<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended August 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from ______to______
________________________________
Commission File Number 0-10796
________________________________
VALLEN CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1366847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13333 Northwest Freeway
Houston, Texas 77040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-8700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, exclusive of treasury shares, at October 9, 1998:
7,191,805 shares of Common Stock, $.50 Par Value
Page 1 of 10
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
AUGUST 31,
ASSETS 1998 MAY 31,
Current assets: (Unaudited) 1998
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 1,318 $ 1,041
Investment securities, at cost which approximates market 3,000 3,000
Accounts receivable, net 46,435 48,382
Notes receivable, affiliate 650 -
Inventories 40,185 42,340
Prepaid expenses and other current assets 4,386 4,211
-------- --------
Total current assets 95,974 98,974
-------- --------
Property, plant and equipment, at cost 38,228 37,825
Less accumulated depreciation and amortization 24,692 24,175
-------- --------
Net property, plant and equipment 13,536 13,650
Notes receivable, non-current, affiliate 557 557
Investment in foreign affiliates, net 14,078 13,138
Intangibles, net of accumulated amortization 6,772 6,919
Other 3,677 3,331
-------- --------
$134,594 $136,569
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 778 $ 898
Accounts payable 9,595 14,316
Accrued liabilities 5,761 5,178
Income taxes payable 797 789
-------- --------
Total current liabilities 16,931 21,181
-------- --------
Long-term debt, excluding current maturities 14,157 12,733
Deferred income taxes 979 973
Minority interest (179) (133)
Other non-current liabilities 773 945
Shareholders' equity:
Preferred stock $1.00 par value; 1,000,000 shares
authorized and unissued
Common stock $.50 par value; 20,000,000 shares
authorized; 9,758,075 and 7,208,805 shares issued and
outstanding at August 31, 1998, respectively, and
9,758,075 and 7,249,658 issued and outstanding at
May 31, 1998, respectively 4,879 4,879
Additional paid-in capital 6,621 6,544
Translation adjustment (759) (776)
Retained earnings 95,897 94,014
-------- --------
106,638 104,661
Less cost of common shares held in treasury (2,549,270 and
2,508,417 shares at August 31, 1998 and
May 31, 1998, respectively) 4,705 3,791
-------- --------
Total shareholders' equity 101,933 100,870
-------- --------
$134,594 $136,569
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
AUGUST 31,
--------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $72,936 $64,278
Cost of sales 55,133 48,503
------- -------
Gross profit 17,803 15,775
Selling, general and administrative expenses 16,150 13,785
------- -------
Operating income 1,653 1,990
Earnings from foreign affiliates, net 940 659
Interest and dividend income 73 70
Interest expense (195) (174)
Other income (expense), net 42 67
------- -------
Earnings before income taxes 2,513 2,612
Income taxes 630 793
------- -------
Net earnings $ 1,883 $ 1,819
======= =======
Net earnings per common share - basic $ 0.26 $ 0.25
======= =======
Net earnings per common share - diluted $ 0.26 $ 0.25
======= =======
Weighted average number of common shares outstanding - basic 7,225 7,279
Weighted average number of common shares outstanding - diluted 7,325 7,363
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three months ended August 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,883 $ 1,819
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Gain) loss on disposition of property,
plant and equipment 17 (22)
Depreciation and amortization 784 805
Change in deferred income taxes 7 (26)
Undistributed earnings from foreign affiliates, net (940) (659)
Undistributed loss from U.S. affiliate, net 65 56
Undistributed earnings from U.S. partnership, net (162) (201)
Change in minority interest of majority-owned
foreign affiliate (46) -
Decrease in trading securities - 400
(Increase) decrease in accounts receivable, net 1,947 114
(Increase) decrease in inventory 2,155 (3,909)
(Increase) in notes receivable, current (650) (500)
(Increase) decrease in prepaid expenses
and other current assets (175) 190
(Increase) in other assets (209) (4)
Increase (decrease) in accounts payable
and other current liabilities (4,302) 2,646
------- -------
Net cash provided by operating activities 374 709
INVESTING ACTIVITIES:
Proceeds from disposition of assets 17 -
Net additions to property, plant and equipment (598) (1,498)
Investments in affiliates - (14)
------- -------
Cash used in investing activities (581) (1,512)
FINANCING ACTIVITIES:
Additions to long-term debt 1,500 -
Reduction of long-term debt (196) (70)
Treasury stock purchases (925) -
Stock transactions 88 72
------- -------
Net cash provided by financing activities 467 2
------- -------
Net (decrease) increase in cash and cash equivalents 260 (801)
Effect of exchange rate on cash and cash equivalents 17 -
Cash and cash equivalents at beginning of period 1,041 801
------- -------
Cash and cash equivalents at end of period $ 1,318 $ -
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments $ 203 $ 172
Income tax payments 626 $ 546
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Thousands of Dollars)
Note 1: Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods and are of
a normal and recurring nature. The results of operations for the three months
ended August 31, 1998 are not necessarily indicative of the results that will be
realized for the fiscal year ending May 31, 1999. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in Vallen Corporation's ("Vallen" or the "Company") Annual
Report on Form 10-K for the fiscal year ended May 31, 1998.
The accounting policies followed by the Company in preparing interim
consolidated condensed financial statements are similar to those described in
the "Notes to Consolidated Financial Statements" in the Company's Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, for the fiscal year ended May 31, 1998. For interim reporting purposes,
provisions for income taxes are recorded on the basis of the estimated annual
effective tax rate. Certain prior year amounts have been reclassified to
conform with current year presentation.
Investments in the common stock of foreign affiliated companies are accounted
for by the equity method. The excess cost of the stock of these affiliates over
the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
Net earnings per share were computed per the requirements of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 requires a dual presentation of basic and diluted earnings per share
("EPS"). Basic EPS was computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. Diluted EPS was
calculated by dividing net earnings by the combination of weighted average
number of shares outstanding and the impact of dilutive potential common shares
outstanding during the period. The net earnings for both basic and diluted EPS
were $1,883 and $1,819 for the three month periods ended August 31, 1998 and
1997, respectively. The weighted average shares outstanding for the periods
ended August 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Basic 7,225,000 7,279,000
Incremental shares from exercise of
outstanding stock options 100,000 84,000
--------- ---------
Diluted 7,325,000 7,363,000
========= =========
Page 5 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Thousands of Dollars)
Note 2: Inventory costs are summarized as follows:
August 31, 1998 May 31, 1998
--------------- -------------
Raw Materials $ 1,908 $ 1,897
Work-in-process 753 746
Finished goods 37,524 39,697
------- -------
Total inventories $40,185 $42,340
======= =======
Note 3: Long-term Debt
On July 17, 1998, the Company's $12 million working capital credit facility was
increased to $13.5 million. At August 31, 1998, the Company had drawn $11.3
million under the facility which was classified as long-term debt as the
facility does not require repayment to begin until October 1999. Of the $11.3
million borrowed, $9.8 million bore interest at 6.4375% and $1.5 million was
borrowed at the current prime rate of 8.5%. Subsequent to August 31, 1998, the
$1.5 million prime rate borrowing was repaid.
Page 6 of 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FIRST QUARTER ENDED AUGUST 31, 1998 COMPARED TO
FIRST QUARTER ENDED AUGUST 31, 1997
(THOUSANDS OF DOLLARS)
__________________________________________
RESULTS OF OPERATIONS
Net sales increased 13.5% to $72,936 and gross profit increased by 12.9% to
$17,803. Gross profit margins for the distribution business increased 11.2%
over last year with help from its service based business including training,
fire services and technical support. Gross profit margins increased 24.9% in
the manufacturing segment when compared to the same period last year as a result
of a continuation of improved sales, that began in the second half of fiscal
year 1998, primarily in the eye protection product groups.
Selling, general and administrative expenses increased 17.2%, primarily due to
increased branch location occupancy costs, increased costs of leasing vehicles
and warehouse equipment and the operation of distribution locations acquired or
opened in the past twelve months. Earnings from foreign affiliates of $940 for
the quarter ending August 31, 1998, increased 42.6% over the previous year's
quarter primarily due to increased earnings reported by the Company's 50% owned
affiliate in Mexico. Interest expense was slightly higher in the first quarter
of fiscal 1999 compared to the prior year as a result of higher average borrowed
balances offset by lower interest rates. Other income decreased primarily due
to equity earnings from non-consolidated affiliates of $97 for the quarter
ending August 31, 1998 compared to $145 in the prior year quarter.
Net earnings increased 3.5% in the quarter ended August 31, 1998 to $1,883 ($.26
per common share), compared to $1,819 ($.25 per common share) in the previous
year's first quarter, due primarily to increased sales and earnings recognized
from the manufacturing segment and equity earnings from the foreign affiliates.
FINANCIAL CONDITION
Cash flows provided by operations for the quarter ended August 31, 1998 totaled
$374 compared to $709 in the comparable period of the prior year. The reduction
in the current quarter compared to the previous year's quarter is primarily
related to increases in other assets and prepaid expenses.
The Company's financial position in the first quarter of 1999 remains strong
with working capital of $79,043 and a current ratio of 5.7 to 1 compared to
working capital of $77,793 and a current ratio of 4.7 to 1 at May 31, 1998. As
discussed in Note 3 to the financial statements, the Company's credit facility
with a major commercial bank was increased from $12 million to $13.5 million.
Management believes the Company's liquidity, working capital and borrowing
capacity are sufficient to meet capital expenditure and working capital needs in
the future.
Page 7 of 10
<PAGE>
The Company has conducted a comprehensive review of its internal computer
systems and applications to identify those that might be affected by the year
2000 issue and has developed an implementation plan to resolve the year 2000
issue. The Company is in the process of correcting or replacing those systems
and applications which are not currently year 2000 compliant. The Company
believes it will be able to modify or replace its affected systems and
applications in time to avoid any material detrimental impact on its operations.
The Company will incur internal staff costs as well as consulting and other
expenses related to infrastructure and facilities enhancements necessary to
prepare its systems and applications for the year 2000 issue. The preliminary
expense estimate for year 2000 corrective and replacement activities ranges from
$200,000-$500,000, a portion of which would have been incurred as part of normal
system and application upgrades.
It is anticipated that all year 2000 compliance efforts will be complete by
mid-fiscal year 1999, including testing. However, if such modifications and
conversions are not completed in a timely manner, the year 2000 issue may have a
material impact on the operations of the Company. The Company is also working
to ensure that products purchased by Vallen, as well as services utilized by
Vallen, will be year 2000 compliant. However, no assurance can be given that
such compliance will happen.
The information discussed herein includes "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933 as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (The "Exchange Act"). All statements other than statements of
historical facts included herein regarding planned capital expenditures, the
Company's financial position, business strategy and other plans and objectives
for future operations, are forward looking statements. Although the Company
believes that such forward looking statements reasonably reflect expected
outcomes, certain risks and assumptions are involved, and there is no conclusive
evidence that such expectations will ultimately prove correct. Factors which
may come into play which could cause actual results to vary from anticipated
results include acquisition programs involved in expansion strategies, market
competition affecting operating margins, the Company's ability to compete
successfully with other competitors for the same markets (some of whom may be
larger and have greater resources than the Company), ability to obtain products
needed to remain competitive over long periods of time, ability to continue to
produce technically competitive products in its manufacturing segment, possible
exchange rate fluctuations related to affiliates in other countries, and changes
in regulatory requirements in its geographic markets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Page 8 of 10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities and use of proceeds - None
Item 3. Defaults upon senior securities - None
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other information - None
Item 6. (a) Exhibits:
3i. Restated Articles of Incorporation as amended.
Incorporated by reference is Exhibit 3a to the
Company's Form 10-K, as filed with the Securities and
Exchange Commission on August 17, 1990.
3ii. Bylaws of the Company, as amended, through June 23,
1994. Incorporated by reference is Exhibit 3ii to the
Company's Form 10-Q, as filed with the Securities and
Exchange Commission on January 16, 1996.
10-1 First Amendment to Employment Agreement between the
Company and James W. Thompson effective as of September
10, 1998.
10-2 Restricted Stock Grant Agreement between the Company
and James W. Thompson effective as of September 10,
1998.
27 - Financial Data Schedule, attached hereto.
(b) Reports on Form 8-K:
None
Page 9 of 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALLEN CORPORATION
-------------------------------
Registrant
October 9, 1998 /s/ James W. Thompson
- ----------------------- -------------------------------
Date James W. Thompson
President
October 9, 1998 /s/ Leighton J. Stephenson
- ----------------------- -------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 10 of 10
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment ("Amendment") to the Agreement ("Employment
Agreement"), effective as of June 6, 1994, between Vallen Corporation, a Texas
corporation ("Company"), and James W. Thompson ("Employee") is entered into
effective as of ___________, 1998. In consideration of their mutual agreements,
the Company and Employee agree as follows:
1. Amendment to Base Salary. Section 3(a) of the Employment Agreement is
hereby amended to change the base salary of $190,000 to "$250,000" and the
commencement date of June 6, 1994 to "June 1, 1998."
2. Amendment to Vesting of Options. Section 3(c)(iv) of the Employment
Agreement is hereby amended to insert at the end of such subsection the
following: "or (C) the date of termination of this Agreement by the Company
without "Cause" (as hereinafter defined) or by Employee for "Good Reason" (as
hereinafter defined).
3. Amendment to Severance Provisions. Section 5 of the Employment
Agreement is hereby amended to delete the word "or" immediately prior to clause
(e) of the first sentence thereof and to insert at the end of the first sentence
the following: "or (f) in the event the Employee elects to terminate his
employment with the Company with "Good Reason," as defined below." Section 5 of
the Employment Agreement is hereby further amended to delete the third and
fourth sentences in their entirety and to replace them with the following:
"If the Employee's employment with the Company is terminated by the Board
of Directors of the Company without Cause, as contemplated by clause (e) of
this Section 5, or by Employee for "Good Reason" (as defined hereinafter),
and not in connection with a Change in Control Termination, the Company (i)
will pay to the Employee (or his estate, heirs or personal representative)
$250,000 (or an amount equal to the Employee's annual base salary in effect
at the date of such termination) and (ii) all stock options granted under
Section 3(c) shall immediately vest and become exercisable. If the
Employee's employment with the Company is terminated as a result of a
Change in Control Termination pursuant to clauses (d) or (e) above, the
Company will pay to the Employee (or his estate, heirs or personal
representative) $500,000 (or an amount equal to the Employee's annual base
salary in effect at the date of such termination). Upon a Change in
Control (whether or not followed by a Change in Control Termination), all
stock options granted under Section 3(c) shall immediately vest and become
exercisable."
Section 5 of the Employment Agreement is hereby further amended to insert at the
end of such section the following:
"Termination by the Employee for "Good Reason" shall mean if the Employee
at any time within 6 months following the date of the 1999 annual meeting
of stockholders of the Company gives notice of such termination in writing
to the Committee and agrees to continue to perform his duties under this
Agreement and assist the Board in searching for and transitioning to a new
chief executive officer for a maximum period of six months
<PAGE>
following the date of such notice (with the end of such transition period
to be at the sole discretion of the Committee upon 30 days advance notice
to Employee), with the effective date of the termination being the last
date of such transition period."
4. Amendment to "Cause". The first sentence of the second paragraph of
Section 5 of the Employment Agreement is hereby amended to insert in clause (i)
the word "willful" immediately before the word "act" and to insert at the end of
such sentence the following phrase: "; provided, however, that Employee shall
have 30 days after written notice from the Committee to correct, if possible,
the conduct identified by the Committee as covered by clauses (i), (iii) or
(iv)."
5. Effect. This Amendment is effective only for the specific purposes set
forth herein, and except as modified by this Amendment, the Employment Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first written above.
VALLEN CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
EMPLOYEE:
----------------------------------
James W. Thompson
2
<PAGE>
EXHIBIT 10.2
VALLEN CORPORATION
RESTRICTED STOCK GRANT AGREEMENT
1. GRANT OF RESTRICTED SHARES. Vallen Corporation, a Texas corporation
(the "Company"), hereby grants to James W. Thompson (the "Grantee") all rights,
title and interest in the record and beneficial ownership of 20,000 shares (the
"Restricted Shares") of the Company's Common Stock, $0.50 par value per share,
subject to the conditions described in Paragraphs 3 and 4 as well as the other
provisions of this grant of Restricted Stock (the "Restricted Stock Grant"). By
acceptance of the Restricted Stock Grant, Grantee agrees to be bound by all of
the terms, provisions, conditions and limitations of this Restricted Stock
Grant. All references to the "Committee" shall mean the Company's Compensation
Committee of the Board of Directors.
2. CUSTODY OF RESTRICTED SHARES. Upon satisfaction of the vesting
conditions set forth in Paragraph 4, the Company shall issue and deliver to the
Grantee a certificate or certificates for such number of Restricted Shares as
are required to be issued and delivered pursuant to this Restricted Stock Grant.
Prior to the satisfaction of such vesting conditions or the occurrence of such
events, the Restricted Shares are not transferable and shall be held in trust or
in escrow pursuant to an agreement satisfactory to the Committee until such time
as the restrictions on their transfer have expired. No right or benefit
hereunder shall in any manner be liable for or subject to any debts, contracts,
liabilities, or torts of Grantee.
3. RISK OF FORFEITURE AND TERMINATION. Should Grantee's employment
agreement with the Company (as amended, "Employment Agreement") terminate or
should a "Change in Control" as defined in the Employment Agreement occur prior
to any of the vesting events set forth in Paragraph 4, Grantee shall forfeit the
right to receive the Restricted Shares and this Restricted Stock Grant shall
terminate.
4. VESTING UPON TERMINATION OF EMPLOYMENT. Grantee shall acquire a vested
interest in the Restricted Shares only upon the effectiveness of the first to
occur of the following:
(i) termination of Grantee's employment with the Company without
"Cause" pursuant to clause (e) of Section 5 of the Employment
Agreement;
(ii) termination of Grantee's employment with the Company by Grantee
for "Good Reason" pursuant to clause (f) of Section 5 of the
Employment Agreement; or
(iii) June 1, 2003.
5. OWNERSHIP RIGHTS. Grantee shall have no rights as a stockholder with
respect to Restricted Shares subject to this Restricted Stock Grant until
Grantee becomes the holder of record of such shares following the issuance of a
stock certificate for Common Stock that is free of restrictions hereunder.
Without limiting the foregoing, Grantee shall have no right to transfer any
Restricted Shares or receive any dividends (other than as provided in Paragraph
7) payable to stockholders of record prior to the date that the Grantee so
becomes a stockholder of record.
<PAGE>
6. REORGANIZATION OF THE COMPANY AND SUBSIDIARIES. The existence of the
Restricted Stock Grant shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Restricted Shares or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
7. RECAPITALIZATION EVENTS. In the event of stock dividends, spin-offs of
assets or other extraordinary dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, reorganizations, liquidations,
issuances of rights or warrants and similar transactions or events involving the
Company ("Recapitalization Events"), then for all purposes referenced herein to
Common Stock or to Restricted Shares shall mean and include all securities or
other property (other than cash) that holders of Common Stock of the Company are
entitled to receive in respect of Common Stock by reason of each successive
Recapitalization Event, which securities or other property (other than cash)
shall be treated in the same manner and shall be subject to the same
restrictions as the underlying Restricted Shares.
8. NO SALE OR TRANSFER. If Grantee acquires a vested interest in the
Restricted Shares pursuant to clause (ii) of Section 4, the for a period of two
years following the date that certificates for Restricted Shares are issued and
delivered, such Restricted Shares may not be sold, assigned, transferred,
exchanged, pledged or otherwise encumbered.
9. CERTAIN RESTRICTIONS. By accepting the Restricted Stock Grant, Grantee
agrees that the Restricted Shares will be subject to Section 8 and that Grantee
will acquire the Restricted Shares for Grantee's own account and without a view
to resale or distribution in violation of the Act or any other securities law,
and upon any such acquisition Grantee will enter into such written
representations, warranties and agreements as the Company may reasonably request
in order to comply with the Act or any other securities law or with this
document. Each certificate representing Restricted Shares shall bear a legend
in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER CONTAINED IN A RESTRICTED STOCK AGREEMENT
BETWEEN VALLEN CORPORATION (THE "COMPANY") AND JAMES W. THOMPSON DATED
________________, 1998, A COPY OF WHICH IS ON FILE AT THE PRINCIPLE
OFFICES OF THE COMPANY.
10. AMENDMENT AND TERMINATION. No amendment or termination of the
Restricted Stock Grant shall be made by the Board or the Committee at any time
without the written consent of Grantee.
11. NO GUARANTEE OF EMPLOYMENT. The Restricted Stock Grant shall not
confer upon Grantee any right with respect to continuance of employment or other
service with the Company or any subsidiary, nor shall it interfere in any way
with any right the Company or any
2
<PAGE>
subsidiary would otherwise have to terminate such Grantee's employment or other
service at any time.
12. WITHHOLDING OF TAXES. If required by tax withholding obligations
of any law or regulation, the Company shall have the right to (i) make
deductions from the number of Restricted Shares otherwise deliverable upon
satisfaction of the conditions precedent under the Restricted Stock Grant (and
other amounts payable under the Restricted Stock Grant) in an amount sufficient
to satisfy withholding of any federal, state or local taxes required bylaw, or
(ii) take such other action as may be necessary or appropriate to satisfy any
such tax withholding obligations.
13. NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company nor any
Subsidiary nor the Committee makes any commitment or guarantee that any federal
or state tax treatment will apply or be available to any person eligible for
benefits under the Restricted Stock Grant.
14. SEVERABILITY. In the event that any provision of the Restricted
Stock Grant 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 Restricted Stock Grant and the Restricted Stock Grant shall be
construed and enforced as if the illegal, invalid, or unenforceable provision
had never been included herein.
15. GOVERNING LAW. The Restricted Stock Grant 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.
Effective as of the ____ day of _________________, 1998.
THE "COMPANY"
VALLEN CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
"GRANTEE"
By:
-----------------------------------
James W. Thompson
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,318
<SECURITIES> 3,000
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0
0
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</TABLE>
