieu of Common Stock, the Committee
may make such adjustments or take such action as, in its discretion, it deems
appropriate to reflect such transaction.
(c) OBLIGATION TO ISSUE COMPANY STOCK. The Company shall not be required to
issue any shares of Company Stock if the issuance of such shares shall
constitute a violation by the Participant, the Company or a Subsidiary of any
provisions of any law or regulation of any governmental authority, including
the Securities Act and the Securities Exchange Act of 1934 (the "Exchange
Act"). Specifically, the Company shall not be required to issue shares of
Company Stock unless either (i) a registration statement under the Securities
Act is in effect with respect to such shares, (ii) the Committee has received
an opinion of counsel,
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in form and substance satisfactory to it, or other evidence satisfactory to it
to the effect that such registration is not required and that such shares may
be resold or transferred by the Participant without such a registration
statement being in effect or (iii) the Committee has received evidence
satisfactory to it to the effect that the Participant is acquiring such shares
for investment and not with a view of the distribution thereof and unless the
certificate issued representing such shares bears, in addition to any other
legends required under this Plan, the following legend:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the Company of an opinion of counsel satisfactory to the
Company, in form and substance satisfactory to the Company, that
registration is not required for such sale or transfer.
Any determination in this connection by the Committee shall be final, binding
and conclusive. At such time as a registration statement under the Securities
Act is in effect with respect to any shares of Company Stock represented by
certificates bearing the above legend or at such time as, in the opinion of
counsel for the Company, such legend is no longer required solely for
compliance with applicable securities laws, then the holders of such
certificates shall be entitled to exchange such certificates for certificates
representing a like number of shares but without such legend. The Company may,
but shall in no event be obligated to, register any securities covered hereby
pursuant to the Securities Act (as now in effect or as hereafter amended). The
Company shall not be obligated to take any other affirmative action in order to
cause the issuance of shares of Company Stock to comply with any law or
regulation of any governmental authority.
(d) WITHHOLDING. The Committee may require the Participant or Beneficiary to
pay to the Company or a Subsidiary an amount equal to any federal, state or
local taxes (which the Committee deems necessary or appropriate to be withheld
in connection with the issuance of Company Stock) in such forms of payment as
may be permitted by the Committee. In the event that Participant or Beneficiary
does not pay the Company or a Subsidiary, whichever may be applicable, the
amount required for withholding taxes, the employer (for payroll tax purposes)
of Participant shall have the right to withhold such amount from any sum
payable, or to become payable, to Participant, upon such terms and conditions
as the Committee in its discretion shall prescribe. In the event that funds are
not otherwise available to cover any required withholding tax, the Company or a
Subsidiary, whichever may be applicable, shall have no obligation to pay to the
Participant or Beneficiary shares of Company Stock otherwise payable.
7.3 CASH PAYMENT. The portion of the Award that is not paid in the form of
Company Stock in accordance with Section 7.2 above shall be paid to the
Participant (or Beneficiary) in full in the form of a single sum payment in
cash as promptly as administratively possible following the last day of the
Year, except that any Award to Leonard J. Bruce if he is a Participant in the
applicable Year shall be paid one hundred percent (100%) in cash on the same
terms. The Committee shall cause the Company or Subsidiary, as the case may be,
to deduct from amounts paid under this Section 7.3 any taxes required to be
withheld by the federal or any state or local government.
7.4 DEATH OF PARTICIPANT. Each Participant shall have the right to designate
a Beneficiary to receive any Award remaining unpaid, in whole or in part, at
the death of the Participant, and to specify the time and manner of payment
thereof to such Beneficiary in accordance with rules established by the
Committee. The designation of Beneficiary shall be delivered in writing to the
Committee, or such representative thereof as the Committee may designate, and
may be changed at any time by written notice delivered to the Committee or its
representative. If no such designation of Beneficiary is delivered by a
Participant to the Committee or its representative, or if all of the designated
Beneficiaries have predeceased the Participant or otherwise ceased to exist,
any Award remaining unpaid, in whole or in part, at the death of a Participant
shall be paid to the legal representative of the Participant's estate in a
single payment of cash
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and Company Stock as soon as administratively possible following the death of
the Participant. Any payment hereunder that would otherwise be made in Company
Stock may be made in cash in the sole discretion of the Committee.
7.5 FORFEITURE. Until such time as the full amount of his Award has been
actually paid to any Participant, his right to receive any unpaid amount
thereof shall be wholly contingent and shall be forfeited if, prior to the
payment thereof, the Participant at any time prior to his retirement or
termination of Employment with the Company or a Subsidiary shall engage in
conduct which is determined by the Committee to be detrimental to or in
competition with the Company, or any of its Subsidiaries or affiliates.
7.6 NONALIENATION OF BENEFITS. Interests of Participants in this Plan or in
any securities to be issued pursuant to this Plan are not transferable by the
Participant other than in accordance with Rule 16b-3 promulgated by the
Securities and Exchange Commission, or any successor or similar provisions
thereto. No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt
to anticipate, alienate, sell, assign, pledge, encumber, or charge the same
will be void. No right or benefit hereunder shall in any manner be liable for
or subject to any debts, contracts, liabilities, or torts of the person
entitled to such benefits. If any Participant or Beneficiary hereunder shall
become bankrupt or attempt to anticipate, alienate, assign, sell, pledge,
encumber, or charge any right or benefit hereunder, or if any creditor shall
attempt to subject the same to a writ of garnishment, attachment, execution,
sequestration, or any other form of process or involuntary lien or seizure,
then such right or benefit shall, in the discretion of the Committee, cease and
terminate.
ARTICLE VIII
Termination or Amendment of the Plan
8.1 TERMINATION OR AMENDMENT. The Board may modify, revise or terminate this
Plan at any time and from time to time; provided, however, that any such
amendment to the Plan that would require the vote or approval of a specified
percentage of the Company's stockholders in order to assure that the Plan
complies with Rule 16b-3 promulgated by the Securities and Exchange Commission,
or any successor or similar provisions thereto, shall only be made upon
obtaining such required stockholder vote, or taking such other action in
connection with such amendment as the Board deems advisable to operate the Plan
in accordance with Rule 16b-3 or any successor or similar rule.
8.2 CANCELLATION FOLLOWING AWARD. Termination or amendment of the Plan shall
not adversely affect rights or obligations under the Plan with respect to any
vested portion of Awards, unless the affected person or persons consent.
ARTICLE IX
Miscellaneous
9.1 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other compensation plans in effect for the Company or any Subsidiary or
affiliate of the Company, nor shall the Plan preclude the Company or any
Subsidiary or affiliate thereof from establishing any other forms of incentive
or other compensation for Employees.
9.2 POWERS OF THE COMPANY. The existence of outstanding and unpaid Awards
under the Plan shall not affect in any way the right or power of the Company or
any Subsidiary to make or authorize any adjustments, recapitalization,
reorganization or other changes in the Company's or Subsidiary's capital
structure or in its business, or any merger or consolidation of the Company or
any Subsidiary, or any issue of bonds, debentures, common or preferred stock,
if applicable, or the dissolution or liquidation of the Company or any
Subsidiary, or any sale or transfer of all or any part of its assets or
business, or any other act or proceeding, whether of a similar character or
otherwise.
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Should the Company or any Subsidiary (or any successor thereto) elect to
dissolve, enter into a sale of its assets, or enter into any reorganization
incident to which it is not the surviving entity, unless the surviving or
successor entity shall formally agree to assume the Plan, the Plan shall
terminate with respect to the Company or any Subsidiary (or any successor
thereto) on the earlier of the date of closing or the effective date, whichever
may be applicable, of such transaction and the full amount of any remaining
unpaid vested Awards shall be promptly paid to each such Participant (or
Beneficiary) in a single lump sum payment of cash and Company Stock. Any
payment hereunder that would otherwise be made in Company Stock may be made in
cash in the sole discretion of the Committee.
9.3 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the successors
and assigns of the Company and any Subsidiary.
9.4 PLAN NOT A CONTRACT. This Plan will not be deemed to constitute a
contract between the Company, a Subsidiary and any Participant or to be in
consideration of or an inducement for the Employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any
Participant or Employee the right to be retained in the service of the Company
or any Subsidiary or affiliate of the Company or to interfere with the right of
the Company or any Subsidiary or affiliate of the Company to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of the Plan.
9.5 LIABILITY OF EMPLOYER. Each Participant, Beneficiary or any other person
who shall claim a right or benefit under this Plan, shall be entitled only to
look to the Participant's employer for such benefit.
9.6 PAYMENT OF PLAN EXPENSES. The Company and each Subsidiary will pay its
pro rata share of all expenses that may arise in connection with the
administration of this Plan.
9.7 HEADINGS. Any headings or subheadings in this Plan are inserted for
convenience of reference only and are to be ignored in the construction of any
provisions hereof. All references in this Plan to Articles and Sections are to
Articles and Sections of this Plan unless specified otherwise.
9.8 GENDER AND TENSE. Any words herein used in the masculine shall be read
and construed in the feminine where they would so apply. Words in the singular
shall be read and construed as though in the plural in all cases where they
would so apply.
9.9 GOVERNING LAW. This Plan shall be construed in accordance with the laws
of the State of Texas to the extent federal law does not supersede and preempt
Texas law.
9.10 SEVERABILITY. In the event that any provision of this Plan shall be held
illegal, invalid, or unenforceable for any reason, such provision shall be
fully severable, but shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision had never been included herein.
9.11 NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company, Subsidiary nor
the Committee makes any commitment or guarantee that any federal or state tax
treatment will apply or be available to any person participating or eligible to
participate in this Plan.
9.12 NOTICE. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any notice
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has theretofore specified by
written notice delivered in accordance herewith. Any party may change, at any
time and from time to time, by written notice to the other, the address which
it or he had theretofore specified for receiving notices. Until changed in
accordance herewith, the Company or a Subsidiary shall be entitled to use the
address of a Participant as it appears in the personnel records of his
employer. Any person entitled to notice hereunder may waive such notice.
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<PAGE>
9.13 STOCKHOLDER APPROVAL. Notwithstanding any other provisions of the Plan,
in order for the Plan to continue as effective, on or before the date which
occurs twelve (12) months after the date the Plan is adopted by the Board, the
Plan must be approved by the stockholders holding at least a majority of the
voting stock (unless applicable state law or the Company's charter or by-laws
require a greater number) of the Company voting in person, or by proxy, at a
duly held stockholder's meeting, and no shares of Company Stock shall be issued
under the Plan until such approval has been secured.
IN WITNESS WHEREOF, Vallen Corporation acting by and through its duly
authorized officers, has executed this instrument effective the 1st day of
June, 1995.
ATTEST: VALLEN CORPORATION
/s/ Leighton J. Stephenson /s/ James W. Thompson
By: _________________________________ By: _________________________________
Secretary President
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<PAGE>
ANNEX B
FIRST AMENDMENT TO
VALLEN CORPORATION
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Vallen Corporation 1993 Non-Employee Director Stock Option Plan (the
"Director Option Plan" adopted by the Board of Directors of the Company on
August 31, 1993 and approved by the shareholders of the Company at the annual
meeting of shareholders held on October 12, 1993 is hereby amended as follows:
I. The Director Option Plan is hereby amended, subject to shareholder
approval, to add a new subsection (1) to Section II(a) and to renumber each
succeeding subsection accordingly, with new subsection (1) to read as follows:
"(1) "Amendment Effective Date" means the date in which the amendment
to the Plan put before the 1995 annual meeting of shareholders of the
Company is approved by such shareholders."
II. The Director Option Plan is hereby amended, subject to shareholder
approval, by deleting the second sentence of Section III(a) of the Director
Option Plan, and substituting in lieu thereof the following sentence:
"Thereafter, as of the date of the annual meeting of shareholders in
each year after 1995 that the Plan is in effect, as provided in Section
V hereof, each Non-Employee Director then in office who did not
previously receive a grant of Options hereunder shall receive, without
the exercise of the discretion of any person or persons, Options
exercisable for 5,001 Shares."
III. The Director Option Plan is hereby amended, subject to shareholder
approval, by replacing the number "1,000" in each place where it is used in
Section III(c) with the number "1,667".
IV. The Director Option Plan is hereby amended, subject to shareholder
approval, to add a new Section III(d) to read as follows:
"(d) In addition to the Options granted to Non-Employee Directors on
the Effective Date, on the Amendment Effective Date, each Non-Employee
Director shall receive, without the exercise of discretion of any
person or persons, Options exercisable for 2,001 Shares. All Options
granted under this Section III(d) shall (i) be at the Option price set
forth in subsection (b), (ii) become exercisable as to all 2,001 Shares
on the first anniversary of the date on which the Option is granted
(with no portion of an Option granted under this Section III(d) being
exercisable unless and until it is vested) and (iii) be subject to
adjustment as provided in Section VII and to the terms and conditions
set forth in Section VIII."
V. In accordance with Section IX of the Director Option Plan the
foregoing amendments to the Director Option Plan shall be submitted to the
shareholders of the Company for approval at the 1995 Annual Meeting, which
approval shall require the approval of holders of at least a majority of
the outstanding shares of the Company's voting stock.
B-1
<PAGE>
ANNEX C
THIRD AMENDMENT TO
VALLEN CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
W I T N E S S E T H
WHEREAS, Vallen Corporation (the "Sponsoring Employer") maintains the Vallen
Corporation Employee Stock Purchase Plan (the "Plan") for the benefit of its
eligible employees; and
WHEREAS, in Section 11.4 of the Plan, the Board of Directors of the
Sponsoring Employer reserved the right to amend the Plan at any time and from
time to time; and
WHEREAS, it has been determined that the Plan should be amended in order to
(i) change the eligibility waiting period from one (1) year of Continuous
Service to six (6) months of Continuous Service effective as of December 31,
1994 for Continuous Service accrued as of such date, and (ii) change certain
statutory references to conform to the renumbering of the Internal Revenue Code
of 1986.
NOW, THEREFORE, the Plan is hereby amended by this Third Amendment thereto as
follows:
1. Effective as of January 1, 1991, the reference to Section 425(e) of
the Code in Section 1.9 of the Plan, relating to the definition of
Employer, is hereby changed to Section 424(e) of the Code.
2. Effective as of December 31, 1994, with respect to the change in the
length of Continuous Service, and effective as of January 1, 1991,
regarding the changes in statutory references, Section 3.1 of the Plan,
relating to age and service requirements, is hereby amended and restated in
its entirety to provide as follows:
" 3.1 Age and Service Requirements: The Compensation Committee of the
Board of Directors shall designate which Employers in addition to the
Sponsoring Employer are authorized to participate in the Plan for each
Plan Year. Every Employee of an Employer authorized to participate in
the Plan on the Effective Date whose customary employment is at least
twenty (20) hours per week and more than five (5) months in a calendar
year and who has completed at least one (1) year of Continuous Service
shall be eligible to participate as of the Effective Date. Effective as
of December 31, 1994, every other Employee of an Employer authorized to
participate in the Plan whose customary employment is at least twenty
(20) hours per week and more than five (5) months in a calendar year
shall be eligible to participate as of any Anniversary Date coincident
with or immediately following his completion of at least six (6) months
of Continuous Service. However, an Employee shall not be eligible to
participate if immediately after the options are granted such Employee
would own stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the
Sponsoring Employer or a subsidiary corporation or parent corporation
(as those terms are defined in Section 424(e) and (f) of the Code.) For
purposes of this paragraph, the ownership attribution rules of Section
424(d) of the Code shall apply in determining the stock ownership of an
Employee and stock which the Employee may purchase under outstanding
options (under this or any other agreement) shall be treated as stock
owned by the Employee."
3. Effective as of January 1, 1991, the reference to Section 425(e) and
(f) of the Code in Section 5.3 of the Plan, relating to the limitation on
option accruals, is hereby changed to Section 424(e) and (f) of the Code.
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<PAGE>
IN WITNESS WHEREOF, the Third Amendment to the Plan is executed this 15th day
of February, 1995.
ATTEST: VALLEN CORPORATION
/s/ James W. Thompson /s/ Leighton Stephenson
By:__________________________________ By:__________________________________
Printed Name: James W. Thompson Printed Name: Leighton Stephenson
Title: President Title: Vice President & Secretary
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<PAGE>
PROXY VALLEN CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 10, 1995
The undersigned hereby appoints Leonard J. Bruce and Leighton J. Stephenson,
or either of them, with full power of substitution, attorneys and proxies of the
undersigned to vote all shares of common stock of Vallen Corporation (the
"Company") which the undersigned is entitled to vote at the annual meeting of
shareholders of the Company to be held on Tuesday, October 10, 1995 in the
Fourth Floor Auditorium, NationsBank Center, 700 Louisiana, Houston, Texas at
10:00 A.M., Houston time, and at any adjournment thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREON. IF
NO CONTRARY SPECIFICATION IS MADE, IT WILL BE VOTED "FOR" EACH OF THE PROPOSALS
SET FORTH.
Election of Directors: Nominees: LEONARD J. BRUCE, JAMES W. THOMPSON,
DARVIN M. WINICK AND KIRBY ATTWELL
INSTRUCTION: To withhold authority to
WITHHOLD vote for any one or more individual
FOR all nominees AUTHORITY nominee, write such nominee's name on
listed to the right to vote for all the line provided below.
(except as marked nominees listed
to the contrary). to the right.
/ / / / ---------------------------------------
2. To approve the Vallen 3. To amend the Vallen Corporation
Corporation Executive Employee Stock Purchase Plan to
Incentive Compensation change the requirements relating
Plan. to age and service requirements
and to make certain other
technical amendments.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /
4. To amend the Vallen Corporation 1993 5. Ratification and approval of the
Non-Employee Director Stock Option Plan appointment of KPMG Peat Marwick
to increase the number of stock options as independent auditors for the
granted to each non-employee director fiscal year ending May 31, 1996.
under such plan.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /
6. In their discretion, upon such other matters as
may come before the meeting or any adjournment
thereof. All as described in the Notice of Annual
Meeting of Shareholders and Proxy Statement,
receipt of which is hereby acknowledged.
Please sign exactly as name appears on your stock certificate. When
signing as executor, administrator, trustee or other representative,
please sign your full title. All joint owners should sign.
Dated: _______________________________________, 1995
____________________________________________________
____________________________________________________
Signature(s) of Shareholder(s)
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY.
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FOLD AND DETACH HERE
