<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
[_] 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 (S)240.14a-11(c) or (S)240.14a-12
VALLEN CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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:
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<PAGE>
[LOGO OF VALLEN APPEARS HERE]
13333 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 13, 1998
To the Shareholders of
Vallen Corporation:
The 1998 annual meeting of shareholders of Vallen Corporation, a Texas
corporation (the "Company"), will be held in the Board Room on the Mezzanine
level of Texas Commerce Bank, located at 707 Travis, Houston, Texas, on
Tuesday, October 13, 1998, 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 consider and act upon a proposal to approve an amendment to the
1985 Stock Option Plan for Key Employees to increase by 400,000 the number
of shares available for issuance thereunder.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending May 31, 1999; and
4. To transact such other business as may properly come before the annual
meeting or any adjournment thereof.
Shareholders of record as of the close of business on September 3, 1998 are
entitled to notice of and to vote at the annual meeting and any adjournment
thereof.
By order of the Board of Directors,
Leighton J. Stephenson
Secretary
Houston, Texas
September 10, 1998
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 ANNUAL MEETING. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED.
<PAGE>
[LOGO OF VALLEN 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 13,
1998, and any and all adjournments thereof. Such solicitation is being made by
mail, commencing on or about September 10, 1998, and may also be made in
person or by telephone or telecopy 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 annual meeting by giving notice in writing to the Secretary of the
Company, or by signing and delivering a proxy bearing a later date or voting
in person at the annual meeting. All properly executed proxies received by the
Company and not revoked will be voted at the annual meeting.
VOTING RIGHTS
Only shareholders of record of the Company's common stock ("Common Stock")
at the close of business on September 3, 1998 are entitled to notice of and to
vote at the annual meeting. At such date, there were 7,208,805 shares of
Common Stock issued and outstanding. Each share of Common Stock is entitled to
one vote on each matter to be acted upon at the annual meeting. Shareholders
do not have the right to cumulate their votes with respect to the election of
directors. In establishing the presence of a quorum, abstentions and broker
non-votes will be included in the determination of the number of shares
represented at the annual meeting. Abstentions will have the same effect as a
vote against a proposal. Because they are not included in the tally of votes
present, broker non-votes will not affect the outcome of any proposal (except
those requiring the affirmative vote of a certain percentage of all
outstanding shares of Common Stock, in which case broker non-votes 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 September 4, 1998 by (i) each person who was
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) by each of the Company's directors and director
nominees, (iii) by each of the executive officers named in the Summary
Compensation Table and (iv) 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 OF PERCENTAGE
BENEFICIAL OWNER SHARES OF TOTAL
---------------- --------- ----------
<S> <C> <C>
Leonard J. Bruce...................................... 4,079,412(2) 55.16%
13333 Northwest Freeway
Houston, Texas 77040
Royce & Associates, Inc./Royce Management Company..... 801,820(3) 10.84%
1414 Avenue of the Americas
New York, New York 10019
Dimensional Fund Advisors, Inc........................ 524,300(3) 7.09%
10 S. Wacker Drive
Chicago, Illinois 60606
James W. Thompson..................................... 70,657(4) *
Robin R. Hutton....................................... 49,214(5) *
David G. Key.......................................... 10,738(6) *
Leighton J. Stephenson................................ 8,099(7) *
David Dewey........................................... 9,000(8) *
Kirby Attwell......................................... 7,251(9) *
John T. Myser......................................... -- --
Robert W. Bruce....................................... 137 *
Darvin M. Winick...................................... 5,901(9) *
Directors and Executive Officers as a Group (10
persons)............................................. 4,240,409 57.34%
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Determined on the basis of 7,208,805 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 5,001, 5,001 and 125,334,
respectively, for Messrs. Attwell, Winick and directors and executive
officers as a group.
(2) Includes 3,950,412 shares owned directly, 12,000 shares purchasable upon
the exercise of outstanding options exercisable within 60 days after
September 4, 1998 and 117,000 shares held by Bruce Interests, a Texas
partnership of which Mr. Bruce is a general partner.
(3) Information based on the most recent Schedule 13G report.
(4) Includes 66,666 shares purchasable upon the exercise of outstanding
options that are exercisable within 60 days after September 4, 1998.
(5) Includes 14,000 shares purchasable upon the exercise of outstanding
options that are exercisable within 60 days after September 4, 1998.
(6) Includes 10,000 shares purchasable upon the exercise of outstanding
options that are exercisable within 60 days after September 4, 1998.
(7) Includes 6,666 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after September 4, 1998.
(8) Includes 6,000 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after September 4, 1998.
(9) Includes 5,001 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after September 4, 1998.
2
<PAGE>
PROPOSAL NO. 1--ELECTION OF DIRECTORS
The Board of Directors consists of six members, all of whom have been
nominated by the Board of Directors for re-election at the annual meeting.
Directors are elected by a plurality vote of the shares of Common Stock
represented at the annual meeting and entitled to vote. 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. 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
DIRECTOR WITH THE COMPANY (AND OTHER CURRENT
NAME AGE SINCE PRINCIPAL OCCUPATION, IF DIFFERENT)
---- --- -------- ------------------------------------------
<S> <C> <C> <C>
Leonard J. Bruce...... 78 1960 Chairman of the Board; Member, Compensation
Committee
James W. Thompson..... 47 1994 President and Chief Executive Officer
Robert W. Bruce....... 42 1998 Director, Vallen Knowledge Systems Group
Kirby Attwell......... 62 1978 Member, Audit and Compensation Committees
(President of Travis International, Inc.)
John T. Myser......... 63 1997 Member (Retired Group Vice President, 3M
Company)
Darvin M. Winick...... 68 1984 Member, Audit and Compensation Committees
(President of Winick Consultants)
</TABLE>
Mr. Leonard J. Bruce, who has 49 years of experience in safety equipment
distribution, founded the Company in 1947. He has been Chairman of the Board
of Directors since 1960. Mr. Bruce is the father of Robert W. Bruce, Director
of the Technical Services Group and a member of the Board.
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.
Mr. Robert W. Bruce was appointed as a director by action of the Board
effective August 19, 1998. He is currently the director of the Vallen
Knowledge Systems Group of Vallen Safety Supply Company and has been employed
in various capacities by the Company since 1978. He is the son of Leonard J.
Bruce, Chairman of the Company's Board of Directors.
Mr. Attwell has been President of Travis International, Inc., a holding
company for industrial distribution operations, since January 1987.
Mr. Myser was appointed as a director by action of the Board effective
December 18, 1997. He is currently an Executive Fellow at the University of
St. Thomas, Minneapolis, MN, and is a retired group vice president at 3M
Company, where his career covered 35 years.
Dr. Winick has been President of Winick Consultants, or its related
management consulting firms, since 1981.
The Board of Directors held six meetings during the fiscal year ended May
31, 1998. 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, the employee stock purchase plan and the annual incentive compensation
plan, and which makes base salary and bonus incentive recommendations, met two
times
3
<PAGE>
during the year ended May 31, 1998. The Audit Committee reviews the reports of
the Company's independent auditors and met once during the year ended May 31,
1998. The current members of the Compensation Committee are Messrs. Attwell,
Bruce and Winick and the members of the Audit Committee are Messrs. Attwell
and Winick.
Each non-employee director of the Company is entitled to receive an annual
retainer of $20,000 plus $1,000 for each board and committee meeting attended
which is not on the same date as the annual shareholders' meeting. Outside
directors also receive options under the 1993 Non-Employee Director Stock
Option Plan. On the date of each annual meeting of the shareholders of the
Company, each outside director then in office who did not previously receive a
grant of options under the Director Plan is automatically granted options to
purchase 5,001 shares of Common Stock, with such options vesting and becoming
exercisable as to 1,667 shares on each annual anniversary of the grant date.
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.
4
<PAGE>
MANAGEMENT COMPENSATION AND BENEFITS
SUMMARY COMPENSATION TABLE
The Summary Compensation Table includes individual compensation information
on the Chief Executive Officer and the five other most highly paid executive
officers for each of the years in the three-year period ended May 31, 1998.
Mr. Robert W. Bruce was not an executive officer of the Company at the end of
the 1998 fiscal year.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
------------------ ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce........ 1998 $265,000 $149,279 $4,846 -- $12,919
Chairman of 1997 253,750 19,693 5,229 18,000 10,742
the Board 1996 250,000 19,693 6,662 -- 8,249
James W. Thompson....... 1998 $207,584 $149,279 $3,002 -- $ 9,804
President and Chief 1997 203,000 25,267 2,615 -- 8,364
Executive Officer 1996 200,000 19,693 2,745 -- 7,404
Robin R. Hutton......... 1998 $122,850 $ 13,008 $2,794 -- $ 6,675
Executive Vice 1997 145,700 11,947 2,030 -- 7,101
President, Sales 1996 145,700 11,947 8,574 -- 8,307
David G. Key(3)......... 1998 $135,000 $ 56,700 $2,250 -- --
Vice President and 1997 127,940 2,906 2,417 15,000 --
General Manager, Encon 1996 20,835 -- -- -- --
Safety Products Company
Leighton J. Stephenson.. 1998 $110,156 $ 57,302 $ -- -- $ 5,183
Vice President, 1997 107,265 8,736 -- -- 3,930
Secretary and Treasurer 1996 106,000 8,736 -- -- 2,258
David H. Dewey(4)....... 1998 $100,000 $ 21,000 $2,067 -- $ 5,360
Vice President 1997 99,392 15,236 1,960 -- 6,136
1996 92,736 26,581 2,032 -- 6,049
</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 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. Key became Vice President, General Manager of Encon Safety Products,
Inc. effective April 1, 1996.
(4) Mr. Dewey became Vice President of Vallen Corporation effective April 9,
1998.
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, as amended, provides for a
minimum base salary, inclusion in the Company's incentive plans, 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 acceleration of the vesting of the 100,000 options and Mr. Thompson's being
paid a severance amount equal to his annual base salary, or twice his annual
base salary, depending upon the conditions of termination. In
5
<PAGE>
September 1998, the Company and Mr. Thompson amended the employment agreement
to provide for a minimum base salary of $250,000 (effective June 1, 1998), to
include "Change in Control," termination by the Company without "Cause" or
termination by Mr. Thompson for "Good Reason" (all as defined therein) as
events that accelerate the vesting of his initial 100,000 options, and to
include termination of the agreement by Mr. Thompson for "Good Reason" as an
event that triggers a severance payment. "Good Reason" was defined to allow
Mr. Thompson to terminate his employment at any time within the six months
following the 1999 annual meeting of shareholders; provided that he gives
notice to the Company and continues to perform his duties for up to six months
as a transition period following such notice.
STOCK OPTION GRANTS, EXERCISES AND HOLDINGS
During the fiscal year ended May 31, 1998, no additional stock options to
purchase common shares were granted to Executive Officers of the Company.
Options granted in prior years have vesting terms based upon the attainment of
specified fiscal year net earnings per share levels achieved. As of May 31,
1998, vesting was achieved for 2/3 of such options granted to Executive
Officers, based upon a level of $1.41 (basic) earnings per share level
achieved for the year. All options remaining outstanding to Executive Officers
as of February 19, 2003 will vest and become exercisable whether or not the
specified goals are attained, provided such optionees are then currently
employed by the Company.
As discussed below under "--Report of the Compensation Committee," in
September 1998, the Compensation Committee and the Board of Directors approved
certain changes to the compensation arrangements for both the Company's CEO,
Mr. Thompson, and other key employees. In connection with these changes, Mr.
Thompson was granted options under the 1985 Stock Option Plan for Key
Employees for 33,000 shares of Common Stock at an exercise price of $18.75 per
share (the mean between the highest and lowest sales price on the date of
grant), with vesting of one-third of such options on June 1 of each of 2001,
2002 and 2003. These options have a 10-year term, and vesting is accelerated
upon a "Change in Control" (as defined therein). In addition, the Company
committed to grant Mr. Thompson future options under the plan for a total of
100,000 shares of Common Stock over the next four years, with a separate grant
for 25,000 shares occurring following the end of each fiscal year in 1999-
2002. The option exercise price for each grant will be the fair market value
on the date of grant, and vesting will only occur upon the achievement of
certain levels of (basic) earnings per share within three-year time frames.
Certain other key employees of the Company (excluding Mr. Leonard J. Bruce)
were also granted options under the plan for an aggregate of 33,000 shares of
Common Stock on the same terms as Mr. Thompson's grant, and the Company also
committed to grant future options under the plan to such persons for a total
of 100,000 shares over the current and succeeding four years (on similar
vesting terms as Mr. Thompson's future grants, with the addition of an
additional one year holding period following achievement of the earnings
targets). The future granting of options for an aggregate of 200,000 shares
requires an amendment to the existing stock option plan as described under
"Proposal No. 2--Amendment to 1985 Stock Option Plan for Key Employees."
6
<PAGE>
Set forth below is information relating to the number of shares of Common
Stock covered by, and the values of, outstanding stock options held by the
executive officers at May 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES COVERED BY VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MAY 31, 1998 MAY 31, 1998(1)
ACQUIRED ON VALUE ------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard J. Bruce........ -- -- 12,000 6,000 $ 30,000 $ 15,000
James W. Thompson....... -- -- 66,666 33,334 533,328 266,672
Robin R. Hutton......... -- -- 14,000 7,000 70,000 35,000
David G. Key............ -- -- 10,000 5,000 20,000 10,000
Leighton J. Stephenson.. -- -- 6,666 3,334 51,662 25,838
David H. Dewey.......... -- -- 6,000 3,000 30,000 15,000
</TABLE>
- --------
(1) The amounts shown on the differences between the per share stock option
exercise prices and the closing price of Company common stock on May 31,
1998 of $20.75 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 offer competitive compensation
programs that retain, motivate and reward executives and which are focused
toward achievement of increased shareholder value and Company performance
objectives. During each fiscal year, the executive compensation program
consists of base salary, an annual bonus incentive plan based upon Company
financial performance and a Company stock options program designed to provide
long-term incentives. Bonuses for executives and certain key employees are
awarded taking into consideration the Company's overall performance for the
year, including return on average shareholder equity, increase in net sales,
gross profit margins 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 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.
Effective June 1, 1995, the Compensation Committee adopted the Executive
Incentive Compensation Plan (the "Incentive Plan"), which was subsequently
approved by the shareholders of the Company at the annual meeting later that
year. Pursuant to the Incentive Plan, the Compensation Committee names certain
officers as participants in the Incentive Plan for that fiscal year. At the
end of such fiscal year, an annual award pool is created that is based on the
increase in earnings per share for the current year, 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 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. In any fiscal year, the
Compensation Committee has the absolute discretion to allocate all, a portion
or none of the award pool among the participants. It may pay up to fifty
percent of such award in shares of Common Stock (without any vesting
requirements), with the remaining
7
<PAGE>
portion to be paid in cash. Granting of awards under the Incentive Plan to
individual officers is based upon individual performance during the year, but
the Compensation Committee does not apply any specific, quantitative formula
in making such decisions. The Committee did not establish an award pool under
the Incentive Plan for fiscal 1998, but instead made discretionary bonus
awards.
The Committee recently directed Mr. Thompson to implement an annual bonus
program for key employees that is similar to his own bonus formula for the
1999 fiscal year, which is described below. Mr. Thompson will consult with the
Committee on the implementation of such program, and it is anticipated that
such program will replace the Incentive 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
periodically grants and sets the terms of stock option awards. Options were
granted during the year ended May 31, 1997 but not in the most recent fiscal
year. As described above under "--Stock Option Grants, Exercises and
Holdings," the Compensation Committee and Board of Directors approved certain
current and future option grants in September 1998 representing an aggregate
of 133,000 shares of Common Stock.
Chief Executive Officer Compensation. For the 1998 fiscal year, the
Compensation Committee determined 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 closing several acquisition transactions. Pursuant to his
employment agreement, Mr. Thompson received a minimum annual base salary of
$210,000. In addition, the Compensation Committee awarded Mr. Thompson a
discretionary bonus consisting of $149,279 in cash for the 1998 fiscal year.
In September 1998, the Compensation Committee (with ratification and
approval by the Board) approved certain changes to Mr. Thompson's
compensation. In recognition of the Company's improved operating performance
in the 1998 fiscal year, his minimum base salary pursuant to his employment
agreement was increased to $250,000. In order to ensure his continued service
to the Company over the next several years and to provide incentives for the
Company's continually improving performance, Mr. Thompson was granted
additional equity interests in the Company. A restricted stock grant of 20,000
shares of Common Stock provides for such shares to vest on the earlier of June
1, 2003 or the termination of Mr. Thompson's employment agreement by the
Company without "Cause" or by him for "Good Reason" (both as defined in the
agreement). Mr. Thompson was also granted options under the 1985 Stock Option
Plan for Key Employees for 33,000 shares of Common Stock, and the Company
committed to grant Mr. Thompson future options under the plan for a total of
100,000 shares of Common Stock over the next four years, all as described
above under "--Stock Option Grants, Exercises and Holdings." As described
above under "--Employment Agreement," certain provisions of Mr. Thompson's
employment agreement were amended in connection with the changes in his
compensation structure.
In lieu of continuing the Incentive Plan for the 1999 fiscal year, the
Committee has established a bonus formula for Mr. Thompson equal to a
percentage of his base salary determined based upon a combination of the
Company's increased (basic) earnings per share and return on equity for fiscal
year 1999. If the Company's internal targets are achieved for the fiscal year,
Mr. Thompson's bonus would equal 50% of his salary.
THE COMPENSATION COMMITTEE
Darvin Winick, Chairman
Kirby Attwell
Leonard J. Bruce
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Leonard J. Bruce, who is a member of the Compensation Committee, is the
Company's Chairman of the Board.
8
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY,
INDUSTRY INDEX AND BROAD MARKET
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
---------------------------------------
COMPANY 1993 1994 1995 1996 1997 1998
------- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Vallen Corporation..................... 100 78.33 110.00 135.00 121.67 138.33
Industry Index (SIC Code #508)*........ 100 111.68 110.24 154.12 163.22 187.19
Industry Index (SIC Code #5099)*....... 100 80.51 74.39 90.23 56.99 60.69
Broad Market**......................... 100 106.41 121.25 157.04 192.04 248.58
</TABLE>
ASSUMES $100 INVESTED ON JUNE 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING MAY 31, 1998
* This index consists of machinery, equipment and supplies distributors from
Standard Industry Classification (SIC) Code #508, and has been prepared by
and is available from Media General Financial Services, P. O. Box 85333,
Richmond, VA 23293. It has been determined in 1998 that SIC Code #508 most
appropriately provides a benchmark reference for Vallen's primary
businesses, wholesale distribution--machinery, equipment and supplies
distributors. For fiscal year 1997, Vallen used an index based on SIC #5099,
wholesale distribution--miscellaneous durable goods. The trend line for this
index is included for comparison purposes.
** The Media General Composite Index is a broad market index of 8,000 NASDAQ,
NYSE and AMEX issues.
9
<PAGE>
PROPOSAL NO. 2--AMENDMENT TO
1985 STOCK OPTION PLAN FOR KEY EMPLOYEES
The Board of Directors has amended the 1985 Stock Option Plan for Key
Employees ("Option Plan"), subject to shareholder approval, to increase by
400,000 the number of shares available for grants under the plan from
1,125,000 shares of Common Stock (as adjusted for stock splits and dividends)
to 1,525,000 shares.
As of September 10, 1998, options to purchase 673,900 shares of Common Stock
have been granted and exercised under the plan, and option to purchase 432,000
shares have been granted and are currently unexercised. Only 19,100 shares
remain available for grants under the Option Plan. The options for an
aggregate of 200,000 shares that the Company intends to grant over the next
four years as described above under "Management Compensation and Benefits--
Stock Options Grants, Exercises and Holdings" can only be granted following
shareholder approval of an amendment of the Option Plan authorizing an
increase in the number of shares available under the plan.
The following table shows the number of shares of Common Stock underlying
the 200,000 future options that the Compensation Committee and Board has
committed to grant over the next four years as described above.
NEW PLAN BENEFITS
1985 STOCK OPTION PLAN FOR KEY EMPLOYEES
<TABLE>
<CAPTION>
NUMBER
OF
NAME AND POSITION SHARES
----------------- -------
<S> <C>
Leonard J. Bruce, Chairman of the Board................................ 0
James W. Thompson, President and Chief Executive Officer............... 100,000
Robin R. Hutton, Executive Vice President, Sales....................... 0
David G. Key, Vice President and General Manager, Encon Safety Products
Company............................................................... 20,000
Leighton J. Stephenson, Vice President, Secretary and Treasurer........ 10,000
David H. Dewey, Vice President......................................... 10,000
Executive Group........................................................ 140,000
Non-Executive Director Group........................................... 0
Non-Executive Officer Employee Group................................... 60,000
</TABLE>
Pursuant to the Option Plan, which is administered by the Compensation
Committee, the Committee may grant key employees, including employees who are
directors, nontransferable options to purchase Common Stock at exercise prices
at least equal to the market price of Common Stock on the grant date. The
market price of Common Stock at September 10, 1998 was $18.75. No member of
the Compensation Committee is eligible to receive options as long as he serves
on the Committee. Options become exercisable and, subject to certain
limitations set forth in the Option Plan, expire, at such time as the
Committee specified. Options are intended to be "non-qualified;" as such,
optionees should not realize income upon grant, and should realize ordinary
income upon exercise in an amount equal to the difference between the exercise
price and the market price of the underlying shares on such date. The
Company's deduction for federal income tax purposes will occur in the year of
exercise and will generally correspond to the amount realized by the optionee
upon exercise.
The Board believes that it is necessary to increase the number of shares of
Common Stock available under the Option Plan by 400,000 shares, a number it
believes will be sufficient to make currently anticipated grants over the next
four years and still have shares available for future grants to new or
existing key employees. Accordingly, the Board has approved the proposed
amendment to the Option Plan, subject to approval by a majority of shares
represented at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ADOPTION OF THE AMENDMENT
TO THE OPTION PLAN.
10
<PAGE>
PROPOSAL NO. 3--SELECTION OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP were independent auditors of the Company for the year
ended May 31, 1998. The Board of Directors has appointed KPMG Peat Marwick as
auditors of the Company for the year ending May 31, 1999. A representative of
KPMG Peat Marwick will be present at the annual meeting to make a statement if
he desires and to respond to appropriate questions.
Management recommends that the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for the fiscal year ending May 31, 1999,
be ratified by the shareholders. Unless otherwise indicated, all properly
executed proxies received by the Company will be voted for such ratification
at the annual 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.
OTHER MATTERS
As of this date, management is not aware that any other matters are to be
presented for action at the annual 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 annual meeting.
PROPOSALS BY SHAREHOLDERS
Shareholders desiring to present proposals at the 1999 annual meeting of
shareholders, and to have such proposals included in the Company's proxy
statement, must submit their proposals to the Company at its principal
executive officers so as to be received no later than May 10, 1999.
By order of the Board of Directors,
Leighton J. Stephenson
Secretary
September 10, 1998
Houston, Texas
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.
11
<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 13, 1998
The undersigned hereby appoints Leonard J. Bruce, James W. Thompson and
Leighton J. Stephenson, or any 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
13, 1998 in the Board Room on the Mezzanine level of Texas Commerce Bank, 707
Travis, Houston, Texas at 10:00 A.M., Houston time, and at any adjournment
thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREON. IF Please mark
NO CONTRARY SPECIFICATION IS MADE, IT WILL BE VOTED "FOR" EACH OF THE PROPOSALS your votes as [X]
SET FORTH. indicated in
this example
1. Election of Directors Nominees: LEONARD J. BRUCE, ROBERT W. BRUCE 2. To consider and act upon a proposal to
FOR all nominees WITHHOLD JOHN T. MYSER, JAMES W. THOMPSON, DARVIN M. approve an amendment to the 1985 Stock
listed to the right AUTHORITY WINICK AND KIRBY ATTWELL. Option Plan for Key Employees to
(except as marked to vote for all increase the number of shares available
to the contrary). nominees listed INSTRUCTION: To withhold authority to vote for for issuance thereunder by 400,000.
to the right any one or more individual nominee, write such FOR AGAINST ABSTAIN
[_] [_] nominee's name on the line provided below. [_] [_] [_]
----------------------------------------------
3. Ratification and approval of the appointment of 4. In their discretion, upon such other matters as may come before the
KPMG Peat Marwick LLP as independent auditors meeting or any adjournment thereof. All as described in the Notice
for the fiscal year ending May 31, 1999. of Annual Meeting of Shareholders and Proxy Statement, receipt of
FOR AGAINST ABSTAIN 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:___________________________________, 1998
_______________________________________________
_______________________________________________
Signature(s) of Shareholder(s)
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY.
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</TABLE>
